EXHIBIT 4.2  








CONVERTIBLE PROMISSORY
NOTE 



For value received, the undersigned
QSound Labs, Inc., an Alberta corporation having its head office at #400, 3115 – 12th
Street NE, Calgary, Alberta, T2E 7J2, (“Borrower”) promises to pay to or to the
order of  (“Lender”) the principal amount specified below
(“Principal”) together with interest at the rate specified below
(“Interest”) on the amount of Principal from time to time outstanding at the
rate specified below. 



The following are the terms and
conditions of this Convertible Promissory Note (“Note”): 



	1.  	   	Principal  






	  	
a)              The
Principal of this Note is Five Hundred Thousand ($500,000 US) Dollars U.S.  






	  	
b)The
Principal shall be advanced by the Lender to the Borrower by wire transfer concurrent
with the execution and delivery of this Note by the Borrower to the Lender.  






	2.  	   	Term  






	  	
The
term of this Note is the earlier of five years from the date of Principal advance and the
date of conversion of the entire principal amount of the Principal to common shares of
the Borrower (“Term”).  






	3.  	   	Interest
Rate  






	  	
Simple
interest shall be payable upon the Principal amount outstanding from time to time under
this Note and shall be paid in arrears at the end of each calendar quarter for the
immediately preceding calendar quarter. The rate of interest for each calendar quarter
shall be the United States prime rate in effect on the last day of the immediately
preceding calendar quarter. The “United States prime rate” shall mean such rate
as printed in the Wall Street Journal.  






	4.  	   	Conversion  






	  	
a)
                         The Lender or Lender’s
assignee shall have the right to convert the                     Principal into fully
paid and non-assessable common shares of the Borrower                     (“Shares”)
at the conversion price of $3.25 U.S. at any time during                     the Term.
The Principal may be so converted in whole or from time to time during
                    the Term in increments of at least 25,000 shares by notice in writing
to the                     Borrower.  






	  	
b)
                         Upon receipt of the
written notice of conversion from the Lender, Borrower                     shall issue
and deliver to the Lender share certificate(s) representing the
                    Shares as set out in the notice to the Lender. All repayments of
Principal by                     way of conversion to Shares under this Note shall be
evidenced by endorsement by                     Borrower and Lender upon the grid
attached to this Note as Schedule                     “A” and each such
endorsement shall be prima facie evidence of the                     amounts so repaid
and the balance of Principal outstanding under this Note.  






	  	
c)
                         All action taken pursuant
hereto shall be made in accordance with all Canadian                     and United
States securities laws and all applicable rules and regulations of
                    the NASDAQ Stock Market. The Lender acknowledges that Shares issuable
upon                     conversion of the Principal are being acquired solely for the
Lender’s own                     account and not as a nominee for any other party
(provided that the Lender shall                     have the right to assign some or all
of this Note to an accredited third                     party(s) reasonably satisfactory
to the Borrower), and for investment, and that                     the Lender will not
offer, sell or otherwise dispose of Shares  









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acquired
hereunder except under circumstances that will not result in a violation of the Act or
any state securities laws.  






	  	
d)
                         QSound agrees, at its
expense, to file a short form registration statement                     under the United
States Securities Act of 1933 to register the Shares issued                     upon any
conversion of the Principal, provided that QSound is not obligated to
                    file more than one such registration statement annually during the
Term and for                     a period of one year thereafter. Upon written notice by
the Lender requesting                     the filing of a registration statement, the
Borrower shall use its best efforts                     to file such registration
statement within thirty (30) days of such notice.                     QSound represents
and warrants that it is currently eligible to file such a                     short form
registration statement under the United States Securities Act of
                    1933. In addition, in the event QSound intends to file a registration
statement                     under the United States Securities Act of 1933 to register
the sale of common                     stock by QSound or by another security holder
during or for a period of one year                     following the Term, QSound will
notify Lender of that intent and offer to                     include any or all of the
Shares held by Lender at QSound’s expense, and if                     Holder accepts
such offer, it will not count against the above annual limit of
                    registration of Shares.  






	  	
e)
                                            If during the Term the
Company (a) consolidates its common shares into a lesser                     number of
shares, subdivides its common shares into a greater number of shares
                    or reclassifies its common shares, then when the right to acquire
Shares                     pursuant hereto is exercised, the Lender shall have the right
to receive and the                     obligation to take Shares in such number and
description as the Lender would                     otherwise have if he had exercised
the right of acquisition before such event                     and had held the Shares
which he would have received until the actual exercise                     of the right
of acquisition, or (b) consolidates, amalgamates or merges with any
                    other company, then when the right to acquire pursuant hereto is
exercised, the                     Lender shall have the right to receive and the
obligation to take securities in                     the consolidated, amalgamated or
merged company as the Lender would otherwise                     have if it had exercised
the right of acquisition before such event and had held                     the
securities it would have received until the actual exercise of the right of
                    acquisition. If during the Term the Borrower issues securities
(excluding                     employee options) convertible into common shares at a
price lower than the                     Lender’s conversion price, the Borrower
agrees to adjust the Lender’s                     conversion price to such lower
price.  






	5.  	   	Legend  






	  	
The
Lender acknowledges that the Shares to be issued upon the conversion of the Principal
will not be registered pursuant to the Securities Act of 1933 (“Act”) and will
be subject to certain transfer restrictions, and the certificates representing the Shares
may contain the following legend or such legend as may be requires from time to time to
comply with the Act:  






	  	
“THE
SECURITES REPRESENTED HEREBY HAVE NOT BEEN REGISTERES UNDER UNITED STATES FEDERAL OR
STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE
TRANSFERRED OR ASSIGNED FOR VALUE, DIRECTLY OR INDIRECTLY, NOR MAY THE SECURITIES BE TRANSFERRED
ON THE BOOKS OF THE COMPANY, WITHOUT REGISTRATION OF SUCH SECURITIES UNDER ALL APPLICABLE
UNITED STATES FEDERAL OR STATE SECURITIES LAWS OR COMPLIANCE WITH AN APPLICABLE
EXEMPTION THEREFROM, SUCH COMPLIANCE, AT THE OPTION OF THE COMPANY, TO BE
EVIDENCED BY AN OPINION OF SECURITYHOLDER’S COUNSEL, ACCEPTABLE TO THE COMPANY, THAT
NO VIOLATION OF SUCH REGISTRATION PROVISIONS WOULD RESULT FROM ANY PROPOSED
TRANSFER OR ASSIGNMENT.” 









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	6.  	   	Payment  






	  	
The
Principal outstanding together with interest payable under this Note shall be due and
payable in full on the last day of the Term.  






	7.  	   	Default  






	  	
The
following are acts or events of default:  






	  	
a)
                         an admission in writing by
the Borrower of its inability to pay debts                     generally;  






	  	
b)
                         the insolvency of the
Borrower or the appointment of a receiver, manager,                     trustee,
liquidator, for any of the property of the Borrower or an assignment
                    for the benefit of the Borrower’s creditors;  






	  	
c)
                         the institution of a
proceeding in bankruptcy against the Borrower, whether                     voluntarily or
involuntarily, or the institution of proceedings by a Borrower to
                    obtain relief against its creditors; or  






	  	
d)
                         Borrower fails to pay in
full any due and payable installment of interest                     within 10 business
days of notice from Holder that it is due.  






	  	
In
the event of a default, then unpaid principal amount of this Note shall immediately
become due and payable and the effective interest rate from any after the date of default
shall be increased to 3% over the United State prime rate. The Borrower shall pay all
costs incurred by the Lender in enforcing and collecting upon this Note, including legal
fees.  






	8.  	   	Presentment  






	  	
The
Borrower hereby waives presentment, demand, notice of dishonor, notice of protest, notice
of non-payment and any other notice required by law to be given to the Borrower on this
Note in connection with the delivery, acceptance, performance, default or enforcement of
this Note.  






	9.  	   	Governing
Law  






	  	
This
Note shall be governed by and construed in accordance with the Province of Alberta. All
disputes and litigation regarding this Agreement and matters connected with its
performance shall be subject to the exclusive jurisdiction of the courts of the Province
of Alberta.  










	  	
DATED at the City of Calgary 

in the Province of Alberta 

this 27th day of March, 2006. 







	  	
QSOUND LABS, INC. 




per:  _________________________________








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Appendix “A” 



Conversion and Payment of
Principal (USD) 



	
Date	
Amount of

Principal Payment	
Amount of

Principal Converted	
Unpaid

Balance	
Signatures
	

	 	 	 	 		 	 	 	Lender:



Borrower:	 
	

	 
	

	 
	

	 
	

	 
	












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