ex101.htm


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    DEBT
CONSOLIDATION AGREEMENT

    


    THIS AGREEMENT (the “Agreement”) is
effective as of ____________ ___, 2009 (the “Effective Date”) by
and between AudioStocks, Inc. (the “Company”) and Noctua
Fund LP (“Noctua”).  The
Company and Noctua may be individually referred to herein as a “Party” and
collectively as the “Parties.”

    


    RECITALS

    


    WHEREAS,
as of the Effective Date and consistent with “Schedule A” to this
Agreement, the Company has issued various Notes and other valid promises
(collectively hereinafter referred to as the “Obligations”),
written and oral, to pay monies due to Noctua in consideration of investments
Noctua previously made into AudioStocks;

    


    WHEREAS,
the Obligations were previously part of an agreement disclosed in the Company’s
Form 10-Q for the period ended September 30, 2008, in which another entity, DAO
Information Systems, Inc. (“DAO, Inc.”), agreed
to become financially responsible to make payments to Noctua related to the
Obligations;

    


    WHEREAS,
as was stated in Part Two, Item 5 of the Company’s Form 10-K for the period
ended December 31, 2008, filed with the SEC on April 19, 2009 and amended on
April 20, 2009, the Company remained legally obligated to Noctua for the
Obligations;

    


    WHEREAS,
DAO, Inc. has failed to make payments to Noctua and as of the Effective Date the
obligations are in default, accruing interest (for three of the four referenced
Obligations) at an accelerated interest rate of fifteen percent
(15%);

    


    WHEREAS,
Noctua has demanded payment of the Obligations and as of the Efffective Date,
the Company and DAO, Inc. have both been unable to meet their payment
responsibilities to Noctua related to the Obligations;

    


    WHEREAS,
the Company and Noctua wish to reach a compromise and resolution with respect to
the Obligations, eliminating the Company’s default status by the Company issuing
a new consolidated debt instrument to Noctua;

    


    NOW,
THEREFORE, in consideration of the mutual covenants contained in this Agreement,
and for good and valuable consideration, the receipt of which is hereby
acknowledged, it is hereby agreed as follows:

    


    AGREEMENT

    


    1.           Settlement
Terms.

    


    a.           Noctua
agrees to fully settle and forever resolve any and all past Obligations for
damages arising from the Company’s non-payment of the Obligations and the
default status of the financial commitments underlying the
Obligations.  DAO, Inc. shall remain responsible for the Obligations,
unless and until the below referred to Settlement Note is paid in
full.

    


    b.           The
Company shall issue to Noctua a new Secured Convertible Promissory Note (the
“Settlement
Note,” a copy of which is attached hereto in “Schedule B”), made
payable to Noctua in the principal amount of one hundred thousand dollars
($100,000).  The Settlement Note shall bear interest at a rate of
fourteen percent (14%), and interest on the Settlement Note shall begin to
accrue on October 1, 2009.  The Settlement Note shall mature on
October 1, 2012, the third year anniversary of the date the Settlement Note
commences accruing interest.

    


    2.           Waiver of Section
1542.     In signing this Agreement, Noctua has
been advised of, understands and knowingly waives his rights under California
Civil Code Section 1542 which provides as follows: A GENERAL RELEASE DOES NOT
EXTEND TO OBLIGATIONS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN
HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

    


    3.           No Further
Obligations.     Noctua covenants and agrees
never to commence against the Company, any legal action or proceeding based in
whole or in part upon the Services, Obligations, demands, allegations, and/or
injuries released in this Agreement.

    


    4.           No
Admission.    This Agreement shall not be considered
as an admission of liability by either Party and by entering into this
Agreement, neither Party has admitted the validity of any Obligations herein
released.

    


    5.           Compliance with Securities
Laws.    In the event of a conversion of the
Settlement Note, Noctua understands that the Settlement Shares it is receiving
hereunder are characterized as “restricted securities” under the federal
securities laws and that under such laws and applicable regulations such
securities may be resold without registration under the United States Securities
Act of 1933, as amended only in certain limited circumstances. It understood
that the certificates evidencing the Settlement Shares issued hereunder will
bear a legend in substantially the below form:

    


    “THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.  THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT OR A LEGAL OPINION THAT SUCH REGISTRATION IS
NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.”

    


    In
addition, the Noctua hereby represents and warrants that they are an “accredited
investor” as such term is defined in the Securities Act of 1933 and Securities
and Exchange Act of 1934.

    


    6.           Miscellaneous.

    


    a.           Necessary
Acts.  Each Party to this Agreement agrees to perform any
further acts and execute and deliver any further documents that may be
reasonably necessary to carry out the provisions of this Agreement.

    


    b.           Entire Agreement;
Modifications; Waiver.  This Agreement constitutes the entire
agreement between the Parties pertaining to the subject matter contained in it.
This Agreement supersedes all prior and contemporaneous agreements,
representations, and understandings of the Parties.  No supplement,
modification, or amendment of this Agreement shall be binding unless executed in
writing by all the Parties.  No waiver of any of the provisions of
this Agreement shall be deemed, or shall constitute, a waiver of any other
provisions, whether or not similar, nor shall any waiver constitute a continuing
waiver.  No waiver shall be binding unless executed in writing by the
Party making the waiver.

    


    c.           Dispute
Resolution.   The subject matter of this Agreement shall
be governed by and construed in accordance with the laws of the State of
California (without reference to its choice of law principles), and to the
exclusion of the law of any other forum, without regard to the jurisdiction in
which any action or special proceeding may be instituted.  EACH PARTY
HERETO AGREES TO SUBMIT TO THE PERSONAL JURISDICTION AND VENUE OF THE STATE
AND/OR FEDERAL COURTS LOCATED IN THE NORTH COUNTY OF SAN DIEGO, CALIFORNIA FOR
RESOLUTION OF ALL DISPUTES ARISING OUT OF, IN CONNECTION WITH, OR BY REASON OF
THE INTERPRETATION, CONSTRUCTION, AND ENFORCEMENT OF THIS AGREEMENT, AND HEREBY
WAIVES THE CLAIM OR DEFENSE THEREIN THAT SUCH COURTS CONSTITUTE AN INCONVENIENT
FORUM.  AS A MATERIAL INDUCEMENT FOR THIS AGREEMENT, EACH PARTY
SPECIFICALLY WAIVES THE RIGHT TO TRIAL BY JURY OF ANY ISSUES SO
TRIABLE.

    


    d.           Attorney’s
Fees.   Should any Party hereto employ an attorney for the
purpose of enforcing or constituting this Agreement, or any judgment based on
this Agreement, in any legal proceeding whatsoever, including insolvency,
bankruptcy, arbitration, declaratory relief or other litigation, the prevailing
party shall be entitled to receive from the other Party or Parties thereto
reimbursement for all reasonable attorneys’ fees and all reasonable costs,
including but not limited to service of process, filing fees, court and court
reporter costs, investigative costs, expert witness fees, and the cost of any
bonds, whether taxable or not, and that such reimbursement shall be included in
any judgment or final order issued in that proceeding.  The
“prevailing party” means the party determined by the court to most nearly
prevail and not necessarily the one in whose favor a judgment is
rendered.

    


    e.           No Oral Change;
Waiver.  This Agreement may only be changed, modified, or
amended in writing by the mutual consent of the Parties hereto.  The
provisions of this Agreement may only be waived in or by writing signed by the
Party against whom enforcement of any waiver is sought.

    


    f.           Severability.  If
any provision of this Agreement is invalid, illegal, or unenforceable, the
balance of this Agreement shall remain in effect.  If any provision is
inapplicable to any person or circumstance, it shall nevertheless remain
applicable to all other persons and circumstances.

    


    g.           Execution of the
Agreement.  The Company and Noctua, have the requisite
corporate power and authority to enter into and carry out the terms and
conditions of this Agreement, as well as all transactions contemplated
hereunder. All corporate proceedings have been taken and all corporate
authorizations and approvals have been secured which are necessary to authorize
the execution, delivery and performance by the Company and Noctua of this
Agreement.  This Agreement has been duly and validly executed and
delivered by the Company and Noctua and constitutes a valid and binding
obligation, enforceable in accordance with the respective terms
herein.  Upon delivery of this Agreement, this Agreement, and the
other agreements and exhibits referred to herein, will constitute the valid and
binding obligations of Company, and will be enforceable in accordance with their
respective terms.

    


    h.           Joint Drafting and Exclusive
Agreement.  This Agreement is the only Agreement executed by
and between the Parties related to the Obligations described
herein.  There are no additional oral agreements or other
understandings related to the Obligations described herein.  This
Agreement shall be deemed to have been drafted jointly by the Parties hereto,
and no inference or interpretation against any one Party shall be made solely by
virtue of such Party allegedly having been the draftsperson of this
Agreement.  The Parties have each conducted sufficient and appropriate
due diligence with respect to the facts and circumstances surrounding and
related to this Agreement.  The Parties expressly disclaim all
reliance upon, and prospectively waive any fraud, misrepresentation, negligence
or other claim based on information supplied by the other Party, in any way
relating to the subject matter of this Agreement.

    


    i.           Conflicts of
Interest.  The Parties shall exercise their best efforts to the
other Party aware of any conflicts of interest that exist between such Party,
including any other business of entity that such Party beneficially owns or
controls, and any interest of the other Party.  Disclosure of such
conflicts of interest shall be made in writing on the attached “Schedule
C.”  Acknowledgement of such conflicts of interest and waiver
of any cause of action against a Party related to a conflict of interest may be
made in writing or through oral communication.

    


    j.           Acknowledgments and
Assent.  The Parties acknowledge that they have been given at
least ten (10) days to consider this Agreement and that they were advised to
consult with an independent attorney prior to signing this Agreement and that
they have in fact consulted with counsel of their own choosing prior to
executing this Agreement.  The Parties may revoke this Agreement for a
period of three (3) calendar days after signing this Agreement, and the
Agreement shall not be effective or enforceable until the expiration of this
three (3) day revocation period.  The Parties agree that they have
read this Agreement and understand the content herein, and freely and
voluntarily assent to all of the terms herein.

    


    


    ***SIGNATURE
PAGE FOLLOWS***


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    SIGNATURE
PAGE

    


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

    


    
      	
              Audiostocks,
      Inc.

            	
              Noctua
      Fund LP

            
	
               

               

               

              ___________________________________

            	
               

               

               

              ___________________________________

            
	
              By:
      Luis Leung

            	
              By:
      James B. Panther, II

            
	
              Its:
      President and CEO

            	
              For:
      Noctua Fund Manager, LLC

            
	 
      	
              General
      Partner of Noctua Fund LP

            
	 
      	 
      


    

    


    


    A
FACSIMILE COPY OF THIS AGREEMENT SHALL HAVE THE SAME LEGAL EFFECT AS AN ORIGINAL
OF THE SAME.

    


    


    


    
 


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    SCHEDULE
A

    


    


    


    


    



    
      
         


      

      
         


        
          

        

      

      
         


      

    


    SCHEDULE
B

    SETTLEMENT
NOTE

    



    
      
         


      

      
         


        
          

        

      

      
         


      

    


    SCHEDULE
C

    CONFLICTS
OF INTEREST

    


    


    Relationships of Luis J.
Leung:

    


    
      	
              ·  

            	
              President
      and Chief Executive Officer of AudioStocks,
Inc.

            


    

    
      	
              ·  

            	
              Sole
      executive officer of AudioStocks,
Inc.

            


    

    
      	
              ·  

            	
              Sole
      Director of AudioStocks, Inc.

            


    

    
      	
              ·  

            	
              CEO
      of DAO Information Systems, Inc. (“DAO,
      Inc.”)

            


    

    
      	
              ·  

            	
              60%
      Equity Member of DAO Information Systems, LLC, which owns 100% of DAO,
      Inc.

            


    

    


    Relationships of Noctua Fund
LP:

    


    
      	
              ·  

            	
              Noctua
      Fund Manager, LLC is jointly owned by entities which are beneficially
      owned and controlled by Mark L. Baum (“Baum”) and
      James B. Panther, II (“Panther”)

            


    

    
      	
              ·  

            	
              Baum
      and Panther have most recently disclosed their respective ownership
      interests in the Company on April 20, 2009 and April 21, 2009 in Amended
      Form 13Ds and Form 3s, filed with the
SEC.

            


    

    
      	
              ·  

            	
              Baum
      and Panther collectively control the voting interests (through common
      shares and the Company’s Series A Preferred Stock) of the
      Company.

            


    

    
      	
              ·  

            	
              Noctua
      Fund LP is a 40% Equity Member of DAO Information Systems, LLC, which owns
      100% of DAO, Inc.

            


    

    
      	
              ·  

            	
              Noctua
      Fund LP beneficially owns 100 shares of the Company’s Series C Preferred
      stock.