CONVERTIBLE PROMISSORY NOTE

$400,000

 

FOR VALUE RECEIVED, XsunX, Inc., a Colorado corporation, (the “Borrower”) with
approximately 591,400,069 shares of common stock issued and outstanding,
promises to pay to _____________________, a Nevada limited liability company, or
its assignees (the “Lender”) the Principal Sum along with the Interest and any
other fees according to the terms herein (this “Note”). This Note shall become
effective on November 20, 2014 (the “Effective Date”).  

 

The Principal Sum is Four Hundred Thousand Dollars ($400,000) plus accrued and
unpaid interest. The Consideration is Four Hundred Thousand Dollars ($400,000)
payable by wire. The Lender shall pay Fifty Thousand Dollars ($50,000) of the
Consideration upon execution of this Note (the “Initial Consideration”). The
Lender may pay additional Consideration to the Borrower in such amounts as the
Lender may choose in its sole discretion (the “Additional Consideration”). The
Principal Sum due to the Lender, and as referenced hereinafter, shall be the
Initial Consideration plus any Additional Consideration actually paid by the
Lender such that the Borrower is only required to repay the amount funded and
the Borrower is not required to repay any unfunded portion of this Note, nor
shall any interest or other rights or remedies granted herein extend to any
unfunded portion of this Note.  

 

1.

Maturity Date. The Maturity Date is eighteen (18) months from the Effective Date
of each payment of Consideration (the “Maturity Date”) and is the date upon
which the Principal Sum of this Note and unpaid interest and fees (the “Note
Amount”) shall be due and payable.

 

2.

Interest. This Note shall bear interest at the rate of Ten Percent (10%) per
year.

 

3.

Conversion. The Lender has the right, at any time after the Effective Date, at
its election, to convert all or part of the Note Amount into shares of fully
paid and non-assessable shares of common stock of the Borrower (the “Common
Stock”). The conversion price (the “Conversion Price”) shall be the lesser of
(a) $0.0125 per share of Common Stock or (b) Fifty Percent (50%) of the lowest
trade price of Common Stock recorded on any trade day after the Effective Date,
or (c) the lowest effective price per share granted to any person or entity
after the Effective Date to acquire Common Stock, with the exception of the
price per share offered to officers and directors of the Borrower, or adjust,
whether by operation of purchase price adjustment, settlement agreements,
exchange agreements, reset provision, floating conversion or otherwise, any
outstanding warrant, option or other right to acquire Common Stock or
outstanding Common Stock equivalents (the “Conversion Price”). The conversion
formula shall be as follows: Number of shares receivable upon conversion equals
the dollar conversion amount divided by the Conversion Price. A conversion
notice (the “Conversion Notice”) may be delivered to Borrower by method of
Lender’s choice (including but not limited to email, facsimile, mail, overnight
courier, or personal delivery), and all conversions shall be cashless and not
require further payment from the Lender. If no objection is delivered from the

 

 

Borrower to the Lender, with respect to any variable or calculation reflected in
the Conversion Notice within 24 hours of delivery of the Conversion Notice, the
Borrower shall have been thereafter deemed to have irrevocably confirmed and
irrevocably ratified such notice of conversion and waived any objection thereto.
The Borrower shall deliver the shares of Common Stock from any conversion to the
Lender (in any name directed by the Lender) within three (3) business days of
Conversion Notice delivery. The Borrower represents that it is participating in
the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”)
program, and upon request of the Lender and provided that the shares to be
issued are eligible for transfer under Rule 144 of the Securities Act of 1933,
as amended (the “Securities Act”), or are effectively registered under the
Securities Act, the Borrower shall cause its transfer agent to electronically
issue the Common Stock issuable upon conversion to the Lender through the DTC
Direct Registration System (“DRS”). The Conversion Price shall be subject to
equitable adjustments for stock splits, stock dividends or rights offerings by
the Borrower relating to the Borrower’s securities or the securities of any
subsidiary of the Borrower, combinations, recapitalization, reclassifications,
extraordinary distributions and similar events.

 

4.

Conversion Delays. If Borrower fails to deliver shares in accordance with the
timeframe stated in Section 3, the Lender, at any time prior to selling all of
those shares, may rescind any portion, in whole or in part, of that particular
conversion attributable to the unsold shares and have the rescinded conversion
amount returned to the Principal Sum with the rescinded conversion shares
returned to the Borrower (under the Lender’s and the Borrower’s expectations
that any returned conversion amounts shall tack back to the original date of
this Note). In addition, for each conversion, in the event that shares are not
delivered by the fourth business day (inclusive of the day of conversion), a
penalty of $1,500 per day shall be assessed for each day after the third
business day (inclusive of the day of the conversion) until share delivery is
made; and such penalty shall be added to the Principal Sum of this Note (under
the Lender’s and the Borrower’s expectations that any penalty amounts shall tack
back to the original date of this Note consistent with applicable securities
laws).  

 

5.

Limitation of Conversions. In no event shall the Lender be entitled to convert
any portion of this Note in excess of that portion of this Note upon conversion
of which the sum of (1) the number of shares of Common Stock beneficially owned
by the Lender and its affiliates (other than shares of Common Stock which may be
deemed beneficially owned through the ownership of the unconverted portion of
this Note or the unexercised or unconverted portion of any other security of the
Borrower subject to a limitation on conversion or exercise analogous to the
limitations contained herein) and (2) the number of shares of Common Stock
issuable upon the conversion of the portion of this Note with respect to which
the determination of this proviso is being made, would result in beneficial
ownership by the Lender and its affiliates of more than 4.99% of the outstanding
shares of Common Stock. For purposes of the proviso of the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934,

 

 

as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as
otherwise provided in clause (1) of such proviso, provided, further, however,
that the limitations on conversion may be waived by the Lender upon, at the
election of the Lender, not less than 61 days prior notice to the Borrower, and
the provisions of the conversion limitation shall continue to apply until such
61st day (or such later date, as determined by the Lender, as may be specified
in such notice of waiver).

 

6.

Payment. The Borrower may not prepay this Note prior to the Maturity Date.
Within six (6) days prior to the Maturity Date, Borrower shall provide Lender
with a written notice to pay the Note Amount on the Maturity Date.  Within three
(3) days of receiving written notice, the Lender shall elect to either (a)
accept payment of the Note Amount or (b) convert any part of the Note Amount
into shares of Common Stock. If the Lender elects to convert part of the Note
Amount into shares of Common Stock, then the Borrower shall pay the remaining
balance of the Note Amount by the Maturity Date.

 

7.

Piggyback Registration Rights. The Borrower shall include on the next
registration statement the Borrower files with the SEC (or on the subsequent
registration statement if such registration statement is withdrawn) all shares
of Common Stock issuable upon conversion of this Note unless such shares of
Common Stock are eligible for resale under Rule 144, excluding S-8 registration
statements for employee stock grant and option plans. Failure to do so shall
result in liquidated damages of Twenty Five Percent (25%) of the outstanding
principal balance of this Note being immediately due and payable to the Lender
at its election in the form of cash payment or addition to the balance of this
Note.  

 

8.

Lender’s Representations. The Lender hereby represents and warrants to the
Borrower that (i) it is an “accredited investor” as such term is defined in Rule
501(a) of Regulation D promulgated under the Securities Act, (ii) it understands
that this Note and the shares of Common Stock underlying this Note
(collectively, the “Securities”) have not been registered under the Securities
Act by reason of a claimed exemption under the provisions of the Securities Act
that depends, in part, upon the Lender’s investment intention; in this
connection, the Lender hereby represents that it is purchasing the Securities
for the Lender’s own account for investment and not with a view toward the
distribution to others; provided, that Lender may syndicate participations in
the Securities among a limited number of participants who all meet the
suitability standards of an “accredited investor” as defined in Rule 501(a) of
Regulation D of the Securities Act and will share among themselves and the
Lender an economic interest in the Securities on a pari passu, pass through
basis with investment intent, such that the availability of the private
placement exemption for the issuance of the Note under Rule 506 of Regulation D
of the Securities Act is preserved, (iii) the Lender, if an entity, further
represents that it was not formed for the purpose of purchasing the Securities,
(iv) the Lender acknowledges that the issuance of this Note has not been
reviewed by the United States Securities and Exchange Commission (the “SEC”) nor
any state regulatory authority since the issuance of this Note is intended to be
exempt from the registration requirements of

 

 

Section 4(2) of the Securities Act and Rule 506 of Regulation D, and (v) the
Lender acknowledges receipt and careful review of this Note, the Borrower’s
filings with the SEC (including without limitation, any risk factors included in
the Borrower’s most recent Annual Report on Form 10-K), and any documents which
may have been made available upon request as reflected therein, and hereby
represents that it has been furnished by the Borrower with all information
regarding the Borrower, the terms and conditions of the purchase and any
additional information that the Lender has requested or desired to know, and has
been afforded the opportunity to ask questions of and receive answers from duly
authorized officers or other representatives of the Borrower concerning the
Borrower and the terms and conditions of the purchase.

 

9.

Borrower’s Representations.  The Borrower is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization with
full power and authority to own, lease, license and use its properties and
assets and to carry out the business in which it proposes to engage.  The
Borrower has the requisite corporate power and authority to execute, deliver and
perform its obligations under this Note and to issue and sell this Note. All
necessary proceedings of the Borrower have been duly taken to authorize the
execution, delivery, and performance of this Note. When this Note is executed
and delivered by the Borrower, it will constitute the legal, valid and binding
obligation of the Borrower enforceable against the Borrower in accordance with
their terms, except as such enforceability may be limited by general principles
of equity or to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.

 

10.

Default. The following are events of default under this Note: (i) the Borrower
shall fail to pay any principal under this Note when due and payable (or payable
by conversion) thereunder; or (ii) the Borrower shall fail to pay any interest
or any other amount under this Note when due and payable (or payable by
conversion) thereunder; or (iii) a receiver, trustee or other similar official
shall be appointed over the Borrower or a material part of its assets and such
appointment shall remain uncontested for twenty (20) days or shall not be
dismissed or discharged within sixty (60) days; or (iv) the Borrower shall
become insolvent or generally fails to pay, or admits in writing its inability
to pay, its debts as they become due, subject to applicable grace periods, if
any; or (v) the Borrower shall make a general assignment for the benefit of
creditors; or (vi) the Borrower shall file a petition for relief under any
bankruptcy, insolvency or similar law (domestic or foreign); or (vii) an
involuntary proceeding shall be commenced or filed against the Borrower; or
(viii) the Borrower shall lose its status as “DTC Eligible” or the Borrower’s
shareholders shall lose the ability to deposit (either electronically or by
physical certificates, or otherwise) shares into the DTC System; or (ix) the
Borrower shall become delinquent in its filing requirements as a fully-reporting
issuer registered with the SEC; or (x) the Borrower shall commit a material
breach of any of its covenants, representations or warranties in this Note.

 

 

 

 

11.

Remedies. In the event of any default, the Note Amount shall become immediately
due and payable at the Mandatory Default Amount. The Mandatory Default Amount
shall be 110% of the Note Amount. Commencing five (5) days after the occurrence
of any event of default that results in the eventual acceleration of this Note,
the interest rate on the Mandatory Default Amount shall accrue at a default
interest rate equal to the lesser of ten percent (10%) per annum or the maximum
rate permitted under applicable law. In connection with such acceleration
described herein, the Lender need not provide, and the Borrower hereby waives,
any presentment, demand, protest or other notice of any kind, and the Lender may
immediately and without expiration of any grace period enforce any and all of
its rights and remedies hereunder and all other remedies available to it under
applicable law. While the Mandatory Default Amount is outstanding and default
interest is accruing, the Lender shall have all rights as a holder of this Note
until such time as the Lender receives full payment pursuant to this paragraph,
or has converted all the remaining Mandatory Default Amount and any other
outstanding fees and interest into Common Stock under the terms of this Note. In
the event of any default and at the request of the Lender, the Borrower shall
file a registration statement with the SEC to register all shares of Common
Stock issuable upon conversion of this Note that are otherwise not eligible to
have their restrictive transfer legend removed under Rule 144 of the Securities
Act. Nothing herein shall limit Lender’s right to pursue any other remedies
available to it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Borrower’s
failure to timely deliver certificates representing shares of Common Stock upon
conversion of this Note as required pursuant to the terms hereof.  

 

12.

No Shorting. Lender agrees that so long as this Note from Borrower to Lender
remains outstanding, the Lender shall not enter into or effect “short sales” of
the Common Stock or hedging transaction which establishes a short position with
respect to the Common Stock of the Borrower. The Borrower acknowledges and
agrees that upon delivery of a Conversion Notice by the Lender, the Lender
immediately owns the shares of Common Stock described in the Conversion Notice
and any sale of those shares issuable under such Conversion Notice would not be
considered short sales.  

 

13.

Assignability. The Borrower may not assign this Note. This Note shall be binding
upon the Borrower and its successors and shall inure to the benefit of the
Lender and its successors and assigns and may be assigned by the Lender, in
whole or in part, to anyone of its choosing without Borrower’s approval subject
to applicable securities laws. Lender covenants not to engage in any
unregistered public distribution of the Note when making any assignments.

 

14.

Governing Law. This Note shall be governed by, and construed and enforced in
accordance with, the laws of the State of Nevada, without regard to the conflict
of laws principles thereof. Any action brought by either party against the other
concerning the transactions contemplated by this Agreement shall be brought only
in the state courts of Nevada or in the federal courts located in Clark County,
in the

 

 

State of Nevada. Both parties and the individuals signing this Agreement agree
to submit to the jurisdiction of such courts.  

 

15.

Delivery of Process by the Lender to the Borrower. In the event of any action or
proceeding by the Lender against the Borrower, and only by the Lender against
the Borrower, service of copies of summons and/or complaint and/or any other
process which may be served in any such action or proceeding may be made by the
Lender via U.S. Mail, overnight delivery service such as FedEx or UPS, email,
fax, or process server, or by mailing or otherwise delivering a copy of such
process to the Borrower at its last known attorney as set forth in its most
recent SEC filing.  

 

16.

Attorney Fees. In the event any attorney is employed by either party to this
Note with regard to any legal or equitable action, arbitration or other
proceeding brought by such party for the enforcement of this Note or because of
an alleged dispute, breach, default or misrepresentation in connection with any
of the provisions of this Note, the prevailing party in such proceeding shall be
entitled to recover from the other party reasonable attorneys' fees and other
costs and expenses incurred, including but not limited to post judgment costs,
in addition to any other relief to which the prevailing party may be entitled.

 

17.

Transfer Agent Instructions. In the event that an opinion of counsel, such as
but not limited to a Rule 144 opinion, is needed for any matter related to this
Note or the Common Stock the Lender has the right to have any such opinion
provided by its counsel. If the Lender chooses to have its counsel provide such
opinion, then the Lender shall provide the Borrower with written notice. Within
three (3) business days of receiving written notice, the Borrower shall instruct
its transfer agent to rely upon opinions from the Lender’s counsel. A penalty of
$1,500 per day shall be assessed for each day after the third business day
(inclusive of the day of request) until the reliance instruction is delivered to
the transfer agent. If the Lender requests that the Borrower’s counsel issue an
opinion, then the Borrower shall cause the issuance of the requested opinion
within three (3) business days. A penalty of $1,500 per day shall be assessed
for each day after the third business day (inclusive of the day of request)
until the requested opinion is delivered. The Lender and the Borrower agree that
all penalty amounts shall be added to the Principal Sum of this Note and shall
tack back to the Effective Date of this Note, with respect to the holding period
under Rule 144. In the event that the Borrower proposes to replace its transfer
agent, the Borrower shall provide, prior to the effective date of such
replacement, a fully executed Irrevocable Transfer Agent Reliance Letter in a
form as initially delivered pursuant to this Note. The Borrower warrants that it
will not direct its transfer agent not to transfer or delay, impair, and/or
hinder its transfer agent in transferring (or issuing)(electronically or in
certificated form) any certificate for the Securities to be issued to the Lender
and it will not fail to remove (or direct its transfer agent not to remove or
impair, delay, and/or hinder its transfer agent from removing) any restrictive
legend (or to withdraw any stop transfer instructions in respect thereof) on any
certificate for the Securities when required by this Note. The Borrower
acknowledges that a breach by it of its obligations hereunder will cause
irreparable

 

 

harm to the Lender by vitiating the intent and purpose of the transactions
contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at
law for a breach of its obligations under this Note may be inadequate and
agrees, in the event of a breach or threatened breach by the Borrower of these
provisions, that the Lender shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate transfer, without the necessity of showing economic loss and without
any bond or other security being required.

 

18.

Reservation of Shares.  At all times during which this Note is convertible, the
Borrower shall reserve from its authorized and unissued Common Stock a
sufficient number of shares, free from preemptive rights, to provide for the
issuance of Common Stock upon the full conversion of this Note.

 

19.

Disclosure of Material Non-Public Information. The Borrower agrees not to
disclose any material non-public information to the Lender at any time. If the
Borrower inadvertently discloses any material non-public information to the
Lender, then the Borrower shall promptly publicly disclose that information by
filing a Form 8-K with the SEC and by any other means necessary to make that
information known to the public.

 

20.

Public Disclosure. The Lender and the Borrower agree not to issue any public
statement with respect to the Lender’s investment or proposed investment in the
Borrower or the terms of any agreement or covenant without the other party’s
prior written consent, except such disclosures as may be required under
applicable law or under any applicable order, rule or regulation. The Borrower
agrees to reference Lender only as “an accredited investor” and attach only a
form copy this Note in any of the Borrower’s filings with the Securities and
Exchange Commission or any other public filings, except such full disclosures as
may be required under applicable law or under any applicable order, rule or
regulation.  

21.

Notices. Any notice required or permitted hereunder (including Conversion
Notices) must be in writing and either personally served, sent by facsimile or
email transmission, or sent by overnight courier. Notices shall be deemed
effectively delivered at the time of transmission if by facsimile or email, and
if by overnight courier the business day after such notice is deposited with the
courier service for delivery.  

 

IN WITNESS WHEREOF, the authorized agents of the Borrower and the Lender have
caused this Note to be duly executed as of the Effective Date.

 

XsunX, Inc.  (the “Borrower”)

 

 

 

 

 

 

By_____________________________

 

 

     Tom Djokovich

     Chief Executive Officer

 

(the “Lender”)

 

 

 

          

 

 

By _____________________________

 

 

 

     Its President