Document:

Exhibit 10.3

 

GLOBALSCAPE, INC.

NON-QUALIFIED STOCK OPTION AGREEMENT

This Non-Qualified Stock Option Agreement (the “Agreement”) is entered into between GLOBALSCAPE, Inc., a Delaware corporation (the “Company”), and (Name) (the “Optionee”) as of the (Day) day of (Month) (the “Date of Grant”).  In consideration of the mutual promises and covenants made herein, the parties hereby agree as follows:

1.          Grant of Option.  Under the terms and conditions of the Company’s 2016 Employee Long-Term Equity Incentive Plan (the “Plan”), which is incorporated herein by reference, the Company grants to the Optionee an option (the “Option”) to purchase from the Company all or any part of a total of 00 shares of the Company’s Common Stock, par value $0.001 per share (the “Stock”), at a price of $0.00 per share.

2.          Character of Option.  This option is a non-qualified stock option as such is defined in the Internal Revenue Code of 1986 (the “Code”). It is not an “incentive stock option” within the meaning of Section 422 of the Code.

3.          Term.  The Option will expire on the day prior to the tenth anniversary of the Date of Grant or, in the event of the Optionee’s termination of service as an employee, director, or advisor of the Company, on such earlier date as may be provided in the Plan.

4.          Vesting; Exercisability.  Subject to any provisions of the Plan concerning exercisability and vesting of options, and contingent upon the Optionee’s continuous status as an Employee, the Option shall vest and be exercisable according to the following schedule:

	
Total Percentage

Vested

	 	
Period

	
00.0%

	 	
Prior to the first anniversary of the Date of Grant

	
33.3%

	 	
As of the first anniversary of the Date of Grant

	
66.7%

	 	
As of the second anniversary of the Date of Grant

	
100.0%

	 	
As of the third anniversary of the Date of Grant

The unexercised portion of the Option that becomes vested during one period may be carried over to a subsequent period or periods, and the right of the Optionee to exercise the Option as to such vested portion shall continue for the entire term, unless otherwise forfeited under the terms of the Plan or this Agreement.

In the event Optionee ceases to be an Employee, any unvested portion of the Option shall be forfeited immediately, and any vested portion of the Option shall be exercisable only as provided under the Plan.

Page 1 of 8

Notwithstanding anything else to the contrary herein, upon the occurrence of a “Change of Control,” this Option shall become fully exercisable.  The term “Change of Control” shall mean the first to occur of any of the following:

	
(i)

	
the sale, transfer, or assignment to, or other acquisition by any other entity or entities (other than a Subsidiary), of all or substantially all of the Company’s assets, on a consolidated basis, in one or a series of related transactions; or

	
(ii)

	
a third person, including a “group” as determined in accordance with Section 13(d) or 14(d) of the Exchange Act, obtains the Beneficial Ownership of Common Stock having fifty percent (50%) or more of the then total number of votes that may be cast for the election of members of the Board; provided, however, that if Thomas W. Brown and/or David L. Mann acquire, directly or indirectly, Beneficial Ownership of Common Stock having 50% or more of the then total number of votes that may be cast for the election of members of the Board, then it shall not be deemed a Change of Control; or

	
(iii)

	
during any two-consecutive year period, the individuals who, at the beginning of such period, constitute the Board (“Incumbent Directors”) cease for any reason other than death to constitute at least a majority of the members of the Board; provided, however, that except as set forth in this Section 4, an individual who becomes a member of the Board subsequent to the beginning of the two-year period, shall be deemed to have satisfied such two-year requirement and shall be deemed to be an Incumbent Director if such Director was elected by or on the recommendation of, or with the approval of, at least two-thirds of the Directors who then qualified as Incumbent Directors either actually (because they were Directors at the beginning of such period) or by operation of the provisions of this Section; if any such individual initially assumes office as a result of or in connection with either an actual or threatened solicitation with respect to the election of Directors (as such terms are used in Rule 14a-12(c) of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitations of proxies or consents by or on behalf of a person other than the Board, then such individual shall not be considered an Incumbent Director; or

	
(iv)

	
a merger, consolidation, reorganization or other business combination (a “Transaction”), as a result of which (A) the stockholders of the Company immediately prior to such Transaction own, directly or indirectly, immediately following such Transaction less than a majority of the combined voting power of the outstanding voting securities of the entity resulting from such Transaction; (B) a Person (other than Thomas W. Brown or David L. Mann) Beneficially Owns, directly or indirectly, 20% or more of the combined voting power of the then-outstanding voting securities of the entity resulting from such Transaction; or (C)  a majority of the members of the board of directors or similar governing body of the entity resulting from such Transaction were not Incumbent Directors at the time of the execution of the initial agreement, or of the action of the Board, providing for such Transaction.

Page 2 of 8

5.          Procedure for Exercise.  Exercise of the Option or a portion thereof shall be effected by the Optionee giving written notice directly to the Company of the Optionee’s intent to exercise the Option. Optionee shall give such written notice using the Company’s Stock Option Exercise Notice form in effect at the time the Optionee desires to exercise this Option.  A copy of such notice in effect as of the Date of Grant is attached to this agreement.

6.          Payment of Purchase Price.  Payment of the purchase price for any shares of the Stock purchased pursuant to the Option shall be in accordance with the provisions of the Plan and this Agreement. Payment of the purchase price is due the Company within seven business days of the Company receiving written notification from the Optionee of Optionee’s intent to exercise the Option. If payment of the purchase price for all shares cited in the Option exercise notification is not received by the Company within seven business days of the Company receiving such written notification of the exercise, the Company will treat that written notice as expired and will not complete the option exercise. In that case, Optionee must submit to the Company a new written notice of Optionee’s intent to exercise the Option. For the avoidance of doubt and to confirm, the Company does not accept standing Option exercise orders under which the Optionee informs the Company of Optionee’s intent to purchase shares pursuant to the Option in multiple tranches with multiple payments over time.

7.          Tax Withholding.  If the Company shall be required to withhold any federal, state, or local tax in connection with the exercise of the Option, it shall be a condition to such exercise that the Optionee pay or make provision satisfactory to the Company for payment of all such taxes.  The Optionee may make payment of taxes using any method described in Section 19 of the Plan.

8.          Issuance of Shares.  The Company shall issue to the Optionee the number of shares of Stock purchased by exercise of this Option upon receipt by the Company of payment of both the purchase price described in Section 6 and the applicable taxes described in Section 7.

9.          Transfer of Options.  The Option may not be transferred except (i) by will or the laws of descent and distribution or (ii) pursuant to the terms of a qualified domestic relations order, as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, and, during the lifetime of the Optionee, may be exercised only by the Optionee or by the Optionee’s legally authorized representative.

10.          Continuous Relationship with the Company Required.  Except as otherwise provided in this Section 10, this Option may not be exercised unless the Optionee, at the time he or she exercises this Option, is, and has been at all times since the Date of Grant of this Option, a Participant.

Unless otherwise provided in this Agreement or any severance agreement, vested Options granted under the Plan shall expire, terminate or otherwise be forfeited as follows:

	
(i)

	
three (3) months after the date of the termination of Optionee’s employment, other than in circumstances covered by (ii), (iii) or (iv) below;

	
(ii)

	
immediately upon termination of Optionee’s employment for Misconduct;

Page 3 of 8

	
(iii)

	
twelve (12) months after the date of the termination of a Optionee’s employment if such termination was by reason of disability (within the meaning of Section 22(e)(3) of the Code); and

	
(iv)

	
twelve (12) months after the date of the death of Optionee.

11.          Acceptance of the Plan.  The Option is granted subject to all of the applicable terms and provisions of the Plan, and such terms and provisions are incorporated by reference herein.  The Optionee hereby accepts and agrees to be bound by all the terms and conditions of the Plan.

12.          No Shareholder Rights.  Prior to exercise of this Option, the Optionee shall not be entitled to any rights of a shareholder with respect to the Stock, including (without limitation) the right to vote such Stock, receive dividends or other distributions thereon, exercise preemptive rights or be notified of shareholder meetings, and, except as otherwise provided in this Option, such Optionee shall not be entitled to any shareholder notice or other communication concerning the business or affairs of the Company.  Optionee further agrees that the Company’s obligations to issue shares is subject to Optionee’s prior execution of a shareholder’s agreement containing such restrictions deemed necessary and appropriate by the Board.

13.          Governing Law; Venue.  The laws of the State of Texas, excluding its conflicts laws, shall govern this Agreement the rights and obligations of the parties hereto, the entire relationship between the parties hereto, and all matters arising out of or relating to this Agreement.  ANY LAWSUIT OR OTHER LEGAL PROCEEDING BETWEEN THE PARTIES SHALL BE BROUGHT ONLY IN THE CIVIL DISTRICT COURTS OF BEXAR COUNTY, TEXAS, OR THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS, SAN ANTONIO DIVISION.  THE PARTIES HEREBY CONSENT TO THE PERSONAL AND EXCLUSIVE JURISDICTION AND VENUE OF THIS COURT.

14.          Amendment.  This Agreement may be amended by an instrument in writing signed by both the Company and the Optionee.

15.          Successors and Assigns.  The terms and provisions of this Option shall inure to the benefit of, and be binding upon, the Company and the holders hereof and their respective successors and assigns.

16.          Survival of Provisions.  In the event the Option granted hereunder is exercised by Optionee in whole or in part, the representations, warranties, covenants and agreements of Optionee under this Option shall survive such exercise and purchase of the Shares.

Page 4 of 8

 

This Non-Qualified Stock Option Agreement is executed to be effective as of the Date of Grant.

GLOBALSCAPE, INC.

By:          ______________________________

James A. Albrecht

Chief Financial Officer

 

 

 

OPTIONEE

 

 

____________________________

(Employee Name)

 

Page 5 of 8

Stock Option Exercise Notice

(Note: Payment for the shares being purchased is due within seven business days of Globalscape receiving this notice. A new option exercise notice must be submitted to purchase any shares for which payment is not received within that allotted time. Allow at least three business days from the date of Globalscape’s receipt of payment for the shares to be delivered to you.)

Optionee name:  _____________________________________

Printed Name

Options being exercised:

	
Option Grant Date

	
Option Exercise Price Per Share

($0.00)

	
Number of Shares Being Purchased

(Whole Number)

	
Total Price to Exercise Option Before Taxes (Price Per Share Times Number of Shares)

	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	
------------------------------

	
 

Total Price for All Options Being Exercised >>>>>

	 

Please deliver shares issued to me from this exercise as follows (select one delivery method):

_____ Send me a paper certificate.

_____ Electronically deliver the shares to my brokerage account described below.

I will pay the total exercise price, plus taxes, as computed on the next page as follows (select one payment method):

_____  I will pay Globalscape by check or funds transfer drawn on my bank account.

_____  I will pay Globalscape by funds transfer from my brokerage account described below.

My brokerage account is as follows (All boxes must be completed if using a brokerage account.  This stock option exercise cannot be processed with any brokerage or broker information blank):

	
Brokerage firm name

	 
	
Brokerage firm DTC number (Your broker has this number.)

	 
	
My brokerage account number

	 
	
Broker contact name

	 
	
Broker contact phone number

	 
	
Broker contact email address

	 

 

 

	
_____________________________________________

	
__________________

	
Optionee Signature 

	Date Signed

          

Page 6 of 8

 

	
Taxable Income Computation

	 
	 	 	 	 	   	 	
Option

	 	 	
Number

	 	 	
Total

	 	
Option

	 	 	 
	 	 	 	 	   	 	
Exercise

	 	 	
of

	 	 	
Price

	 	
Type

	 	
Closing

	 
	
Option

	 	
Option

	 	
Option

	 	
Price

	 	 	
Shares

	 	 	
to

	 	
(NQSO

	 	
Price on

	 
	
Tracking

	 	
Grant

	 	
Expiration

	 	
Per

	 	 	
Being

	 	 	
Exercise

	 	
or

	 	
Exercise

	 
	
Number

	 	
Date

	 	
Date

	 	
Share

	 	 	
Purchased

	 	 	
Options

	 	
ISO)

	 	
Date

	 
	 	 	 	 	   	 	
$

	
-

	 	 	 	
-

	 	 	
$

	
-

	 	 	 	
$

	
-

	 
	 	 	 	 	   	 	
$

	
-

	 	 	 	
-

	 	 	
$

	
-

	 	 	 	
$

	
-

	 
	 	 	 	 	   	 	
$

	
-

	 	 	 	
-

	 	 	
$

	
-

	 	 	 	
$

	
-

	 
	 	 	 	 	   	 	
$

	
-

	 	 	 	
-

	 	 	
$

	
-

	 	 	 	
$

	
-

	 
	 	 	 	 	 	 	$	-	 	 	 	 	 	 	$	-	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	-	 	 	 	 	 	 

 

 

	
Amount Due From Optionee

	 
	 	 	 	 
	
Total price to exercise options (from above)

	 	$	-	 
	
Federal income taxes

	 	 	
-

	 
	
Social security taxes

	 	 	
-

	 
	
Medicare taxes

	 	 	
-

	 
	
Total due from optionee to exercise options

	 	$	-	 

 

GlobalSCAPE, Inc. confirms that:

 

	
1.

	
The options to purchase shares of its common stock as described above are valid and in force.

 

	
2.

	
It will issue shares of common stock in the manner directed above upon its receipt of payment for the exercise price plus applicable taxes as illustrated above.

 

	
3.

	
DWAC shares will be available to broker within three business days of receipt of payment for the shares.

 

	
4.

	
The person to whom the shares will be issued [is][is not] subject to Rule 144.

 

	
5.

	
No dividends or stock splits have been declared that have not been paid or completed.

 

	
6.

	
No company restructurings or reorganizations are in progress.

 

	
7.

	
There will be no restrictive legend on any stock certificates issued.

 

	
8.

	
Under the terms of its employee handbook that its employees [are in a trading blackout period through date][are not expected to be in a trading blackout period before date].

	
 

	
GlobalSCAPE, Inc.

	
 

	
 

	
 

	
 

	 	 	 
	 	By: _________________________	___________
	 	
James W. Albrecht, Jr.

Chief Financial Officer

	
Date

 

Page 7 of 8

Payment Instructions

	
If paying by check, mail this form and check to:

	
If paying by wire or ACH transfer, send payment to:

	
GlobalSCAPE, Inc.

Attn: Controller

4500 Lockhill Selma Road

Suite 150

San Antonio, Texas  78249

 

	
The Bank of San Antonio

ABA # 114025641; Swift # BSATUS44

Account # 27540

8000 IH 10 West; STE 1100;

 San Antonio, Texas 78230

Send an email confirming payment to:

accountsreceivable@globalscape.com

 

Please address all inquiries and requests for information to stockoptions@globalscape.com

 

 

  

 

 

 

 

Page 8 of 8EXHIBIT 10.5

  

CONVERTIBLE PROMISSORY NOTE

$150,000

FOR VALUE RECEIVED, XsunX, Inc., a Colorado corporation, (the “Borrower”) with approximately 967,714,645 shares of common stock issued and outstanding, promises to pay to ________________, a Nevada limited liability company, or its assignees (the “Lender”) the Principal Sum along with the Interest and any other fees according to the terms herein (this “Note”). This Note shall become effective on May 12, 2017 (the “Effective Date”).

The Principal Sum is One Hundred Fifty Thousand Dollars ($150,000) plus accrued and unpaid interest. The total Consideration is One Hundred Fifty Thousand Dollars ($150,000) payable by wire. The Lender shall pay Twenty-Five Thousand Dollars ($25,000) of the Consideration upon execution of this Note (the “Initial Consideration”). The Lender may pay additional Consideration to the Borrower in such amounts as the Lender may choose in its sole discretion (the “Additional Consideration”). The Principal Sum due to the Lender, and as referenced hereinafter, shall be the Initial Consideration plus any Additional Consideration actually paid by the Lender such that the Borrower is only required to repay the amount funded and the Borrower is not required to repay any unfunded portion of this Note, nor shall any interest or other rights or remedies granted herein extend to any unfunded portion of this Note.

1. Maturity Date. The Maturity Date is twelve (12) months from the Effective Date (the “Maturity Date”) and is the date upon which the Principal Sum of this Note and unpaid interest and fees (the “Note Amount”) shall be due and payable. Within thirty (30) days prior to the Maturity Date, the Lender may provide the Borrower with a written notice to extend the Maturity Date and the Note Amount shall then be payable upon demand, but in no event later than sixty (60) months from the Effective Date (the ”Extended Maturity Date”). The Lender shall provide the Borrower with ten (10) days written notice to make a demand for payment (the “Demand Payment Date”), and the Demand Payment Date shall be considered to be the Extended Maturity Date.

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

 

3. Conversion. The Lender has the right, at any time after the Effective Date, at its election, to convert all or part of the Note Amount into shares of fully paid and non-assessable shares of common stock of the Borrower (the “Common Stock”). The conversion price (the “Conversion Price”) shall be the lesser of (a) $0.01 per share of Common Stock or (b) Fifty Percent (50%) of the lowest trade price of Common Stock recorded on any trade day after the Effective Date, or (c) the lowest effective price per share granted to any person or entity, including the Lender but excluding officers and directors of the Borrower, after the Effective Date to acquire Common Stock, or adjust, whether by operation of purchase price adjustment, settlement agreements, exchange agreements, reset provision, floating conversion or otherwise, any outstanding warrant, option or other right to acquire Common Stock or outstanding Common Stock equivalents (the “Conversion Price”). The conversion formula shall be as follows: Number of shares receivable upon conversion equals  the dollar  conversion amount  divided by  the Conversion  Price. A conversion notice  (the  “Conversion  Notice”)  may  be delivered  to  Borrower  by  method  of Lender’s choice (including but not limited to email, facsimile, mail, overnight courier, or personal delivery), and all conversions shall be cashless and not require further payment from the

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Lender. If no objection is delivered from the Borrower to the Lender, with respect to any variable or calculation reflected in the Conversion Notice within 24 hours of delivery of the Conversion Notice, the Borrower shall have been thereafter deemed to have irrevocably confirmed and irrevocably ratified such notice of conversion and waived any objection thereto. The Borrower shall deliver the shares of Common Stock from any conversion to the Lender (in any name directed by the Lender) within three (3) business days of Conversion Notice delivery. The Borrower shall pay any transfer agent fees for the issuance of shares. If the Borrower is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, then upon request of the Lender and provided that the shares to be issued are eligible for transfer under Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”), or are effectively registered under the Securities Act, the Borrower shall cause its transfer agent to electronically issue the Common Stock issuable upon conversion to the Lender through the DTC Direct Registration System (“DRS”). If the Borrower is not participating in the DTC FAST program, then after receiving the Initial Consideration, the Borrower agrees to begin a good faith effort to apply and cause the approval for participation in the DTC FAST program. The Conversion Price shall be subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events.

4. Conversion Delays. If Borrower fails to deliver shares in accordance with the timeframe stated in Section 3, the Lender, at any time prior to selling all of those shares, may rescind any portion, in whole or in part, of that particular conversion attributable to the unsold shares and have the rescinded conversion amount returned to the Principal Sum with the rescinded conversion shares returned to the Borrower (under the Lender’s and the Borrower’s expectations that any returned conversion amounts shall tack back to the original date of this Note). In addition, for each conversion, in the event that shares are not delivered by the fourth business day (inclusive of the day of conversion), a penalty of $2,000 per day shall be assessed for each day after the third business day (inclusive of the day of the conversion) until share delivery is made; and such penalty shall be added to the Principal Sum of this Note (under the Lender’s and the Borrower’s expectations that any penalty amounts shall tack back to the original date of this Note consistent with applicable securities laws).

5. Limitation of Conversions. In no event shall the Lender be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Lender and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of this Note or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Lender and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso, provided, further, however, that the limitations on conversion may be waived by the Lender upon, at the election of the Lender, not less than 61 days prior notice to the Borrower, and the

 

2

provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the Lender, as may be specified in such notice of waiver).

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

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

8. Lender’s Representations. The Lender hereby represents and warrants to the Borrower that (i) it is an “accredited investor” as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act, (ii) it understands that this Note and the shares of Common Stock underlying this Note (collectively, the “Securities”) have not been registered under the Securities Act by reason of a claimed exemption under the provisions of the Securities Act that depends, in part, upon the Lender’s investment intention; in this connection, the Lender hereby represents that it is purchasing the Securities for the Lender’s own account for investment and not with a view toward the resale or distribution to others; provided, that Lender may syndicate participations in the Securities among a limited number of participants who all meet the suitability standards of an “accredited investor” as defined in Rule 501(a) of Regulation D of the Securities Act and will share among themselves and the Lender an economic interest in the Securities on a pari passu, pass through basis with investment intent, such that the availability of the private placement exemption for the issuance of the Note under Rule 506 of Regulation D of the Securities Act is preserved, (iii) the Lender, if an entity, further represents that it was not formed for the purpose of purchasing the Securities, (iv) the Lender acknowledges that the issuance of this Note has not been reviewed by the United States Securities and Exchange Commission (the “SEC”) nor any state regulatory authority since the issuance of this Note is intended to be exempt from the registration requirements of Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D, and (v) the Lender acknowledges receipt and careful review of this Note, the Borrower’s filings with the SEC (including without limitation, any risk factors included in the Borrower’s most recent Annual Report on Form 10-K), and any documents which may have been made available upon request as reflected therein, and hereby represents that it has been furnished by the Borrower with all information regarding the Borrower, the terms and conditions of the purchase and any additional information that the Lender has requested or desired to know, and has been afforded the opportunity to ask questions of and receive answers from duly authorized officers or other representatives of the Borrower concerning the Borrower and the terms and conditions of the purchase.

 

3

 

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

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

11. Remedies. In the event of any default, the funded portion of the Note Amount shall become immediately due and payable at the Mandatory Default Amount. The Mandatory Default Amount shall be 150% of the funded portion of the Note Amount. Commencing five (5) days after the occurrence of any event of default that results in the eventual acceleration of this Note, the interest rate on the Mandatory Default Amount shall accrue at a default interest rate equal to the lesser of ten percent (10%) per annum or the maximum rate permitted under applicable law. In connection with such acceleration described herein, the Lender need not provide, and the Borrower hereby waives, any presentment, demand, protest or other notice of any kind, and the Lender may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. While the Mandatory Default Amount is outstanding and default interest is accruing, the Lender shall have all rights as a holder of this Note until such time as the Lender receives full payment pursuant to this paragraph, or has converted all the remaining Mandatory Default Amount and any other outstanding fees and interest into Common Stock under the terms of this Note. In the event of any default and at the request of the Lender, the Borrower shall file a registration statement with the SEC to register all shares of Common Stock issuable upon conversion of this

4

Note that are otherwise eligible to have their restrictive transfer legend removed under Rule 144 of the Securities Act. Nothing herein shall limit Lender’s right to pursue any other remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Borrower’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Note as required pursuant to the terms hereof. The Borrower may only pay the full balance of the Mandatory Default Amount, and may not make partial payments unless agreed upon by the Lender. If the Borrower desires to pay the Mandatory Default Amount, then the Borrower shall provide the Lender with six (6) days prior written notice of payment. Within three (3) days of receiving written notice, the Lender shall elect to either (a) accept payment, or (b) convert any part of the payment into shares of Common Stock. If the Lender elects to convert part of the payment into shares of Common Stock, then the Borrower shall pay the remaining balance of the Mandatory Default Amount.

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

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

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

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

16. Attorney Fees. In the event any attorney is employed by either party to this Note with regard to any legal or equitable action, arbitration or other proceeding brought by such party for the enforcement of this Note or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Note, the prevailing party in such proceeding shall be entitled to recover from the other party reasonable attorneys’ fees and

 

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other costs and expenses incurred, including but not limited to post judgment costs, in addition to any other relief to which the prevailing party may be entitled.

17. Transfer Agent Instructions. In the event that an opinion of counsel, such as but not limited to a Rule 144 opinion, is needed for any matter related to this Note or the Common Stock the Lender has the right to have any such opinion provided by its counsel. If the Lender chooses to have its counsel provide such opinion, then the Lender shall provide the Borrower with written notice. Within three (3) business days of receiving written notice, the Borrower shall instruct its transfer agent to rely upon opinions from the Lender’s counsel. A penalty of $2,000 per day shall be assessed for each day after the third business day (inclusive of the day of request) until the reliance instruction is delivered to the transfer agent. If the Lender requests that the Borrower’s counsel issue an opinion, then the Borrower shall cause the issuance of the requested opinion within three (3) business days. A penalty of $2,000 per day shall be assessed for each day after the third business day (inclusive of the day of request) until the requested opinion is delivered. The Lender and the Borrower agree that all penalty amounts shall be added to the Principal Sum of this Note and shall tack back to the Effective Date of this Note, with respect to the holding period under Rule 144, so long as such treatment is not inconsistent with Rule 144’s applicable tacking provisions. The Borrower warrants that it will not direct its transfer agent not to transfer or delay, impair, and/or hinder its transfer agent in transferring (or issuing)(electronically or in certificated form) any certificate for the Securities to be issued to the Lender and it will not fail to remove (or direct its transfer agent not to remove or impair, delay, and/or hinder its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for the Securities when required by this Note. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Lender by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note may be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of these provisions, that the Lender shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate transfer, without the necessity of showing economic loss and without any bond or other security being required.

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

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

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

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Commission or any other public filings, except such full disclosures as may be required under applicable law or under any applicable order, rule or regulation.

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

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

XsunX, Inc. (the “Borrower”)

 

 

By                                                                         

     Tom Djokovich

     Chief Executive Officer

(the “Lender”)

 

 

 

By                                                                    

 

Its President

 

 

 

 

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