Document:

knwn_ex103

 
Exhibit 10.3

 

NEITHER
THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

 

KNOW
LABS, INC.

 

FORM OF
8.0% SUBORDINATED CONVERTIBLE NOTE

 

	
Original
Issue Date: ____________________

	
Principal
Amount:  ____________________

 

THIS
8.0% SUBORDINATED CONVERTIBLE NOTE (this “Note ”) is issued, dated, and
effective as of the Original Issue Date set forth above by Know
Labs, Inc., a Nevada corporation (the “Company”), having its principal
place of business at 500 Union Street, Suite 810, Seattle, WA
98101, to(together with its successors and permitted assigns, the
“Holder”),
pursuant to exemptions from registration under the Securities Act
of 1933, as amended (the “Securities Act”). The Company
promises to pay the aggregate unpaid Principal Amount under this
Note set forth above (the “Principal Amount”) to the Holder
on the earlier of: (1) mandatory and automatic conversion of this
Note into the next financing for the
Company,providedsuchfinancingyieldsgross proceeds to the Company of
at least $5 million as set forth below under “Mandatory
Conversion” (a “Qualified Financing”) or (2) the
one (1) year anniversary of this Note (the “Maturity Date”), and to pay
interest to the Holder on the aggregate unconverted and then
outstanding Principal Amount in accordance with the provisions of
this Note.

 

This
Note is subject to the following additional
provisions:

 

Section 1. Definitions. For the purposes
hereof, in addition to the terms defined elsewhere in this Note (a)
capitalized terms not otherwise defined herein shall have the
meanings set forth in the Securities Purchase Agreement and (b) the
following terms shall have the following meanings:

 

“Bankruptcy Event” means any of the
following events: (a) the Company commences a case or other
proceeding under any bankruptcy, reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction relating to the
Company; (b) there is commenced against the Company any such case
or proceeding that is not dismissed within sixty (60) days after
commencement;

(c) the
Company is adjudicated insolvent or bankrupt or any order of relief
or other order approving any such case or proceeding is entered;
(d) the Company suffers any appointment of any custodian or the
like for it or any substantial part of its property that is not
discharged or stayed
within sixty (60)
calendar days after such appointment; (e) the Company makes a
general assignment for the benefit of creditors; (f) the Company
calls a meeting of its creditors with a view to arranging a
composition, adjustment or restructuring of its debts; or (g) the
Company, by any act or failure to act, expressly indicates its
consent to, approval of or acquiescence in any of the foregoing or
takes any corporate or other action for the purpose of effecting
any of the foregoing.

 

“Business Day” means any day other
than a Saturday, Sunday, or a legal holiday on which federal banks
are authorized or required to be closed for the conduct of
commercial banking business.

 

“Change of Control” means any of
the following events: (a) consummation of any merger or
consolidation of the Company in which the Company is not the
continuing or surviving corporation, or pursuant to which shares of
the Company’s common stock are converted into cash,
securities, or other property, if following such merger or
consolidation the holders of the Company’s outstanding voting
securities immediately prior to such merger or consolidation own
less than fifty percent (50%) of the outstanding voting securities
of the surviving corporation; (b) consummation of any sale, lease,
exchange or other transfer, in one transaction or a series of
related transactions of all or substantially all of the
Company’s assets; or (c) a change in ownership of the
Company’s capital stock as a result of which the owners of
the Company’s outstanding capital stock immediately prior to
the change own less than fifty percent (50%) of the Company’s
outstanding capital stock following such change.

 

 

 

 

“Common Stock Equivalents” means
any securities of the Company or its subsidiaries which would
entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time
convertible into or exercisable or exchangeable for, or otherwise
entitles the holder thereof to receive, Common Stock.

 

“Event of Default” shall have the
meaning set forth in Section 5(a).

 

“Original Issue Date” means the
date of the first issuance of this Note as set forth above,
regardless of any transfers of this Note and regardless of the
number of instruments which may be issued to evidence this
Note.

 

“Permitted Indebtedness” means (a)
the indebtedness evidenced by this Note, (b) the indebtedness
existing on the Closing Date, (c) lease obligations and purchase
money indebtedness incurred in connection with the acquisition of
capital assets and lease obligations with respect to newly acquired
or leased assets, and (d) indebtedness that is expressly
subordinate to this Note pursuant to a written subordination
agreement with the Holder that is acceptable to the Holder in its
sole and absolute discretion.

 

“Permitted Lien” means the
individual and collective reference to the following: (a) liens
existing on the Closing Date, (b) liens for taxes, assessments and
other governmental charges or levies not yet due or liens for
taxes, assessments and other governmental charges or levies being
contested in good faith and by appropriate proceedings for which
adequate reserves (in the good faith judgment of the management of
the Company) have been established in accordance with GAAP; (c)
liens imposed by law which were incurred in the ordinary course of
the Company’s business, such as carriers’,
warehousemen’s and mechanics’ liens, statutory
landlords’ liens, and other similar liens arising in the
ordinary course of the Company’s business, and which (x) do
not individually or in the aggregate materially detract from the
value of such property or assets or materially impair the use
thereof in the operation of the business of the Company and its
consolidated Subsidiaries or (y) are being contested in good faith
by appropriate proceedings, which proceedings have the effect of
preventing for the foreseeable future the forfeiture or sale of the
property or asset subject to such lien; and (d) liens incurred in
connection with Permitted Indebtedness.

 

“Securities Purchase Agreement”
means the Securities Purchase Agreement, dated as of the date
hereof, between the Company and the original Holder, as amended,
modified, or supplemented from time to time in accordance with its
terms.

 

	

Section 2.

	

Interest;
Prepayment.

	

a)

	

Interest Rate. Interest shall
accrue daily on the outstanding Principal

 

Amount
of this Note at a rate per annum equal to eight percent (8.0%), and
is Payable-In- Kind (“PIK”) as set forth
below.

 

b) Payment of Interest . On the
Maturity Date, the Company shall pay to the Holder any accrued but
unpaid and unconverted interest hereunder on the aggregate
unconverted and then outstanding Principal Amount of this Note. The
amount of interest that has accrued on the Principal Amount hereof
as of any date may be added to and included with the Principal
Amount being so converted on any date on which a conversion is
effected under Section 3 below.

 

c) Interest Calculations. Interest
shall be calculated on the basis of a three hundred sixty (360)-day
year, consisting of twelve (12) thirty (30) calendar day periods,
and shall accrue daily commencing on the Original Issue Date until
payment in full of the outstanding Principal Amount, together with
all accrued and unpaid interest and other amounts which may become
due hereunder, has been made or until such Principal Amount and
interest have been duly converted. Interest hereunder will be paid
to the Person in whose name this Note is registered on the records
of the Company regarding registration and transfers of this
Note.

 

d) Prepayment. This Note may be
prepaid by the Company at any time following the Original Issuance
Date on seven (7) day’s prior written to the
Holder.

 

	

Section 3.

	

Conversion.

 

a)                             

Mandatory Conversion
on Qualified Financing. Each
Holder will be required to convert the Note into a Qualified
Financing at a conversion price per share equal to the lower of (i)
$2.00 or (ii) a twenty five percent (25%) discount to the price per
share paid by investors in such Qualified Financing. This mandatory
conversion shall be automatic and the Company will
provide notice to Holder at least seven (7) days prior to the
closing of a Qualified Financing as to the number of shares Holder
would receive based on applying the discounted pricing described
above for the Principal Amount and PIK shares. In conjunction with
any conversion, Holder will become a party to and will execute
appropriate subscription and other agreements in substantially the
form executed by investors in the Qualified
Financing.

 

b). Other Mandatory Conversion. If
the Note has not been paid or converted prior to the Maturity Date,
the outstanding Principal Amount of the Note will be automatically
converted on the Maturity Date into shares of common stock of the
Company based on the lesser of (i) $2.00 per share or (ii) any
adjusted price resulting from the application of the “Most
Favored Nations Provision” set forth below. In such event the
Anti-Dilution Period, as defined below, will be extended for a
further twelve (12) months.

 

 

 

 

c). Payment on Change of Control.
If prior to the Maturity Date, there is a Change of Control and the
Note has not previously been converted, a Holder may elect to have
the Note together with any accrued interest repaid in full at that
time in cash plus an additional ten percent (10%) on the Principal
Amount of the Note.

 

d). Most Favored Nations Provision.
If the Note has not been paid or converted prior to the Maturity
Date, and if at any time or from time to time prior to February 15,
2022 (the “Anti- Dilution
Period”) the Company issues any additional securities
(a “New
Issuance”) (including, but not limited to, any class
of shares, preferred stock, warrants, rights to subscribe for
shares, convertible debt or other securities convertible into any
share class, referred to below collectively as “Securities”) for a consideration
per share, after giving effect to, and net of, commissions, fees
and other expenses, that is less, or which on conversion or
exercise of the underlying security is less, than the conversion
price of the Holder (as adjusted for changes resulting from any
forward or reverse share splits, stock dividends and similar
events) (a “Down Round
Price”), the Company shall issue additional Securities
to Holder at no additional cost in an amount that it would have
received at the Down Round Price, rounded up to the next whole
share, on a full ratchet basis at no additional consideration
(“Holder’s Down Round
Issuances"). In the event that a New Issuance is made at a
Down Round Price and includes both equity securities and rights to
acquire additional securities (whether in the form of warrants,
options or other rights) (the “Rights”), then as part of any full
ratchet adjustment the Company shall also include, within the
Holder’s Down Round Issuances, that number of Rights which
Holder would have acquired had it participated in the New
Issuance.

 

Section 4. Negative Covenants. As long as
any portion of this Note remains outstanding, unless the Holder
shall have otherwise given prior written consent, the Company shall
not, and shall not permit any of its subsidiaries (whether or not a
subsidiary on any Closing Date) to, directly or
indirectly:

 

a) other than
Permitted Indebtedness, enter into, create, incur, assume,
guarantee, or suffer to exist any indebtedness for borrowed money
of any kind, including but not limited to, a guarantee, on or with
respect to any of its property or assets now owned or hereafter
acquired or any interest therein or any income or profits
therefrom;

 

b) other than
Permitted Liens, enter into, create, incur, assume, or suffer to
exist any liens of any kind, on or with respect to any of its
property or assets now owned or hereafter
acquired or any interest therein or any income or profits
therefrom;

 

c) repay, repurchase,
or offer to repay, repurchase or otherwise acquire more than a
de minimis number of shares of its
Common Stock or Common Stock Equivalents other than repurchases of
Common Stock or Common Stock Equivalents of departing employees of
the Company, provided that such repurchases shall not exceed an
aggregate of $150,000 for all employees during the term of this
Note;

 

d) pay cash dividends
or distributions on Common Stock of the Company;

 

e) enter into any
transaction with any Affiliate of the Company which would be
required to be disclosed in any public filing with the Commission,
unless such transaction is expressly approved by a majority of the
disinterested directors of the Company (even if less than a quorum
otherwise required for board approval); or

 

f)
enter
into any agreement with respect to any of the
foregoing.

 

	

Section 5.

	

Events of Default.

	

a)

	

“Event of Default” means, wherever
used herein, any of the

 

following events
(whatever the reason for such event and whether such event shall be
voluntary or involuntary or effected by operation of law or
pursuant to any judgment, decree or order of any court, or any
order, rule or regulation of any administrative or governmental
body), provided that an event specified in item i, ii, iii, or vii
below will not become an Event of Default unless and until it is
not cured, if possible to cure, within the earlier to occur of (i)
five (5) Business Days after notice of such failure sent by the
Holder or by any other Holder and (ii) ten (10) Business Days after
the Company has become or should have become aware of such
failure:

 

i. any default in the
payment of (A) the Principal Amount of this Note or (B) interest,
and other amounts owing to the Holder of this Note, as and when the
same shall become due and payable;

 

 

 

 

ii. the Company shall
fail to observe or perform any other covenant or agreement
contained in this Note;

 

iii. a
default or event of default shall occur under any of the
Transaction Documents (subject to any grace or cure period provided
in the applicable Transaction Document);

 

iv. any representation
or warranty made in the Transaction Documents shall be untrue or
incorrect in any material respect as of the date when made or
deemed made;

 

v.
    the Company shall be subject to a Bankruptcy
Event;

 

vi.
    the Company shall default on any of its
obligations under any mortgage, credit
agreement, or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or
by which there may be secured or evidenced, any indebtedness for
borrowed money or money due under any long term leasing or
factoring arrangement that (A) involves an obligation greater than
$100,000, whether such indebtedness now exists or shall hereafter
be created and (B) results in such indebtedness becoming or being
declared due and payable prior to the date on which it would
otherwise become due and payable;

 

vii. if
at any time commencing six (6) months from the date hereof the
Company is not subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended, or has
failed to file all reports required to be filed thereunder during
the then preceding twelve (12) months;

 

viii. any
monetary judgment, writ or similar final process shall be entered
or filed against the Company, any subsidiary or any of their
respective property or other assets for more than $100,000, and
such judgment, writ or similar final process shall remain
unvacated, unbonded, or unstayed for a period of forty-five (45)
calendar days; provided, however, that any judgment which is
covered by insurance or an indemnity from a creditworthy party
(such creditworthiness as reasonably determined by the Holder)
shall not be included in calculating the amount of such judgment,
writ, or final process so long as the Company provides the Holder a
written statement from such insurer or indemnity provider (which
written statement shall be reasonably satisfactory to the Holder)
to the effect that such judgment is covered by insurance or an
indemnity and the Company will receive the proceeds of such
insurance or indemnity within forty-five (45) calendar days of the
issuance of such judgment.

 

(b)
Acceleration Upon Event of
Default. If any Event of Default occurs, the outstanding
Principal Amount of this Note, plus accrued but unpaid interest and
other amounts owing in respect thereof through the date of
acceleration, shall become, at the Holder’s election (which
the Holder shall not make more than the later of thirty (30)
calendar days after the date such Event of Default is cured or
otherwise resolved and the Holder is aware of such cure or
resolution), immediately due and payable in cash. If there is such
an acceleration, then upon the payment in full of the amounts due
hereunder, the Holder shall promptly surrender this Note to or as
directed by the Company. In connection with such acceleration
described herein, the Holder need not provide, and the Company
hereby waives, any presentment, demand, protest, or other notice of
any kind, and the Holder 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. Such acceleration may be rescinded and annulled by Holder at
any time prior to payment hereunder and the Holder shall have all
rights as a holder of the Note until such time, if any, as the
Holder receives full payment pursuant to this Section 5(b). No such
rescission or annulment shall affect any subsequent Event of
Default or impair any right consequent thereon.

 

	

Section 6.

	

Miscellaneous.

	

a)

	

Notices. Any and
all notices or other communications or deliveries to
be

 

provided by the
Holder hereunder, including, without limitation, any notice of
conversion, shall be in writing and delivered in the manner and to
the address(s) set forth in the Securities

 

 

 

 

Purchase
Agreement.

 

b) Absolute Obligation. Except as
expressly provided herein, no provision of this Note shall alter or
impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of, and accrued interest, as
applicable, on this Note at the time, place, and rate, and in the
coin or currency, herein prescribed. This Note is a direct debt
obligation of the Company.

 

c) Lost or Mutilated Note. If this
Note shall be mutilated, lost, stolen, or destroyed, the Company
shall execute and deliver, in exchange and substitution for and
upon cancellation of a mutilated Note, or in lieu of or in
substitution for a lost, stolen, or destroyed Note, a new Note for
the Principal Amount of this Note so mutilated, lost, stolen, or
destroyed, but only upon receipt of evidence of such loss, theft,
or destruction of such Note, and of the ownership hereof,
reasonably satisfactory to the Company.

 

d) Governing Law. All questions
concerning the construction, validity, enforcement and
interpretation of this Note shall be governed by and construed and
enforced in accordance with the internal laws of the State of
Nevada, without regard to the principles of conflict of laws
thereof. Each party agrees that all legal proceedings concerning
the interpretation, enforcement and defense of the transactions
contemplated by any of the Transaction Documents (whether brought
against a party hereto or its respective Affiliates, directors,
officers, shareholders, employees, or agents) shall be commenced in
the state and federal courts sitting in Nevada (the
“Nevada
Courts”). Each party hereto hereby irrevocably submits
to the exclusive jurisdiction of the Nevada Courts for the
adjudication of any dispute hereunder or in connection herewith or
with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees
not to assert in any suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of such Nevada
Courts, or such Nevada Courts are improper or inconvenient venue
for such proceeding. Each party hereby irrevocably waives personal
service of process and consents to process being served in any such
suit, action or proceeding 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
Note 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 applicable law. Each party
hereto hereby irrevocably waives, to the fullest extent permitted
by applicable law, any and all right to trial by jury in any legal
proceeding arising out of or relating to this Note or the
transactions contemplated hereby. If either party shall commence an
action or proceeding to enforce any provisions of this Note, then
the prevailing party in such action or proceeding shall be
reimbursed by the other party for its attorney’s fees and
other costs and expenses reasonably incurred in the investigation,
preparation and prosecution of such action or
proceeding.

 

e) Waiver. Any waiver by the
Company or the Holder of a breach of any provision of this Note
shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of
this Note. The failure of the Company or the Holder to insist upon
strict adherence to any term of this Note on one or more occasions
shall not be considered a waiver or deprive that party of the right
thereafter to insist upon strict
adherence to that term or any other term of this Note. Any waiver
by the Company or the Holder must be in writing.

 

f) Severability. If any provision
of this Note is invalid, illegal or unenforceable, the balance of
this Note shall remain in effect, and if any provision is
inapplicable to any Person or circumstance, it shall nevertheless
remain applicable to all other Persons and circumstances. If it
shall be found that any interest or other amount deemed interest
due hereunder violates the applicable law governing usury, the
applicable rate of interest due hereunder shall automatically be
lowered to equal the maximum rate of interest permitted under
applicable law. The Company covenants (to the extent that it may
lawfully do so) that it shall not at any time insist upon, plead,
or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension or usury law or other law which would
prohibit or forgive the Company from paying all or any portion of
the principal of or interest on this Note as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which
may affect the covenants or the performance of this indenture, and
the Company (to the extent it may lawfully do so) hereby expressly
waives all benefits or advantage of any such law, and covenants
that it will not, by resort to any such law, hinder, delay, or
impeded the execution of any power herein granted to the Holder,
but will suffer and permit the execution of every such as though no
such law has been enacted.

 

g) Next Business Day. Whenever any
payment or other obligation hereunder shall be due on a day other
than a Business Day, such payment shall be made on the next
succeeding Business Day.

 

h) Headings. The headings
contained herein are for convenience only, do not constitute a part
of this Note and shall not be deemed to limit or affect any of the
provisions hereof.

i) Series of Notes. This Note is
one of a series of Notes of the Company in the aggregate principal
amount of up to Five Million Dollars as described in that certain
Confidential Private Placement Memorandum, dated January 2019,
delivered to the Holder in connection with the transactions
contemplated by the Transaction Documents. All Notes in such series
shall rank equally and ratably without preference or priority of
any said Notes over any others thereof.

 

 

(signature page follows)

 

 

 

IN
WITNESS WHEREOF, the Company has caused this Note to be duly
executed by a duly authorized officer as of the date first above
indicated.

 

 

KNOW
LABS, INC.

 

	
By:
_______________________________

	
Name: Ronald P.
Erickson

	
Title:
Chairman

 

	
By: _______________________________

	
Name: Phillip A.
Bosua

	
Title: Chief
Executive Officerknwn_ex104

 
Exhibit 10.4

 

NEITHER
THIS SECURITY NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

 

KNOW
LABS, INC.

 

FORM
OF COMMON STOCK PURCHASE WARRANT

 

	
Warrant
Shares: _________________

	
Initial
Exercise Date: _________________

	
 

	
Issue
Date: _________________

 

THIS COMMON STOCK
PURCHASE WARRANT (the "Warrant")
certifies that, for value received,
________________________________ (together with its successors and
permitted assigns, the “Holder”) is entitled, upon the
terms and subject to the limitations on exercise and the conditions
hereinafter set forth, at any time on or after the Initial Exercise
Date and on or prior to 5:00 p.m. Pacific Time on [5 years from
Issue Date] (the “Termination
Date”) but not thereafter, to subscribe for and
purchase from Know Labs, Inc., a Nevada corporation (the
“Company”), up
toshares (as subject to adjustment hereunder, the
“Warrant
Shares”) of the common stock of the Company, par
value$0.001 per share (the “Common Stock”). The purchase price
of one share of Common Stock under this Warrant shall be equal to
the Exercise Price, as defined in Section 2(b).

 

Section 1. Definitions. Capitalized terms
used and not otherwise defined herein shall have the meanings set
forth in that certain Securities Purchase Agreement, dated as of
the date hereof, between the Company and the original Holder, as
amended, modified, or supplemented from time to time in accordance
with its terms (the “Securities Purchase
Agreement”).

 

Section 2. 
Exercise.

 

a) Exercise of the
purchase rights represented by this Warrant may be made, in whole
or in part, at any time or times on or after the Initial Exercise
Date and on or before the Termination Date by delivery to the
Company (or such other office or agency of the Company as it may
designate by notice in writing to the registered Holder at the
address of the Holder set forth in the Securities Purchase
Agreement) of a duly executed facsimile copy (or e-mail attachment)
of the Notice of Exercise in the form annexed hereto (the
“Notice of
Exercise”). Within two (2) Trading Days following the
date of exerciseas aforesaid, the Holder shall deliver the
aggregate Exercise Price for the shares specified in the applicable
Notice of Exercise by wire transfer or cashier’s check drawn
on a United States bank unless the cashless exercise procedure
specified in Section 2(c) below is specified in the applicable
Notice of Exercise. The term "Trading Day" shall mean a day on which
the principal securities exchange or quotation system on which the
Common Stock is listed or admitted to trading is open for the
transaction of business. No ink-original Notice of Exercise shall
be required, nor shall any medallion guarantee (or other type of
guarantee or notarization) of any Notice of Exercise form be
required. Notwithstanding anything herein to the contrary, the
Holder shall not be required to physically surrender this Warrant
to the Company until the Holder has purchased all of the Warrant
Shares available hereunder and the Warrant has been exercised in
full, in which case, the Holder shall surrender this Warrant to the
Company for cancellation within two (2) Trading Days of the date
the final Notice of Exercise is delivered to the Company. Partial
exercises of this Warrant resulting in purchases of a portion of
the total number of Warrant Shares available hereunder shall have
the effect of lowering the outstanding number of Warrant Shares
purchasable hereunder in an amount equal to the applicable number
of Warrant Shares purchased. The Holder and the Company shall
maintain records showing the number of Warrant Shares purchased and
the date of such purchases. The Company shall deliver any objection
to any Notice of Exercise within one (1) Business Day of receipt of
such notice. The Holder and any
assignee, by acceptance of this Warrant, acknowledge and agree
that, by reason of the provisions of this Section, following the
purchase of a portion of the Warrant Shares hereunder, the number
of Warrant Shares available for purchase hereunder at any given
time may be less than the amount stated on the face
hereof.

 

 

 

 

b) Exercise Price. The exercise
price per share of the Common Stock under this Warrant shall be
$2.40, subject to adjustment hereunder (the “Exercise Price”).

 

c) Cashless Exercise. If, after
the six month anniversary of the Initial Exercise Date, at the time
of exercise hereof there is no effective registration statement
registering, or the prospectus contained therein is not available
for the issuance of the Warrant Shares to the Holder, then this
Warrant may also be exercised, in whole or in part, at such time by
means of a “cashless exercise” in which the Holder
shall be entitled to receive a number of Warrant Shares equal to
the quotient obtained by dividing [(A-B)*(X)] by (A),
where:

 

(A) =
the last VWAP immediately preceding the date of delivery of the
Notice of Exercise giving rise to the applicable “cashless
exercise,” as set forth in the applicable Notice of Exercise
(to clarify, the "last VWAP" will be the last VWAP as calculated
over an entire Trading Day such that, in the event that this
Warrant is exercised at a time that the Trading Market is open, the
prior Trading Day's VWAP shall be used in this
calculation);

 

(B) =
the Exercise Price of this Warrant, as adjusted hereunder;
and

 

(X) =
the number of Warrant Shares that would be issuable upon exercise
of this Warrant in accordance with the terms of this Warrant if
such exercise were by means of a cash exercise rather than a
cashless exercise.

 

If
Warrant Shares are issued in such a cashless exercise, the parties
acknowledge and agree that in accordance with Section 3(a)(9) of
the Securities Act, the Warrant Shares shall take on the registered
characteristics of the Warrants being exercised, and the holding
period of the Warrants being exercised may be tacked on to the
holding period of the Warrant Shares. The Company agrees not to
take any position contrary to this Section 2(c).

 

For
avoidance of doubt, no “cashless exercise” under this
Section 2(c) may occur (i) during the first six months following
the Initial Exercise Date or (ii) after the six months following
the Initial Exercise Date if there is an effective registration
statement registering the issuance of the Warrant Shares to the
Holder.

 

“VWAP” means, for any date, the
price determined by the first of the following clauses that
applies: (a) if the Common Stock is then listed or quoted on a
Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the
Trading Market on which the Common Stock is then listed or quoted
as reported by Bloomberg L.P. (based on a Trading Day from 9:30
a.m. (New York City time) to 4:00 p.m. (New York City time)), (b)
if OTCQB or OTCQX is not a Trading Market, the volume weighted
average price of the Common Stock for such date (or the nearest
preceding date) on OTCQB or OTCQX as applicable, (c) if the Common
Stock is not then listed or quoted for trading on OTCQB or OTCQX
and if prices for the Common Stock are then reported in the
“Pink Sheets” published by OTC Markets, Inc. (or a
similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the
Common Stock so reported, or (d) in all other cases, the fair
market value of a share of Common Stock as determined by an
independent appraiser selected in good faith by the Purchasers of a
majority in interest of the Securities then outstanding and
reasonably acceptable to the Company, the fees and expenses of
which shall be paid by the Company.

 

d)

Mechanics of
Exercise.

 

i. Delivery of Warrant Shares Upon
Exercise. The Company shall cause the Warrant Shares
purchased hereunder to be transmitted by the Transfer Agent to the
Holder by crediting the account of the Holder’s or its
designee’s balance account with The Depository Trust Company
through its Deposit or Withdrawal at Custodian system
(“DWAC”) if
theCompany is then a participant in such system and either (A)
there is an effective registration statement permitting the
issuance of the Warrant Shares to or resale of the Warrant Shares
by Holder or (B) this Warrant is being exercised via
“cashless exercise”, and otherwise by physical delivery
of a certificate, registered in the Company’s share register
in the name of the Holder or its designee, for the number of
Warrant Shares to which the Holder is entitled pursuant to such
exercise to the address specified by the Holder in the Notice of
Exercise by the date that is two (2) Trading Days after the
delivery to the Company of the Notice of Exercise (such date, the
“Warrant Share Delivery
Date”). The Warrant Shares shall be deemedto have been
issued, and Holder or any other person so designated to be named
therein shall be deemed to have become a holder of record of such
shares for all purposes, as of the date the Warrant has been
exercised, with payment to the Company of the Exercise Price (or by
cashless exercise, if permitted) and all taxes required to be paid
by the Holder, if any, pursuant to Section 2(d)(v) prior to the
issuance of such shares, having been paid.

 

 

 

 

ii. Delivery of New Warrants Upon
Exercise. Notwithstanding Section 2(a) above, if this
Warrant shall have been exercised in part, the Company shall, at
the request of a Holder and upon surrender of this Warrant
certificate, at the time of delivery of the Warrant Shares, deliver
to the Holder a new Warrant evidencing the rights of the Holder to
purchase the unpurchased Warrant Shares called for by this Warrant,
which new Warrant shall in all other respects be identical with
this Warrant.

 

iii. Rescission
Rights. If the Company fails to cause the Transfer Agent to
transmit to the Holder the Warrant Shares pursuant to Section
2(d)(i) by the Warrant Share Delivery Date, then the Holder will
have the right to rescind such exercise.

 

iv. No Fractional Shares or Scrip.
No fractional shares or scrip representing fractional shares shall
be issued upon the exercise of this Warrant. As to any fraction of
a share which the Holder would otherwise be entitled to purchase
upon such exercise, the Company shall, pay a cash adjustment in
respect of such final fraction in an amount equal to such fraction
multiplied by the Exercise Price.

v. Charges, Taxes and Expenses.
Issuance of Warrant Shares shall be made without charge to the
Holder for any issue or transfer tax or other incidental expense in
respect of the issuance of such Warrant Shares, all of which taxes
and expenses shall be paid by the Company, and such Warrant Shares
shall be issued in the name of the Holder or in such name or names
as may be directed by the Holder; provided, that in the event
Warrant Shares are to be issued in a name other than the name of
the Holder, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by
the Holder and the Company may require, as a condition thereto, the
payment of a sum sufficient to reimburse it for any transfer tax
incidental thereto. The Company shall pay all Transfer Agent fees
required for same-day processing of any Notice of Exercise and all
fees to the Depository Trust Company (or another established
clearing corporation performing similar functions) required for
same-day electronic delivery of the Warrant Shares.

 

vi. Closing of Books. The Company
will not close its stockholder books or records in any manner which
prevents the timely exercise of this Warrant, pursuant to the terms
hereof.

 

Section
3.     Certain
Adjustments.

 

a) Stock Dividends and Splits. If
the Company, at any time while this Warrant is outstanding: (i)
pays a stock dividend or otherwise makes a distribution or
distributions on shares of its Common Stock or any other equity or
equity equivalent securities payable in shares of Common Stock
(which, for avoidance of doubt, shall not include any shares of
Common Stock issued by the Company upon exercise of this Warrant),
(ii) subdivides outstanding shares of Common Stock into a larger
number of shares, (iii) combines (including by way of reverse stock
split) outstanding shares of Common Stock into a smaller number of
shares, or (iv) issues by reclassification of shares of the Common
Stock any shares of capital stock of the Company, then in each case
the Exercise Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common
Stock (excluding
treasury shares, if any) outstanding immediately before such event
and of which the denominator shall be the number of shares of
Common Stock outstanding immediately after such event, and the
number of shares issuable upon exercise of this Warrant shall be
proportionately adjusted such that the aggregate Exercise Price of
this Warrant shall remain unchanged. Any adjustment made pursuant
to this Section 3(a) shall become effective immediately after the
record date for the determination of stockholders entitled to
receive such dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision,
combination or re-classification.

 

b) Calculations. All calculations
under this Section 3 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of
this Section 3, the number of shares of Common Stock deemed to be
issued and outstanding as of a given date shall be the sum of the
number of shares of Common Stock (excluding treasury shares, if
any) issued and outstanding.

 

 

 

 

c)

Notice to Holder.

 

i. Adjustment to Exercise Price.
Whenever the Exercise Price is adjusted pursuant to any provision
of this Section 3, the Company shall promptly deliver to the Holder
a notice setting forth the Exercise Price after such adjustment and
any resulting adjustment to the number of Warrant Shares and
setting forth a brief statement of the facts requiring such
adjustment.

 

ii. Notice to Allow Exercise by
Holder. If (A) the Company shall declare a dividend (or any
other distribution in whatever form) on the Common Stock, (B) the
Company shall declare a special nonrecurring cash dividend on or a
redemption of the Common Stock, (C) the Company shall authorize the
granting to all holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital stock of any class
or of any rights, (D) the approval of any stockholders of the
Company shall be required in connection with any reclassification
of the Common Stock, any consolidation or merger to which the
Company is a party, any sale or transfer of all or substantially
all of the assets of the Company, or any compulsory share exchange
whereby the Common Stock is converted into other securities, cash
or property, or (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation, or winding up of the affairs
of the Company, then, in each case, the Company shall cause to be
delivered to the Holder (unless such notice is filed with the
Commission, which in such case, no additional notice is required to
be provided to the Holder), at least ten (10) calendar days prior
to the applicable record or effective date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which
the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to
bedetermined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, or share exchange is
expected to become effective or close, and the date as of which it
is expected that holders of the Common Stock of record
shall be entitled
to exchange their shares of the Common Stock for securities, cash
or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided
that the failure to deliver such notice or any defect therein or in
the delivery thereof shall not affect the validity of the corporate
action required to be specified in such notice. The Holder shall
remain entitled to exercise this Warrant during the period
commencing on the date of such notice to the effective date of the
event triggering such notice except as may otherwise be expressly
set forth herein.

 

Section 4.  
Transfer of
Warrant.

 

 

a) Transferability. This Warrant
and all rights hereunder (including, without limitation, any
registration rights) are transferable, in whole or in part, upon
surrender of this Warrant at the principal office of the Company or
its designated agent, together with a written assignment of this
Warrant substantially in the form attached hereto dulyexecuted by
the Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. Upon such
surrender and, if required, such payment, the Company shall execute
and deliver a new Warrant or Warrants in the name of the assignee
or assignees, as applicable, and in the denomination or
denominations specified in such instrument of assignment, and shall
issue to the assignor a new Warrant evidencing the portion of this
Warrant not so assigned, and this Warrant shall promptly be
cancelled. Notwithstanding anything herein to the contrary, the
Holder shall not be required to physically surrender this Warrant
to the Company unless the Holder has assigned this Warrant in full,
in which case, the Holder shall surrender this Warrant to the
Company within two (2) Business Days of the date the Holder
delivers an assignment form to the Company assigning this Warrant
full. The Warrant, if properly assigned in accordance herewith, may
be exercised by a new holder for the purchase of Warrant Shares
without having a new Warrant issued.

 

b) New Warrants. This Warrant may
be divided or combined with other Warrants upon presentation hereof
at the aforesaid office of the Company, together with a written
notice specifying the names and denominations in which new Warrants
are to be issued, signed by the Holder or its agent or attorney.
Subject to compliance with Section 4(a), as to any transfer which
may be involved in such division or combination, the Company shall
execute and deliver a new Warrant or Warrants in exchange for the
Warrant or Warrants to be divided or combined in accordance with
such notice. All Warrants issued on transfers or exchanges shall be
dated the initial issuance date of this Warrant and shall be
identical with this Warrant except as to the number of Warrant
Shares issuable pursuant thereto.

 

c) Warrant Register. The Company
shall register this Warrant, upon records to be maintained by the
Company for that purpose (the “Warrant Register”), in the name of
the record Holder hereof from time to time. The Company may deem
and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any
distribution to the Holder, and for all other purposes, absent
actual notice to the contrary.

 

 

 

   
           
           
    Section
5.    Miscellaneous. 

 

a) No Rights as Stockholder Until
Exercise. This Warrant does not entitle the Holder to any
voting rights, dividends, or other rights as a stockholder of the
Company prior to the exercise hereof as set forth in Section
2(d)(i).

 

b) Loss, Theft, Destruction, or
Mutilation of Warrant. The Company covenants that upon
receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction, or mutilation of this Warrant or any
stock certificate relating to the Warrant Shares, and in case of
loss, theft, or destruction, of indemnity or security reasonably
satisfactory to it (which, in the case of the Warrant, shall not
include the posting of any bond), and upon surrender and
cancellation of such Warrant or stock certificate, if mutilated,
the Company will make and deliver a new Warrant or stock
certificate of like tenor and dated as of such cancellation, in
lieu of such Warrant or stock certificate.

 

c) Saturdays, Sundays, Holidays,
etc. If the last or appointed day for the taking of any
action or the expiration of any right required or granted herein
shall not be a Business Day, then, such action may be taken or such
right may be exercised on the next succeeding Business
Day.

 

d)

Authorized Shares.

 

The
Company covenants that, during the period the Warrant is
outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the
issuance of the Warrant Shares upon the exercise of any purchase
rights under this Warrant. The Company further covenants that its
issuance of this Warrant shall constitute full authority to its
officers who are charged with the duty of executing stock
certificates to execute and issue the necessary Warrant Shares upon
the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure
that such Warrant Shares may be issued as provided herein without
violation of any applicable law or regulation, or of any
requirements of the Trading Market upon which the Common Stock may
be listed. The Company covenants that all Warrant Shares which may
be issued upon the exercise of the purchase rights represented by
this Warrant will, upon exercise of the purchase rights represented
by this Warrant and payment for such Warrant Shares in accordance
herewith, be duly authorized, validly issued, fully paid and
nonassessable and free from all taxes, liens and charges created by
the Company in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such
issue).

 

Except
and to the extent as waived or consented to by the Holder, the
Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek toavoid the observance or performance of any
of the terms of this Warrant, but will at all times in good faith
assist in the carrying out of all such terms and in the taking of
all such actions as may be necessary or appropriate to protect the
rights of Holder as set forth in this Warrant against impairment.
Without limiting the generality of the foregoing, the Company will
(i) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to
such increase in par value, (ii) take all such action as may be
necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares upon the
exercise of this Warrant and (iii) use commercially
reasonable efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction
thereof, as may be, necessary to enable the Company to perform its
obligations under this Warrant.

 

Before
taking any action which would result in an adjustment in the number
of Warrant Shares for which this Warrant is exercisable or in the
Exercise Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from
any public regulatory body or bodies having jurisdiction
thereof.

 

 

 

 

e) No Net Cash Settlement.
Notwithstanding anything herein to the contrary, in no event will
the Holder hereof be entitled to receive a net-cash settlement as
liquidated damages in lieu of physical settlement in shares of
Common Stock, regardless of whether the Common Stock underlying
this Warrant is registered pursuant to an effective registration
statement; provided, however, that the foregoing will not preclude
the Holder from seeking other remedies at law or equity for
breaches by the Company of its registration obligations
hereunder.

 

f) Jurisdiction. All questions
concerning the construction, validity, enforcement, and
interpretation of this Warrant shall be determined in accordance
with the provisions of the Securities Purchase
Agreement.

 

g) Restrictions. The Holder
acknowledges that the Warrant Shares acquired upon the exercise of
this Warrant, if not registered, will have restrictions upon resale
imposed by state and federal securities laws.

 

h) Non-waiver. No course of
dealing or any delay or failure to exercise any right hereunder on
the part of Holder shall operate as a waiver of such right or
otherwise prejudice the Holder’s rights, powers, or
remedies.

 

i) Notices. Any notice, request or
other document required or permitted to be given or delivered to
the Holder by the Company shall be delivered in accordance with the
notice provisions of the Securities Purchase
Agreement.

 

j) Limitation of Liability. No
provision hereof, in the absence of any affirmative action by the
Holder to exercise this Warrant to purchase Warrant Shares, and no
enumeration herein of the rights or privileges of the Holder, shall
give rise to any liability of the Holder for the purchase price of
any Common Stock or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the
Company.

 

k) Remedies. The Holder, in
addition to being entitled to exercise all rights granted by law,
including recovery of damages, will be entitled to specific
performanceof its rights under this Warrant. The Company agrees
that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this
Warrant and hereby agrees to waive and not to assert the defense in
any action for specific performance that a remedy at law would be
adequate.

 

l) Successors and Assigns. Subject
to applicable securities laws, this Warrant and the rights and
obligations evidenced hereby shall inure to the benefit of and be
binding upon the successors and permitted assigns of the Company
and the successors and permitted assigns
of Holder. The provisions of this Warrant are intended to be for
the benefit of any Holder from time to time of this Warrant and
shall be enforceable by the Holder or holder of Warrant
Shares.

 

m) Amendment. This Warrant may be
modified or amended or the provisions hereof waived with the
written consent of the Company and the Holder.

 

n) Severability. Wherever
possible, each provision of this Warrant shall be interpreted in
such manner as to be effective and valid under applicable law, but
if any provision of this Warrant shall be prohibited by or invalid
under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the
remainder of such provisions or the remaining provisions of this
Warrant.

o) Headings. The headings used in
this Warrant are for the convenience of reference only and shall
not, for any purpose, be deemed a part of this
Warrant.

 

 

(signature page follows)

 

 

 

IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officer thereunto duly authorized as of the date first above
indicated.

 

 

KNOW LABS, INC.

 

	
By:
____________________

	
Name: Ronald P.
Erickson

	
Title:
Chairman

 

	
By: ____________________

	
Name: Phillip A.
Bosua

	
Title: Chief
Executive Officer

 

 

 

 

NOTICE
OF EXERCISE

 

 

 

TO:            

KNOW LABS,
INC.

 

 

(1) The undersigned
hereby elects to purchase ____________________ Warrant Shares of
the Company pursuant to the terms of the attached Warrant (only if
exercised in full), and tenders herewith payment of the exercise
price in full, together with all applicable transfer taxes, if
any.

 

(2) Payment shall
take the form of (check applicable box):

 

[ ] in lawful money
of the United States; or

 

[ ] if
permitted the cancellation of such number of Warrant Shares as is
necessary, in accordance with the formula set forth in subsection
2(c), to exercise this Warrant with respect to the maximum number
of Warrant Shares purchasable pursuant to the cashless exercise
procedure set forth in subsection 2(c).

 

(3) Please issue said
Warrant Shares in the name of the undersigned or in such other name
as is specified below:

 

 
   
           
           
           
           
           
__________________________________

 

 

The
Warrant Shares shall be delivered to the following DWAC Account
Number:

 

 

__________________________________

 

__________________________________ 

 

__________________________________ 

 

 

 

 

 

 

 

[SIGNATURE OF
HOLDER]

 

 

Name of Investing
Entity:  __________________________________

Signature of Authorized Signatory of Investing
Entity: __________________________________

Name of Authorized
Signatory: __________________________________

Title of Authorized
Signatory: __________________________________

Date: 
__________________________________
 

                                                                                                                                       

 

 

 

ASSIGNMENT
FORM

 

(To assign the foregoing Warrant, execute this form and supply
required information. Do not use this form to purchase
shares.)

 

FOR
VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to

 

	

Name:
__________________________________

	

(Please
Print)

	

Address:
__________________________________

	

(Please
Print)

	

Dated: 
__________________________________
 

	

Holder’s
Signature:  __________________________________
                                                                

	

Holder’s
Address:  __________________________________

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