Exhibit 10.14

 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CONVERTIBLE
PROMISSORY NOTE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
(B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
(II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.

 

Original Principal Amount: $282,777.78 Issue Date: June 11, 2014 Purchase Price:
$250,000.00  

 

CONVERTIBLE PROMISSORY NOTE

FOR VALUE RECEIVED, MAX SOUND CORPORATION, a Delaware corporation (the
“Borrower”), hereby promises to pay to the order of ILIAD RESEARCH AND TRADING,
L.P., a Utah limited partnership, or registered assigns (the “Holder”), the sum
of $282,777.78 (the “Original Principal Amount”) together with any additional
charges provided for herein, on the date that is 12 months after the Issue Date
(the “Maturity Date”), and to pay interest on the Outstanding Balance (as
defined below) at the rate of four percent (4%) per annum from the date hereof
(the “Issue Date”) until the same is paid in full; provided that upon the
occurrence of an Event of Default (as defined below), interest shall thereafter
accrue on the Outstanding Balance both before and after judgment at the rate of
fourteen percent (14%) per annum (“Default Interest”). All interest calculations
hereunder shall be computed on the basis of a 360-day year comprised of twelve
(12) thirty (30) day months, shall compound daily and shall be payable in
accordance with the terms of this Note. The Borrower acknowledges that the
Original Principal Amount exceeds the purchase price of this Note and that such
excess consists of the OID (as defined in the Purchase Agreement (defined
below)) in the amount of $27,777.78, the Carried Transaction Expense Amount (as
defined in the Purchase Agreement) in the amount of $5,000.00 to cover the
Holder’s legal and other expenses incurred in the preparation of this Note, the
Purchase Agreement, the Warrant to Purchase Shares of Common Stock (the
“Warrant”), the Irrevocable Transfer Agent Instructions, and all other
certificates, documents, agreements, resolutions and instruments delivered to
any party under or in connection with this Note, as the same may be amended from
time to time (collectively, the “Transaction Documents”), which sum shall be
fully earned and charged to the Borrower upon the execution of this Note and
paid to the Holder as part of the outstanding principal balance as set forth in
this Note. This Note may not be prepaid in whole or in part except as otherwise
provided in Section 1.8. All payments due hereunder (to the extent not converted
into common stock, $0.0001 par value per share, of the Borrower (the “Common
Stock”) in accordance with the terms hereof) shall be made in lawful money of
the United States of America. All payments shall be made at such address as the
Holder shall designate from time to time by written notice made in accordance
with the provisions of this Note. Each capitalized term used herein, and not
otherwise defined, shall have the meaning ascribed thereto in that certain
Securities Purchase Agreement dated the date hereof between the Borrower and the
Holder, pursuant to which this Note was originally issued (the “Purchase
Agreement”). For purposes hereof, the term “Outstanding Balance” means the
Original Principal Amount, as reduced or increased, as the case may be, pursuant
to the terms hereof for conversion, breach hereof or otherwise, plus any accrued
but unpaid interest (including with limitation Default Interest), collection and
enforcements costs, and any other fees or charges incurred under this Note or
under the Purchase Agreement.

1

 

This Note is free from all taxes, liens, claims and encumbrances with respect to
the issue thereof and shall not be subject to preemptive rights or other similar
rights of stockholders of the Borrower and will not impose personal liability
upon the holder thereof.

The following additional terms shall apply to this Note:

1.          CONVERSION RIGHTS.

                           1.1.         Conversion Right. Subject to Section
1.7, during the period beginning on the Issue Date and ending when the
Outstanding Balance is paid or converted in full, the Holder shall, at its
option, have the right from time to time, to convert all or any part of the
Outstanding Balance of this Note into fully paid and non-assessable shares of
Common Stock, as such Common Stock exists on the Issue Date, or any shares of
capital stock or other securities of the Borrower into which such Common Stock
shall hereafter be changed or reclassified at the Conversion Price (as defined
below) determined as provided herein (a “Conversion”). The number of shares of
Common Stock to be issued upon each conversion of this Note (the “Conversion
Shares”) shall be determined by dividing the Conversion Amount (as defined
below) by the applicable Conversion Price then in effect on the date specified
in the notice of conversion, in the form attached hereto as Exhibit A (the
“Notice of Conversion”), delivered to the Borrower by the Holder in accordance
with Section 1.4(a) below; provided that the Notice of Conversion is submitted
by facsimile or e-mail (or by other means resulting in, or reasonably expected
to result in, notice) to the Borrower before 6:00 p.m., New York, New York time
on such conversion date (the “Conversion Date”). The term “Conversion Amount”
means, with respect to any conversion of this Note, the portion of the
Outstanding Balance to be converted.

                           1.2.         Conversion Price. 

                                          (a)                Calculation of
Conversion Price. The conversion price (as the same may be adjusted from time to
time pursuant to the terms hereof, the “Conversion Price”) shall mean 75% (the
“Conversion Factor”) multiplied by the Market Price (as defined herein). “Market
Price” means the average of the three (3) lowest Trading Prices (as defined
below) for the Common Stock during the ten (10) Trading Day (as defined below)
period ending on the latest complete Trading Day prior to the Conversion Date.
If an Event of Default (as defined below) other than an Event of Default
pursuant to Section 3.1(i) occurs, then the Conversion Factor will be reduced to
65%. If an Event of Default pursuant to Section 3.1(i) occurs, then the
Conversion Factor will be reduced to 50%. “Trading Price” means, for the Common
Stock as of any date, the closing bid price on the Principal Market as reported
by a reliable reporting service designated by the Holder (e.g. Bloomberg) or, if
the Principal Market is not the principal trading market for such security, the
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded or, if no closing bid
price of such security is available in any of the foregoing manners, the average
of the closing bid prices of any market makers for such security that are quoted
in “OTC Pink” by Pink OTC Markets Inc. (formerly Pink Sheets LLC), or any
successor entity or other publisher thereof. If the Trading Price cannot be
calculated for such security on such date in the manner provided above, the
Trading Price shall be the fair market value as mutually determined by the
Borrower and the Holder. “Trading Day” shall mean any day on which the Common
Stock is traded or tradable for any period on the Principal Market, or on the
principal securities exchange or other securities market on which the Common
Stock is then being traded.

 

2

 

                                          (b)               Conversion Price
During Major Announcements. Notwithstanding anything contained in Section 1.2(a)
to the contrary, in the event the Borrower (i) makes a public announcement that
it intends to consolidate or merge with any other corporation (other than a
merger in which the Borrower is the surviving or continuing corporation and its
capital stock is unchanged) or sell or transfer all or substantially all of the
assets of the Borrower or (ii) any person, group or entity (including the
Borrower) publicly announces a tender offer to purchase 50% or more of the
Borrower’s Common Stock (or any other takeover scheme) (the date of the
announcement referred to in clause (i) or (ii) is hereinafter referred to as the
“Announcement Date”), then the Conversion Price shall, effective upon the
Announcement Date and continuing through the Adjusted Conversion Price
Termination Date (as defined below), be equal to the lower of (1) the Conversion
Price which would have been applicable for a Conversion occurring on the
Announcement Date, and (2) the Conversion Price that would otherwise be in
effect. From and after the Adjusted Conversion Price Termination Date, the
Conversion Price shall be determined as set forth in this Section 1.2(b). For
purposes hereof, “Adjusted Conversion Price Termination Date” shall mean, with
respect to any proposed transaction or tender offer (or takeover scheme) for
which a public announcement as contemplated by this Section 1.2(b) has been
made, the date upon which the Borrower (in the case of clause (i) above) or the
person, group or entity (in the case of clause (ii) above) consummates or
publicly announces the termination or abandonment of the proposed transaction or
tender offer (or takeover scheme) which caused this Section 1.2(b) to become
operative.

                           1.3.         Authorized Shares. The Borrower
covenants that during the period the conversion right exists, the Borrower will
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. The Borrower is required at all times to
have authorized and reserved four times the number of shares that is actually
issuable upon full conversion of this Note (based on the Conversion Price in
effect from time to time) and full exercise of the Warrant (the “Reserved
Amount”). The Reserved Amount shall be increased from time to time as required
to insure compliance with this Section 1.3. The Borrower represents that upon
issuance, such shares will be duly and validly issued, fully paid and
non-assessable. In addition, if the Borrower shall issue any securities or make
any change to its capital structure which would change the number of shares of
Common Stock into which this Note shall be convertible at the then current
Conversion Price, the Borrower shall at the same time make proper provision so
that thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of this
Note. The Borrower (i) acknowledges that it has irrevocably instructed its
transfer agent to issue shares of the Common Stock issuable upon conversion of
this Note, and (ii) agrees that its issuance of this Note shall constitute full
authority to its officers and agents who are charged with the duty of issuing
the necessary shares of Common Stock in accordance with the terms and conditions
of this Note. If, at any time the Borrower does not maintain the Reserved Amount
it will be considered an Event of Default under Section 3.1(c).

                           1.4.         Method of Conversion. 

                                          (a)                Mechanics of
Conversion. Subject to Section 1.7 hereof, beginning on the date specified in
Section 1.1, this Note may be converted by the Holder in whole or in part at any
time from time to time after the Issue Date, by submitting to the Borrower a
Notice of Conversion (by facsimile, e-mail or other reasonable means of
communication dispatched on the Conversion Date prior to 6:00 p.m., New York,
New York time), otherwise the Conversion Date will be the next Trading Day.

 

3

 

 

                                          (b)               Surrender of Note
Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon
conversion of this Note in accordance with the terms hereof, the Holder shall
not be required to physically surrender this Note to the Borrower unless the
entire Outstanding Balance of this Note is so converted. The Holder and the
Borrower shall maintain records showing the amount of the Outstanding Balance so
converted and the dates of such conversions or shall use such other method,
reasonably satisfactory to the Holder and the Borrower, so as not to require
physical surrender of this Note upon each such conversion. In the event of any
dispute or discrepancy, such records of the Holder shall, prima facie, be
controlling and determinative in the absence of manifest error. Notwithstanding
the foregoing, if any portion of this Note is converted as aforesaid, the Holder
may not transfer this Note unless the Holder first physically surrenders this
Note to the Borrower, whereupon the Borrower will forthwith issue and deliver
upon the order of the Holder a new Note of like tenor, registered as the Holder
may request, representing in the aggregate the remaining Outstanding Balance of
this Note. The Holder and any assignee, by acceptance of this Note, acknowledge
and agree that, by reason of the provisions of this paragraph, following
conversion of a portion of this Note, the unpaid and unconverted Outstanding
Balance of this Note represented by this Note may be less than the amount stated
on the face hereof.

                                          (c)                Payment of Taxes.
Borrower is responsible for the payment of all charges, fees, and taxes required
to deliver Conversion Shares to Holder; provider, however, that Borrower shall
not be required to pay any tax which may be payable in respect of any transfer
involved in the issue and delivery of Conversion Shares or other securities or
property on conversion of this Note in a name other than that of the Holder (or
in street name), and the Borrower shall not be required to issue or deliver any
such shares or other securities or property unless and until the person or
persons (other than the Holder or the custodian in whose street name such shares
are to be held for the Holder’s account) requesting the issuance thereof shall
have paid to the Borrower the amount of any such tax or shall have established
to the satisfaction of the Borrower that such tax has been paid.

                                          (d)               Delivery of Common
Stock Upon Conversion. On or before the close of business on the third (3rd)
Trading Day following the date of receipt of a Notice of Conversion from the
Holder via facsimile transmission or e-mail (or other reasonable means of
communication) (the “Delivery Date”), the Borrower shall, provided that all DWAC
Eligible Conditions (as defined below) are then satisfied, credit the aggregate
number of Conversion Shares to which the Holder shall be entitled to the account
specified on the Conversion Notice via the DWAC (as defined below) system. If
all DWAC Eligible Conditions are not then satisfied, the Borrower shall instead
issue and deliver or cause to be issued and delivered (via reputable overnight
courier) to the address as specified in the Notice of Conversion, a certificate,
registered in the name of the Holder or its designee, for the number of
Conversion Shares to which the Holder shall be entitled; provided, however,
that, in addition to any other rights or remedies that the Holder may have under
this Note, then the Non-DWAC Eligible Adjustment Amount (as defined below) shall
be added to the Outstanding Balance of this Note as set forth in Section 1.6(f)
below. For the avoidance of doubt, the Borrower has not met its obligation to
deliver Conversion Shares by the Delivery Date unless the Holder or its broker,
as applicable, has actually received the shares electronically into the
applicable account, or if the DWAC Eligible Conditions are not then satisfied,
has actually received the certificate representing the applicable Conversion
Shares no later than the close of business on the relevant Delivery Date
pursuant to the terms set forth above. For purposes hereof, the term “DWAC
Eligible Conditions” means that (i) the Common Stock is eligible at DTC (as
defined below) for full services pursuant to DTC’s operational arrangements,
including without limitation transfer through DTC’s DWAC system, (ii) the
Borrower has been approved (without revocation) by the DTC’s underwriting
department, (iii) the Borrower’s transfer agent is approved as an agent in the
DTC/FAST Program (as defined below), (iv) the Conversion Shares are otherwise
eligible for delivery via DWAC, and (v) the Borrower’s transfer agent does not
have a policy prohibiting or limiting delivery of the Conversion Shares via
DWAC. For purposes of this Note, the term “DWAC” means Deposit Withdrawal at
Custodian as defined by the DTC; the term “DTC” means the Depository Trust
Company; and the term “DTC/FAST Program” means the DTC’s Fast Automated
Securities Transfer Program.

4

 

                                          (e)                Obligation of
Borrower to Deliver Common Stock. If the Holder shall have given a Notice of
Conversion as provided herein, the Borrower’s obligation to issue and deliver
the shares of Common Stock shall be absolute and unconditional, irrespective of
the absence of any action by the Holder to enforce the same, any waiver or
consent with respect to any provision thereof, the recovery of any judgment
against any person or any action to enforce the same, any failure or delay in
the enforcement of any other obligation of the Borrower to the holder of record,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder of any obligation to the Borrower, and
irrespective of any other circumstance which might otherwise limit such
obligation of the Borrower to the Holder in connection with such conversion. The
Conversion Date specified in the Notice of Conversion shall be the Conversion
Date so long as the Notice of Conversion is delivered to the Borrower before
6:00 p.m., New York, New York time, on such date; otherwise, the Conversion Date
shall be the next Trading Day. Once the Holder may freely trade the Common Stock
issuable upon a conversion of this Note pursuant to and in accordance with the
terms hereof (and in the case of any certificates delivered to Holder because
not all of the DWAC Eligible Conditions are then satisfied, once such
certificates have been deposited into Holder’s brokerage account, all legends
have been removed therefrom, and the Common Stock represented by such
certificates is freely tradeable), all rights with respect to the portion of the
Outstanding Balance being so converted shall forthwith terminate; provided,
however, that the Holder shall be deemed to be the holder of record of the
Common Stock issuable upon such conversion as of the date Borrower receives the
corresponding Notice of Conversion.

                                          (f)                Delivery of Common
Stock via the DWAC System. Notwithstanding any other provision contained herein,
failure to deliver via the DWAC system any Common Stock to be delivered to the
Holder under this Section 1.4 shall constitute a breach of this Agreement and an
Event of Default under Section 3 hereof, including without limitation under
Sections 3.1(c) and 3.1(p).

                                          (g)               Failure to Deliver
Common Stock Prior to Delivery Date. Without in any way limiting the Holder’s
right to pursue other remedies, including actual damages and/or equitable
relief, the parties agree that if delivery of the Common Stock issuable upon
conversion of this Note is not delivered as required by Section 1.4(d) by the
Delivery Date (a “Conversion Default”), the Borrower shall pay in cash to the
Holder for each calendar day beyond the Delivery Date that the Borrower fails to
deliver such Common Stock an amount equal to $500 per day (the “Conversion
Default Payment”). Such cash amount shall be paid to the Holder by the fifth day
of the month following the month in which it has accrued (the “Conversion
Default Payment Due Date”). In the event such cash amount is not received by the
Holder by the Conversion Default Payment Due Date, at the option of the Holder
(without notice to the Borrower), the Conversion Default Payment shall be added
to the Outstanding Balance of this Note, in which event interest shall accrue
thereon in accordance with the terms of this Note and such additional principal
amount shall be convertible into Common Stock in accordance with the terms of
this Note. The Borrower agrees that the right to convert is a valuable right to
the Holder. The damages resulting from a failure, attempt to frustrate, or
interference with such conversion right are difficult if not impossible to
quantify. Accordingly the parties acknowledge that the liquidated damages
provisions contained in this Section 1.4(g) are justified.

                           1.5.        Concerning the Shares. Transfer of the
shares of Common Stock issuable upon conversion of this Note is restricted and
certificates representing such shares may bear a legend as set forth in Sections
4.14 of the Purchase Agreement.

5

 

                            1.6.        Effect of Certain Events.  

                                         (a)                Fundamental
Transaction Consent Right. The Borrower shall not enter into or be party to a
Fundamental Transaction (as defined below), unless the Borrower obtains the
prior written consent of the Holder to enter into such Fundamental Transaction.
For purposes of this Note, “Fundamental Transaction” means that (i) any “person”
or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of
the 1934 Act and the rules and regulations promulgated thereunder) is or shall
become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act),
directly or indirectly, of 50% of the aggregate ordinary voting power
represented by issued and outstanding voting stock of the Borrower, or (ii) (1)
the Borrower or any of its subsidiaries shall, directly or indirectly, in one or
more related transactions, consolidate or merge with or into (whether or not the
Borrower or any of its subsidiaries is the surviving corporation) any other
individual, corporation, limited liability company, partnership, association,
trust or other entity or organization (collectively, “Person”), or (2) the
Borrower or any of its subsidiaries shall, directly or indirectly, in one or
more related transactions, sell, lease, license, assign, transfer, convey or
otherwise dispose of all or substantially all of its respective properties or
assets to any other Person, or (3) the Borrower or any of its subsidiaries
shall, directly or indirectly, in one or more related transactions, allow any
other Person to make a purchase, tender or exchange offer that is accepted by
the holders of more than 50% of the outstanding shares of voting stock of the
Borrower (not including any shares of voting stock of the Borrower held by the
Person or Persons making or party to, or associated or affiliated with the
Persons making or party to, such purchase, tender or exchange offer), or (4) the
Borrower or any of its subsidiaries shall, directly or indirectly, in one or
more related transactions, consummate a stock or share purchase agreement or
other business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with any other Person
whereby such other Person acquires more than 50% of the outstanding shares of
voting stock of the Borrower (not including any shares of voting stock of the
Borrower held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such stock
or share purchase agreement or other business combination), or (5) the Borrower
or any of its subsidiaries shall, directly or indirectly, in one or more related
transactions, reorganize, recapitalize or reclassify the Common Stock, other
than an increase in the number of authorized shares of the Borrower’s Common
Stock. The provisions of this Section 1.6(a) shall apply similarly and equally
to successive Fundamental Transactions and shall be applied without regard to
any limitations on the conversion of this Note. As a condition to pre-approving
any Fundamental Transaction in writing, which approval may be withheld in the
Holder’s sole discretion, Holder may require the resulting successor or
acquiring entity (if not the Borrower) to assume by written instrument all of
the obligations of the Borrower under this Note and all the other Transaction
Documents with the same effect as if such successor or acquirer had been named
as the Borrower hereto and thereto.

                                          (b)               Adjustment Due to
Fundamental Transactions. If, at any time when this Note is issued and
outstanding and prior to conversion of all of this Note, there shall be any
Fundamental Transaction that is pre-approved in writing by the Holder pursuant
to Section 1.6(a) above, as a result of which shares of Common Stock of the
Borrower shall be changed into the same or a different number of shares of
another class or classes of stock or securities of the Borrower or another
entity, or in case of any sale or conveyance of all or substantially all of the
assets of the Borrower other than in connection with a plan of complete
liquidation of the Borrower, then the Holder of this Note shall thereafter have
the right to receive upon conversion of this Note, upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such stock, securities or
assets which the Holder would have been entitled to receive in such transaction
had this Note been converted in full immediately prior to such transaction
(without regard to any limitations on conversion set forth herein), and in any
such case appropriate provisions shall be made with respect to the rights and
interests of the Holder of this Note to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the Conversion
Price and of the number of shares issuable upon conversion of this Note) shall
thereafter be applicable, as nearly as may be practicable in relation to any
securities or assets thereafter deliverable upon the conversion hereof. The
above provisions shall similarly apply to successive Fundamental Transactions.

 

6

 

                                          (c)               Adjustment Due to
Distribution. If the Borrower shall declare or make any distribution of its
assets (or rights to acquire its assets) to holders of Common Stock as a
dividend, stock repurchase, by way of return of capital or otherwise (including
any dividend or distribution to the Borrower’s stockholders in cash or shares
(or rights to acquire shares) of capital stock of a subsidiary (i.e., a
spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled,
upon any conversion of this Note after the date of record for determining
stockholders entitled to such Distribution, to receive the amount of such assets
which would have been payable to the Holder with respect to the shares of Common
Stock issuable upon such conversion had such Holder been the holder of such
shares of Common Stock on the record date for the determination of stockholders
entitled to such Distribution.

                                          (d)              Adjustment Due to
Dilutive Issuance. If, at any time when this Note is issued and outstanding, the
Borrower issues or sells, or in accordance with this Section 1.6(d) hereof is
deemed to have issued or sold, any shares of Common Stock for no consideration
or for a consideration per share (before deduction of reasonable expenses or
commissions underwriting discounts or allowances in connection therewith) less
than the Conversion Price in effect on the date of such issuance (or deemed
issuance) of such shares of Common Stock (a “Dilutive Issuance”), then
immediately upon the Dilutive Issuance, the Conversion Price will be reduced to
the amount of the consideration per share received by the Borrower in such
Dilutive Issuance.

                                          The Borrower shall be deemed to have
issued or sold shares of Common Stock if the Borrower in any manner issues or
grants any warrants, rights or options (not including employee stock option
plans), whether or not immediately exercisable, to subscribe for or to purchase
Common Stock or other securities convertible into or exchangeable for Common
Stock (“Convertible Securities”) (such warrants, rights and options to purchase
Common Stock or Convertible Securities are hereinafter referred to as “Options”)
and the price per share for which Common Stock is issuable upon the exercise of
such Options is less than the Conversion Price then in effect, then the
Conversion Price shall be equal to such price per share. For purposes of the
preceding sentence, the “price per share for which Common Stock is issuable upon
the exercise of such Options” is determined by dividing (i) the total amount, if
any, received or receivable by the Borrower as consideration for the issuance or
granting of all such Options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Borrower upon the exercise of all such
Options, plus, in the case of Convertible Securities issuable upon the exercise
of such Options, the minimum aggregate amount of additional consideration
payable upon the conversion or exchange thereof at the time such Convertible
Securities first become convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise of all such Options
(assuming full conversion of Convertible Securities, if applicable). No further
adjustment to the Conversion Price will be made upon the actual issuance of such
Common Stock upon the exercise of such Options or upon the conversion or
exchange of Convertible Securities issuable upon exercise of such Options.

                                          Additionally, the Borrower shall be
deemed to have issued or sold shares of Common Stock if the Borrower in any
manner issues or sells any Convertible Securities, whether or not immediately
convertible, and the price per share for which Common Stock is issuable upon
such conversion or exchange is less than the Conversion Price then in effect,
then the Conversion Price shall be equal to such price per share. For the
purposes of the preceding sentence, the “price per share for which Common Stock
is issuable upon such conversion or exchange” is determined by dividing (1) the
total amount, if any, received or receivable by the Borrower as consideration
for the issuance or sale of all such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the Borrower
upon the conversion or exchange thereof at the time such Convertible Securities
first become convertible or exchangeable, by (2) the maximum total number of
shares of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities. No further adjustment to the Conversion Price will be
made upon the actual issuance of such Common Stock upon conversion or exchange
of such Convertible Securities.

 

7

 

                                          (e)               Purchase Rights. If,
at any time when this Note is issued and outstanding, the Borrower issues any
convertible securities or rights to purchase stock, warrants, securities or
other property (the “Purchase Rights”) pro rata to the record holders of any
class of Common Stock, then the Holder of this Note will be entitled to acquire,
upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which such Holder could have acquired if such Holder had held the number of
shares of Common Stock acquirable upon complete conversion of this Note (without
regard to any limitations on conversion contained herein) immediately before the
date on which a record is taken for the grant, issuance or sale of such Purchase
Rights or, if no such record is taken, the date as of which the record holders
of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.

                                          (f)               Adjustment Due to
Non-DWAC Eligibility. If, at any time when this Note is issued and outstanding,
the Holder delivers a Notice of Conversion and at such time all DWAC Eligible
Conditions are not then satisfied, the Borrower shall deliver certificated
Conversion Shares to the Holder pursuant to Section 1.4(d) and the Non-DWAC
Eligible Adjustment Amount shall be added to the Outstanding Balance of this
Note, without limiting any other rights of the Holder under this Note or the
other Transaction Documents. The “Non-DWAC Eligible Adjustment Amount” is the
amount equal to the number of applicable Conversion Shares multiplied by the
excess, if any, of (i) the Trading Price of the Common Stock on the Conversion
Date, over (ii) the Trading Price of the Common Stock on the date the
certificated Conversion Shares are freely tradable, clear of any restrictive
legend and deposited in the Holder’s brokerage account. In any such case, Holder
will use reasonable efforts to timely deposit such certificates in its brokerage
account after it receives them and cause such restrictive legends to be removed,
and, without limiting any other provision hereof, Borrower agrees to fully
cooperate with Holder in accomplishing the same.

                                          (g)              Adjustment Due to
Late Clearing of DWAC Eligible Shares. If, at any time when this Note is issued
and outstanding, the Holder delivers a Notice of Conversion and at such time the
Common Stock is DWAC Eligible and the applicable DWAC Eligible Conversion Shares
are delivered to Holder or its broker, but it takes longer than five (5)
business days after such delivery for such Conversion Shares to be
electronically cleared for trading in Holder’s brokerage account, then the Late
Clearing Adjustment Amount (as defined below) shall be added to the Outstanding
Balance of this Note, without limiting any other rights of the Holder under this
Note or the other Transaction Documents. The “Late Clearing Adjustment Amount”
is the amount equal to the number of applicable Conversion Shares multiplied by
the excess, if any, of (1) the Trading Price of the Common Stock on the
Conversion Date, over (2) the Trading Price of the Common Stock on the date the
certificated DWAC Eligible Conversion Shares are electronically cleared for
trading in the Holder’s brokerage account. In any such case, and without
limiting any other provision hereof, each of Holder and the Borrower agrees to
take all action reasonably necessary on its part to help ensure that the
applicable Conversion Shares are electronically cleared for trading in the
Holder’s brokerage account within the five-day period described above.

                                          (h)              Notice of
Adjustments. Upon the occurrence of each adjustment or readjustment of the
Conversion Price or the addition of the Non-DWAC Eligible Adjustment Amount or
Late Clearing Adjustment Amount to the Outstanding Balance as a result of the
events described in this Section 1.6, the Borrower, at its expense, shall
promptly compute such adjustment or readjustment and prepare and furnish to the
Holder a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based. The
Borrower shall, upon the written request at any time of the Holder, furnish to
such Holder a like certificate setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect and (iii) the
number of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon conversion of this Note.

8

 

                                          (i)                Adjustments for
Stock Split. Notwithstanding anything herein to the contrary, any references to
share numbers or share prices shall be appropriately adjusted for any stock
dividend, stock split, stock combination or other similar transaction.

 

                           1.7.        Ownership Limitation. Notwithstanding
anything to the contrary contained in this Note or the other Transaction
Documents, if at any time the Holder shall or would be issued shares of Common
Stock under any of the Transaction Documents, but such issuance would cause the
Holder (together with its Affiliates) to beneficially own a number of shares
exceeding 4.99% of the number of shares of Common Stock outstanding on such date
(including for such purpose the shares of Common Stock issuable upon such
issuance) (the “Maximum Percentage”), then the Company must not issue to the
Holder shares of the Common Stock which would exceed the Maximum Percentage. For
purposes of this Section, beneficial ownership of Common Stock will be
determined under the 1934 Act. The shares of Common Stock issuable to the Holder
that would cause the Maximum Percentage to be exceeded are referred to herein as
the "Ownership Limitation Shares". The Company will reserve the Ownership
Limitation Shares for the exclusive benefit of the Holder. From time to time,
the Holder may notify the Company in writing of the number of the Ownership
Limitation Shares that may be issued to the Holder without causing the Holder to
exceed the Maximum Percentage. Upon receipt of such notice, the Company shall be
unconditionally obligated to immediately issue such designated shares to the
Holder, with a corresponding reduction in the number of the Ownership Limitation
Shares. Notwithstanding the forgoing, the term “4.99%” above shall be replaced
with “9.99%” at such time as the Market Capitalization of the Common Stock is
less than $5,000,000.00. Notwithstanding any other provision contained herein,
if the term “4.99%” is replaced with “9.99%” pursuant to the preceding sentence,
such increase to “9.99%” shall remain at 9.99% until increased, decreased or
waived by the Holder as set forth below. For purposes of this Note, the term
“Market Capitalization of the Common Stock” shall mean the product equal to (A)
the average VWAP of the Common Stock for the immediately preceding fifteen (15)
Trading Days, multiplied by (B) the aggregate number of outstanding shares of
Common Stock as reported on the Company’s most recently filed Form 10-Q or Form
10-K. By written notice to the Company, the Holder may increase, decrease or
waive the Maximum Percentage as to itself but any such waiver will not be
effective until the 61st day after delivery thereof. The foregoing 61-day notice
requirement is enforceable, unconditional and non-waivable and shall apply to
all Affiliates and assigns of the Holder.

 

                           1.8.         Prepayment. So long as the Borrower has
not received a Notice of Conversion from the Holder, then at any time during the
period beginning on the Issue Date and ending on the date which is one hundred
eighty (180) calendar days following the Issue Date, the Borrower shall have the
right, exercisable on not less than thirty (30) Trading Days prior written
notice to the Holder to prepay the Outstanding Balance of this Note, in full, in
accordance with this Section 1.8. Any notice of prepayment hereunder (an
“Optional Prepayment Notice”) shall be delivered to the Holder at its registered
addresses and shall state: (a) that the Borrower is exercising its right to
prepay this Note, and (b) the date of prepayment, which shall be not more than
three (3) Trading Days from the date of the Optional Prepayment Notice. On the
date fixed for prepayment (the “Optional Prepayment Date”), the Borrower shall
make payment of the Optional Prepayment Amount (as defined below) to or upon the
order of the Holder as specified by the Holder in writing to the Borrower at
least one (1) Trading Day prior to the Optional Prepayment Date. If the Borrower
exercises its right to prepay this Note, the Borrower shall make payment to the
Holder of an amount in cash (the “Optional Prepayment Amount”) equal to 115%,
multiplied by the then Outstanding Balance of this Note. If the Borrower
delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment
Amount due to the Holder within two (2) Trading Days following the Optional
Prepayment Date, the Borrower shall forever forfeit its right to prepay this
Note pursuant to this Section 1.8. 

9

 

  

2.          CERTAIN COVENANTS. 

 

                           2.1.         Distributions on Capital Stock. So long
as the Borrower shall have any obligation under this Note, the Borrower shall
not without the Holder’s written consent (a) pay, declare or set apart for such
payment, any dividend or other distribution (whether in cash, property or other
securities) on shares of capital stock other than dividends on shares of Common
Stock solely in the form of additional shares of Common Stock, or (b) directly
or indirectly or through any subsidiary make any other payment or distribution
in respect of its capital stock except for distributions pursuant to any
stockholders’ rights plan which is approved by a majority of the Borrower’s
disinterested directors.

 

                           2.2.        Restriction on Stock Repurchases. So long
as the Borrower shall have any obligation under this Note, the Borrower shall
not without the Holder’s written consent redeem, repurchase or otherwise acquire
(whether for cash or in exchange for property or other securities or otherwise)
in any one transaction or series of related transactions any shares of capital
stock of the Borrower or any warrants, rights or options to purchase or acquire
any such shares.

 

                           2.3.        Borrowings. So long as the Borrower shall
have any obligation under this Note, the Borrower shall not, without the
Holder’s prior written consent, create, incur, assume guarantee, endorse,
contingently agree to purchase or otherwise become liable upon the obligation of
any person, firm, partnership, joint venture or corporation, except by the
endorsement of negotiable instruments for deposit or collection, or suffer to
exist any liability for borrowed money, except (a) borrowings in existence or
committed on the date hereof and of which the Borrower has informed the Holder
in writing prior to the date hereof, (b) indebtedness to trade creditors or
financial institutions incurred in the ordinary course of business, (c)
borrowings, the proceeds of which shall be used to repay this Note or (d) as
permitted by the Purchase Agreement.

 

                           2.4.        Sale of Assets. So long as the Borrower
shall have any obligation under this Note, the Borrower shall not, without the
Holder’s prior written consent, sell, lease or otherwise dispose of any
significant portion of the Borrower’s assets outside the ordinary course of
business. Any consent to the disposition of any assets may be conditioned on a
specified use of the proceeds of disposition.

 

                           2.5.        Advances and Loans. So long as the
Borrower shall have any obligation under this Note, the Borrower shall not,
without the Holder’s written consent, lend money, give credit or make advances
to any person, firm, joint venture or corporation, including, without
limitation, officers, directors, employees, subsidiaries and Affiliates of the
Borrower, except loans, credits or advances (a) in existence or committed on the
date hereof and which the Borrower has informed Holder in writing prior to the
date hereof, (b) made in the ordinary course of business, or (c) not in excess
of $100,000.

3.          EVENTS OF DEFAULT. 

 

                           3.1.         Events of Default. The occurrence of any
of the following events of default (each, an “Event of Default”) shall be an
event of default hereunder:

 

                                          (a)               Failure to Pay
Amounts Due. The Borrower fails to pay any amount when due on this Note, whether
at maturity, upon acceleration or otherwise.

10

 

  

                                          (b)               Conversion and the
Shares. The Borrower (i) fails to issue Conversion Shares to the Holder or the
Holder’s broker (as set forth in the applicable Conversion Notice) by the
Delivery Date, (ii) fails to transfer or cause its transfer agent to transfer
(issue) 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 any of the
other Transaction Documents, (iii) the Borrower directs its transfer agent not
to transfer or delays, impairs, and/or hinders its transfer agent in
transferring (or issuing) any 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 any of the other Transaction Documents, or (iv) 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 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 any of the other Transaction Documents.

 

                                          (c)               Breach of Covenants
and Obligations. The Borrower breaches any covenant or obligation or other term
or condition contained in this Note and any collateral documents including but
not limited to the other Transaction Documents.

 

                                          (d)              Breach of
Representations and Warranties. Any representation or warranty of the Borrower
made herein or in any agreement, statement or certificate given in writing
pursuant hereto or in connection herewith (including, without limitation, the
Purchase Agreement and any other Transaction Documents), shall be false or
misleading in any material respect when made.

 

                                          (e)               Receiver or Trustee.
The Borrower or any subsidiary of the Borrower shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business, or such
a receiver or trustee shall otherwise be appointed.

 

                                          (f)                Judgments. Any
money judgment, writ or similar process shall be entered or filed against the
Borrower or any subsidiary of the Borrower or any of its property or other
assets for more than $100,000, and shall remain unvacated, unbonded or unstayed
for a period of twenty (20) calendar days unless otherwise consented to by the
Holder, which consent will not be unreasonably withheld.

 

                                          (g)               Bankruptcy.
Bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings, voluntary or involuntary, for relief under any bankruptcy law or
any law for the relief of debtors shall be instituted by or against the Borrower
or any subsidiary of the Borrower.

 

                                          (h)              Delisting of Common
Stock. The Borrower shall fail to maintain the listing and/or quotation, as
applicable, of the Common Stock on the Principal Market.

 

                                          (i)                Failure to Comply
with the 1934 Act. The Borrower shall fail to comply with the reporting
requirements of the 1934 Act; and/or the Borrower shall cease to be subject to
the reporting requirements of the 1934 Act.

 

                                          (j)                Liquidation. Any
dissolution, liquidation, or winding up of Borrower or any substantial portion
of its business.

 

                                          (k)               Cessation of
Operations. Any cessation of operations by the Borrower or the 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.

 

                                          (l)                Maintenance of
Assets. The failure by the 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).

11

 

  

                                          (m)             Financial Statement
Restatement. The restatement of any financial statements filed by the Borrower
with the SEC for any date or period from two years prior to the Issue Date of
this Note and until this Note is no longer outstanding, if the result of such
restatement would, by comparison to the unrestated financial statement, have
constituted a material adverse effect on the rights of the Holder with respect
to this Note or any other Transaction Documents.

 

                                          (n)              Reverse Splits. The
Borrower effectuates a reverse split of its Common Stock without twenty (20)
calendar days prior written notice to the Holder.

 

                                          (o)              Replacement of
Transfer Agent. 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, a 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 irrevocably reserve shares of Common Stock in the
Reserved Amount) signed by the successor transfer agent to the Holder and the
Borrower.

 

                                          (p)              DWAC Eligibility. The
failure of any of the DWAC Eligible Conditions to be satisfied at any time
during which the Borrower has obligations under this Note.

 

                           3.2.         Default Effects; Automatic Acceleration.
Upon the occurrence of any Event of Default, (a) the Outstanding Balance shall
immediately increase to 105% of the Outstanding Balance immediately prior to the
occurrence of the Event of Default (the “Balance Increase”), and (b) this Note
shall then accrue interest at the Default Interest rate (collectively, the
“Default Effects”); provided, however, that (x) in no event shall the Balance
Increase be applied more than once, and (y) notwithstanding any provision to the
contrary herein, in no event shall the applicable interest rate at any time
exceed the maximum interest rate allowed under applicable law. The Default
Effects shall automatically apply upon the occurrence of an Event of Default
without the need for any party to give any notice or take any other action.
Further, upon the occurrence and during the continuation of any Event of
Default, the Holder may by written notice to the Borrower declare the entire
Outstanding Balance immediately due and payable without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly
waived, anything contained herein or in the other Transaction Documents to the
contrary notwithstanding; provided, however, that upon the occurrence or
existence of any Event of Default described in Sections 3.1(e), 3.1(g), 3.1(j),
or 3.1(k), immediately and without notice, all outstanding obligations payable
by the Borrower hereunder shall automatically become immediately due and
payable, without presentment, demand, protest or any other notice of any kind,
all of which are hereby expressly waived, anything contained herein or in the
Transaction Documents to the contrary (“Automatic Acceleration”). For avoidance
of doubt, except in the case of Automatic Acceleration resulting from an Event
of Default under Sections 3.1(e), 3.1(g), 3.1(j), or 3.1(k), the Holder shall
retain all rights under this Note and the Transaction Documents, including the
ability to convert the then Outstanding Balance of this Note pursuant to Section
1 hereof, at all times following the occurrence of an Automatic Acceleration
until the entire Outstanding Balance at that time has been paid in full.

 

                4.        MISCELLANEOUS. 

 

                           4.1.        Failure or Indulgence Not Waiver. No
failure or delay on the part of the Holder in the exercise of any power, right
or privilege hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such power, right or privilege preclude other or
further exercise thereof or of any other right, power or privileges. All rights
and remedies existing hereunder are cumulative to, and not exclusive of, any
rights or remedies otherwise available.

12

 

  

                           4.2.        Notices. Whenever notice is required to
be given under this Note, unless otherwise provided herein, such notice shall be
given in accordance with the subsection of the Purchase Agreement titled
“Notices.”

 

                           4.3.        Amendments. This Note and any provision
hereof may only be amended by an instrument in writing signed by the Borrower
and the Holder. The term “Note” and all reference thereto, as used throughout
this instrument, shall mean this instrument (and the other Notes issued pursuant
to the Purchase Agreement) as originally executed, or if later amended or
supplemented, then as so amended or supplemented.

 

                           4.4.        Assignability. This Note shall be binding
upon the Borrower and its successors and assigns, and shall inure to be the
benefit of the Holder and its successors and assigns; provided, however, that
this Note may not be transferred, assigned or conveyed by the Borrower without
the prior written consent of the Holder. Each transferee of this Note must be an
“accredited investor” (as defined in Rule 501(a) of the Securities Act of 1933
(as amended, the “1933 Act”)). Notwithstanding anything in this Note to the
contrary, this Note may be pledged as collateral in connection with a bona fide
margin account or other lending arrangement.

 

                           4.5.         Cost of Collection; Attorneys’ Fees.
Upon the occurrence of any Event of Default, the Borrower shall pay to the
Holder hereof all costs and reasonable attorneys’ fees incurred by the Holder in
connection with such Event of Default. In the event of any action at law or in
equity to enforce or interpret the terms of this Note or any of the other
Transaction Documents, the parties agree that the party who is awarded the most
money shall be deemed the prevailing party for all purposes and shall therefore
be entitled to an additional award of the full amount of the attorneys’ fees and
expenses paid by such prevailing party in connection with the litigation and/or
dispute without reduction or apportionment based upon the individual claims or
defenses giving rise to the fees and expenses. Nothing herein shall restrict or
impair a court’s power to award fees and expenses for frivolous or bad faith
pleading.

 

                           4.6.        Governing Law. This Note shall be
governed by and construed in accordance with the laws of the State of Utah
without regard to principles of conflicts of laws. Any action brought by either
party against the other concerning the transactions contemplated by this Note
shall be brought only in the state courts of Utah or in the federal courts
located in Salt Lake County, Utah. The parties to this Note hereby irrevocably
waive any objection to jurisdiction and venue of any action instituted hereunder
and shall not assert any defense based on lack of jurisdiction or venue or based
upon forum non conveniens. In the event that any provision of this Note or any
other agreement delivered in connection herewith is invalid or unenforceable
under any applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any suit, action or proceeding in connection with this Agreement or
any other related or companion documents by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any other manner permitted by law. THE
BORROWER HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED
HEREBY.

13

 

  

                           4.7.         Fees and Charges. The parties
acknowledge and agree that upon the Borrower’s failure to comply with the
provisions of this Note, the Holder’s damages would be uncertain and difficult
(if not impossible) to accurately estimate because of the parties’ inability to
predict future interest rates, the Holder’s increased risk, and the uncertainty
of the availability of a suitable substitute investment opportunity for the
Holder, among other reasons. Accordingly, any fees, charges, and interest due
under this Note are intended by the parties to be, and shall be deemed, a
reasonable estimate of the Holder’s actual loss of its investment opportunity
and not a penalty, and shall not be deemed in any way to limit any other right
or remedy Holder may have hereunder, at law or in equity.

 

                           4.8.         Remedies. The Borrower acknowledges that
a breach by it of its obligations hereunder will cause irreparable harm to the
Holder, by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Borrower acknowledges that the remedy at law for a
breach of its obligations under this Note will be inadequate and agrees, in the
event of a breach or threatened breach by the Borrower of the provisions of this
Note, that the Holder shall be entitled, in addition to all other available
remedies at law or in equity, and in addition to the charges assessable herein,
to an injunction or injunctions restraining, preventing or curing any breach of
this Note and to enforce specifically the terms and provisions thereof, without
the necessity of showing economic loss and without any bond or other security
being required.

 

                           4.9.        Purchase Agreement. By its acceptance of
this Note, each party agrees to be bound by the applicable terms of the Purchase
Agreement and the other Transaction Documents.

 

                           4.10.       Notice of Corporate Events. Except as
otherwise provided herein, the Holder of this Note shall have no rights as a
Holder of Common Stock unless and only to the extent that it converts this Note
into Common Stock. The Borrower shall provide the Holder with prior notification
of any meeting of the Borrower’s stockholders (and copies of proxy materials and
other information sent to stockholders). In the event of any taking by the
Borrower of a record of its stockholders for the purpose of determining
stockholders who are entitled to receive payment of any dividend or other
distribution, any right to subscribe for, purchase or otherwise acquire
(including by way of merger, consolidation, reclassification or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining stockholders who
are entitled to vote in connection with any proposed sale, lease or conveyance
of all or substantially all of the assets of the Borrower or any proposed
liquidation, dissolution or winding up of the Borrower, the Borrower shall mail
a notice to the Holder, at least twenty (20) calendar days prior to the record
date specified therein (or thirty (30) calendar days prior to the consummation
of the transaction or event, whichever is earlier), of the date on which any
such record is to be taken for the purpose of such dividend, distribution, right
or other event, and a brief statement regarding the amount and character of such
dividend, distribution, right or other event to the extent known at such time.
The Borrower shall make a public announcement of any event requiring
notification to the Holder hereunder substantially simultaneously with the
notification to the Holder in accordance with the terms of this Section 4.10.

 

                           4.11.      Pronouns. All pronouns and any variations
thereof refer to the masculine, feminine or neuter, singular or plural, as the
context may permit or require.

 

                           4.12.      Time of the Essence. Time is expressly
made of the essence of each and every provision of this Note.

[Remainder of page intentionally left blank; signature page to follow]

14

 

 

 

IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in its name
by its duly authorized officer as of the Issue Date set forth above.

 

MAX SOUND CORPORATION         By: /s/ Greg Halpern     Greg Halpern,
Chief Financial Officer  

 

[Signature page to Secured Convertible Promissory Note]

15

 

 

EXHIBIT A

ILIAD RESEARCH AND TRADING, L.P.
303 EAST WACKER DRIVE, SUITE 1200
CHICAGO, ILLINOIS 60601

Date: ___________________

MAX SOUND CORPORATION

10685-B Hazelhurst Drive #6572

Houston, TX 77043

Attn: Greg Halpern, Chief Financial Officer

CONVERSION NOTICE

The above-captioned Holder hereby gives notice to MAX SOUND CORPORATION, a
Delaware corporation (the “Company”), pursuant to that certain Convertible
Promissory Note made by the Company in favor of the Holder on June 11, 2014 (the
“Note”), that the Holder elects to convert the portion of the Outstanding
Balance of the Note set forth below into fully paid and non-assessable shares of
Common Stock of the Company as of the date of conversion specified below. Such
conversion shall be based on the Conversion Price set forth below. In the event
of a conflict between this Conversion Notice and the Note, the Note shall
govern, or, in the alternative, at the election of the Holder in its sole
discretion, the Holder may provide a new form of Conversion Notice to conform to
the Note.

A.     Date of conversion:

B.     Conversion #:

C.     Conversion Amount:

D.     Market Price_____ (Average of 3 lowest Trade Prices of last 10 Trading
Days as per Exhibit A-1)

E.     Conversion Factor: 75% [65% or 50% upon certain Events of Default]

F.     Conversion Price: _________ (D multiplied by E)

G.     Conversion Shares: (C divided by F)

H.     Remaining Outstanding Balance of Note: _____ *

* Subject to adjustments for corrections, defaults, and other adjustments
permitted by the Transaction Documents.

 

Please transfer the Conversion Shares electronically (via DWAC) to the following
account:

Broker:  ____________________________   Address:      _____________________
DTC#:   _____________________                       _____________________
Account #:   _____________________                       _____________________ 
Account Name:    _____________________  

To the extent the Conversion Shares are not able to be delivered to the Holder
electronically via the DWAC system, please deliver a certificate representing
all such shares to the Holder via reputable overnight courier after receipt of
this Conversion Notice (by facsimile transmission or otherwise) to:

____________________________ 

____________________________ 

____________________________

 

(Signature Page Follows)

 

16

 

Sincerely,       ILIAD RESEARCH AND TRADING, L.P.       By: Iliad Management,
LLC, its General Partner         By: Fife Trading, Inc., its Manager            
By:         John M. Fife,
President  

 

17

 

 

 

EXHIBIT A-1

CONVERSION WORKSHEET

Trading Day Lowest Trade Price Lowest 3 (Yes or No)                            
                                                                         
Average    

 

18