Exhibit 10.3

 

SECOND AMENDED AND RESTATED SECURED PROMISSORY NOTE

(ESENJAY INVESTMENTS, LLC)

 

$12,000,000 Vista, California   March 28, 2019 (“Original Issuance Date”)

 

FOR VALUE RECEIVED, Flux Power, Inc., a California corporation (“Company”),
hereby unconditionally promises to pay to Esenjay Investments, LLC (“Holder”),
the principal amount of Twelve Million Dollars ($12,000,000) or such lesser
principal amount (“Principal Amount”) as Holder may have advanced to Company
pursuant to the Third Amended and Restated Credit Facility Agreement, dated
August 31, 2020, by and among Company, Holder and other Lenders (as defined
therein) ( as amended from time to time, the “Credit Facility Agreement”),
together with interest thereon in accordance with the terms hereof, from the
date hereof until the date on which this Second Amended and Restated Secured
Promissory Note (the “Note”) is paid in full.

 

This Note is made and delivered by Company to Holder pursuant to the terms of
the Credit Facility Agreement. Under the Credit Facility Agreement, Holder, at
its sole discretion and along with other Lenders (as defined in the Credit
Facility Agreement), agreed to advance funds up to a maximum of Twelve Million
Dollars ($12,000,000) to Company, from time to time, to be used by Company to
purchase inventory and related operational support expenses. All capitalized
terms used and not defined herein shall have the meanings ascribed to them in
the Credit Facility Agreement. Pursuant to the Credit Facility Agreement, this
Note consolidates and also includes obligations in the amount of $500,000 in
principal outstanding, plus $64,271 in accrued and unpaid interest, all of which
were unpaid and outstanding as of August 31, 2020 under that certain Amended and
Restated Convertible Promissory Note, dated March 9, 2020, issued by Flux Power
Holdings, Inc., the parent of Company (“Esenjay Note”), and supersedes in its
entirety the Amended and Restated Secured Promissory Note issued to Esenjay on
March 28, 2019, as amended thereafter from time to time in connection with the
LOC (the “Original Note”), and the Esenjay Note.

 

THE OBLIGATIONS DUE UNDER THIS NOTE ARE SECURED BY A SECOND AMENDED AND RESTATED
SECURITY AGREEMENT (AS AMENDED FROM TIME TO TIME, THE “SECURITY AGREEMENT”)
DATED AS OF THE DATE HEREOF AND EXECUTED BY COMPANY FOR THE BENEFIT OF HOLDER
AND LENDERS. ADDITIONAL RIGHTS OF HOLDER AND THE OTHER LENDERS ARE SET FORTH IN
THE SECURITY AGREEMENT.

 

1.       Advances. So long as there is no Event of Default (as defined below in
Section 6), Holder shall, at its sole discretion, provide Advances hereunder so
long as the total of all unpaid Advances at the time of such request does not
exceed Twelve Million Dollars ($12,000,000) (the “Maximum Amount”). If, at any
time or for any reason, the amount of Advances pursuant to the Notes owed by
Company to Lenders exceeds the Maximum Amount, Company shall immediately pay to
Lenders, based on the Lender’s Pro Rata Percentage, in cash, the amount of such
excess. For the purpose of this Note, “Pro Rata Percentage” shall mean such
Lender’s interest in the LOC equal to the amount of all Advances made by such
Lender divided by the aggregate amount of all Advances made by the Lenders.

 

2.       Terms of the Secured Promissory Note.

 

(a)       Interest Rate. Interest on the then outstanding Principal Amount of
this Note shall accrue at a rate per annum equal to fifteen percent (15%),
beginning on the date of each Advance (the “Advance Date”). All interest shall
be calculated on the basis of the actual daily balances of Principal Amount
outstanding for the exact number of days elapsed, using a year of three hundred
sixty (360) days.

 

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(b)       Maturity Date. Except as otherwise provided herein, the entire
Principal Amount of this Note, together with all accrued but unpaid interest
payable thereon, shall be due and payable in full on the earlier of: (i)
September 30, 2021, unless extended pursuant to the terms of this Note (the
“Maturity Date”), or (ii) when such amounts are declared due and payable by
Holder upon or after the occurrence of an Event of Default (as defined below).

 

3.       Voluntary Prepayment. Advances may be prepaid, in whole or in part, at
any time prior to the Maturity Date without penalty.

 

4.       Conversion. The outstanding Principal Amount under this Note, as Holder
may have advanced to Company under this Note, plus any accrued and unpaid
interest (the “Obligation”), may be converted, as follows:

 

(a)       Definitions. As used in this Note, the following capitalized terms
have the following meanings:

 

(i)       “Equity Securities” shall mean Flux Power Holdings, Inc. (“Issuer”)
common stock, $0.001 par value per share, that is issued and sold to investors
in the Offering.

 

(ii)       “Equity Securities Price” shall mean $4.00 per share, the cash price
per share of the Equity Securities paid by purchasers in the initial closing of
the private placement of Issuer on June 30, 2020.

 

(iii)       “Equity Securities Conversion Price” shall be equal to the Equity
Securities Price (as equitably adjusted pursuant to the terms and condition of
this Note).

 

(b)       Conversion at the Option of Holder. On or before the Maturity Date,
Holder, at Holder’s option and upon five (5) days prior written notice to Issuer
(“Conversion Notice”), may convert in whole or in part the outstanding
Obligation into a number of shares of the Equity Securities calculated by
dividing (x) the Obligation under this Note, by (y) an amount equal to the
Equity Securities Conversion Price. At Issuer’s election, the issuance of such
shares of the Equity Securities upon conversion of this Note shall be contingent
upon execution and delivery by Holder of all necessary documents entered into by
other purchasers of the Equity Securities, including without limitation a
definitive purchase agreement and related documents.

 

(c)       Mechanics of Conversion. As promptly as practicable after the
conversion of this Note, this Note shall be cancelled, and Issuer will issue and
deliver to Holder a certificate or certificates representing the full number of
shares of Equity Securities issuable upon such conversion (and the issuance of
such certificate or certificates shall be made without charge to Holder for any
issuance in respect thereof or other cost incurred by Issuer in connection with
such conversion and the related issuance of shares); provided, however, if less
than all of the outstanding Obligation is converted pursuant to Section 4(b),
Company will additionally deliver to Holder an amended and restated Note,
containing an original principal amount equal to that portion of the
then-outstanding principal amount not converted containing the other terms and
provisions of this Section 4(b) and otherwise in form and substance reasonably
satisfactory to Holder. No fractional shares of Equity Securities or scrip
representing a fraction of a shares of the Equity Securities will be issued upon
conversion, but the number of such shares issuable shall be rounded up to the
nearest whole share.

 

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(d)       Reserved Amount. Issuer agrees that until the repayment or conversion
of this Note in full, Issuer will reserve from its authorized and unissued
Equity Securities a sufficient number of shares, free of preemptive rights, to
provide for the issuance of the shares of Equity Securities upon full conversion
of this Note.

 

(e)       Adjustments. If Issuer at any time subdivides (by any stock split,
stock dividend, recapitalization or otherwise), its outstanding shares of Equity
Securities into a greater number of shares, the conversion price in effect
immediately prior to such subdivision will be proportionately reduced, and if
Issuer at any time combines (by reverse stock split, recapitalization or
otherwise) its outstanding shares of Equity Securities into a smaller number of
shares, the conversion price in effect immediately prior to such combination
will be proportionately increased.

 

5.       Representations and Warranties of Holder. Holder hereby represents and
warrants to Company and Issuer as follows:

 

(a)       Organization, Authority. If Holder is an entity, such Holder is a
corporation, partnership, limited liability company or partnership, association,
joint stock company, trust, unincorporated organization or other entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate, partnership or
other power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The purchase by such Holder of the
Securities hereunder has been, to the extent such Holder is an entity, duly
authorized by all necessary corporate, partnership or other action on the part
of such Holder. This Note and the Credit Facility Agreement have been duly
executed and delivered by such Holder and constitutes the valid and binding
obligation of such Holder, enforceable against it in accordance with its terms,
except (i) as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) insofar as indemnification and contribution
provisions may be limited by applicable law.

 

(b)       Investment Representations. In connection with the sale and issuance
of the Convertible Note and underlying Equity Securities (“Securities”), Holder,
for itself and no other Holder, makes the following representations:

 

(i)       Investment for Own Account. Holder is acquiring the Securities for its
own account, not as nominee or agent, and not with a view to, or for resale in
connection with, any distribution or public offering thereof within the meaning
of the Securities Act of 1933, as amended (“Securities Act”). Holder has no
present intention of selling, granting any participation in, or otherwise
distributing the Securities. Holder does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participation in any of the Securities to such person or to any third person.

 

(ii)       SEC Documents. Holder acknowledges and agrees that Issuer has made
available to Holder through the SEC’s EDGAR system, true and complete copies of
Issuer’s most recent Annual Report on Form 10-K for the fiscal year ended June
30, 2019, and Form 10-Q for the quarter ended March 31, 2020, and all other
reports filed by Issuer pursuant to the Exchange Act since the filing of the
Form 10-Q for the quarter ended March 31, 2020, prior to the date hereof
(collectively, the “SEC Documents”). Holder has received, read and fully
understands the SEC Documents. Holder acknowledges that Holder is basing its
decision to invest in the Securities on the SEC Documents, this Note and the
Credit Facility Agreement, and has relied only on the information contained in
said material and has not relied upon any representations made by any other
person. Holder recognizes that an investment in the Securities involves
substantial risks and is fully cognizant of and understands all of the risk
factors related to the purchase of the Securities, including but not limited to,
those risks set forth in the section of the SEC Documents entitled “RISK
FACTORS.”

 

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(iii)       Accredited Holder Status. At the time such Holder was offered the
Securities, it was and, at the date hereof it is, an “accredited investor” as
defined in Rule 501(a) under the Securities Act or a “qualified institutional
buyer” as defined in Rule 144A(a) under the Securities Act. Such Holder is not a
registered broker dealer registered under Section 15(a) of the Exchange Act, or
a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”) or an
entity engaged in the business of being a broker dealer. Such Holder is not
affiliated with any broker dealer registered under Section 15(a) of the Exchange
Act, or a member of FINRA or an entity engaged in the business of being a broker
dealer. Holder has provided Issuer a duly completed and executed original of the
Accredited Holder Questionnaire confirming that Holder is an “accredited
investors.”

 

(iv)       Representations and Reliance. Holder understands that the Securities
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of the United States federal and state securities laws
and that Issuer is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of Holder set forth
herein to determine the applicability of such exemptions and the suitability of
Holder to acquire the Securities. All information which Holder has provided to
Issuer in the Accredited Holder Questionnaire concerning itself is true and
accurate in all material respects, and if there should be any material change in
such information, Holder will immediately provide Issuer with such information.
Holder will promptly notify Issuer of any material fact or circumstance that
would cause any of the foregoing representations to be untrue, incomplete, or
misleading.

 

(v)       Restricted Securities. Holder understands that the Securities Holder
is purchasing are characterized as “restricted securities” under the federal
securities laws inasmuch as they are being acquired from Issuer in a transaction
not involving a public offering and that under such laws and regulations such
securities may be resold without registration under the Securities Act only in
certain limited circumstances. Holder is familiar with Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the
Securities Act. Holder also acknowledges that Issuer was a former “shell
company” (as defined in Rule 12b-2 under the Exchange Act) and as such Holder
understands Rule 144 is not currently available for the sale of the Securities
and may not be so available as Company was a former “shell company” as defined
in Rule 12b-2 under the Exchange Act.

 

(vi)       Transfer Restrictions; Legends. Holder understands that (i) the
Securities have not been registered under the Securities Act; (ii) the
Securities are being offered and sold pursuant to an exemption from
registration, based in part upon Issuer’s reliance upon the statements and
representations made by Holder, and that the Securities must be held by Holder
indefinitely, and that Holder must, therefore, bear the economic risk of such
investment indefinitely, unless a subsequent disposition thereof is registered
under the Securities Act or is exempt from such registration; and (iii) each
Certificate representing the Securities will be endorsed with a legend
substantially in the following form until the earlier of (1) such date as the
Securities have been registered for resale by Holder or (2) the date the
Securities are eligible for sale under Rule 144.

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER THE SECURITIES LAWS OF
ANY STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
SECURITIES ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. UNLESS SOLD PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, THE ISSUER OF THESE SECURITIES
MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH
THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

 

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(vii)       Public Market. Holder understands and acknowledges that the Issuer’s
Common Stock recently commenced trading on NASDAQ Capital Market and it was
previously quoted on the OTCQB (which market is very volatile), and Issuer has
made no assurances that a broader or more active public trading market for its
Common Stock will ever exist.

 

(viii)       No Transfer. Holder covenants not to dispose of any of the
Securities other than in conjunction with an effective registration statement
under the Securities Act or in compliance with Rule 144 or pursuant to another
exemption from registration or to an entity affiliated with Holder and other
than in compliance with the applicable securities regulations laws of any state.

 

(ix)       Investment Experience. Holder acknowledges that Holder is able to
bear the economic risk of Holder’s investment, including the complete loss
thereof. Holder has a preexisting personal or business relationship with Issuer
or one or more of its officers, directors or other persons in control of Issuer,
and Holder has such knowledge and experience in financial or business matters
that it is capable of evaluating the merits and risks of the investment in the
Securities.

 

(x)       Financial Sophistication; Due Diligence. Holder has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in connection with the transactions
contemplated in this Note and the Credit Facility Agreement. Such Holder has, in
connection with its decision to purchase the Securities, relied only upon the
representations and warranties contained herein and the information contained in
Issuer’s SEC Documents. Further, Holder has had such opportunity to obtain
additional information and to ask questions of, and receive answers from,
Issuer, concerning the terms and conditions of the investment and the business
and affairs of Issuer, as Holder considers necessary in order to form an
investment decision.

 

(xi)       General Solicitation. Holder is not purchasing the Securities as a
result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media or
broadcast over the television or radio or presented at any seminar or any other
general solicitation or general advertisement. Prior to the time that Holder was
first contacted by Issuer or either of the agents, such Holder had a
pre-existing and substantial relationship with Issuer or one of the agents.
Holder will not issue any press release or other public statement with respect
to the transactions contemplated by this Note and the Credit Facility Agreement
without the prior written consent of Issuer. Other than to other parties to this
Note and the Credit Facility Agreement, Holder has maintained and will continue
to maintain the confidentiality of all disclosures made to Holder in connection
with this transaction, including the existence and terms of this transaction.

 

(c)       No Investment, Tax or Legal Advice. Holder understands that nothing in
the SEC Documents, this Note, or the Credit Facility Agreement, or any other
materials presented to Holder in connection with the purchase and sale of the
Securities constitutes legal, tax or investment advice. Holder has consulted
such legal, tax and investment advisors as it, in its sole discretion, has
deemed necessary or appropriate in connection with its purchase of Securities.

 

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(d)       Disclosure of Information. Holder understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities. Holder
has reviewed the documents publicly filed by Issuer with the SEC and has read
and understands the risk factors disclosed therein. Holder has received all of
the information it considers necessary or appropriate for deciding whether to
purchase the Securities. Holder is solely responsible for conducting its own due
diligence investigation of Issuer.

 

(e)       Placement Agent. Holder acknowledges and agrees that Issuer may retain
registered broker-dealers as its placement agent (the “Selling Agent(s)”). In
general, any agreements entered into with the Selling Agent(s) will be on a
“best efforts” basis and the fees to be paid will be capped at seven percent
(7%) of the subscription attributable to the Selling Agent(s).

 

(f)       Additional Acknowledgement. Holder acknowledges that it has
independently evaluated the merits of the transactions contemplated by this Note
and the Credit Facility Agreement, that it has independently determined to enter
into the transactions contemplated hereby, that it is not relying on any advice
from or evaluation by any other person. Holder acknowledges that, if it is a
client of an investment advisor registered with the SEC, Holder has relied on
such investment advisor in making its decision to purchase the Securities
pursuant hereto.

 

6.       Events of Default. Upon the occurrence of any of the following events
(“Event of Default”), Company shall be deemed to be in default hereunder:

 

(a)        failure by Company to pay when due any of the principal or accrued
and unpaid interest hereunder or under the Security Agreement; or

 

(b)        Company (i) applies for or consents to the appointment of a receiver,
trustee, custodian or liquidator of itself or any part of its property, (ii)
becomes subject to the appointment of a receiver, trustee, custodian or
liquidator of itself or any part of its property if such appointment is not
terminated or dismissed within thirty (30) days, (iii) makes an assignment for
the benefit of creditors, (iv) is adjudicated as bankrupt or insolvent, (v)
institutes any proceedings under the United States Bankruptcy Code or any other
federal or state bankruptcy, reorganization, receivership, insolvency or other
similar law affecting the rights of creditors generally, or files a petition or
answer seeking reorganization or an arrangement with creditors to take advantage
of any insolvency law, or files an answer admitting the material allegations of
a bankruptcy, reorganization or insolvency petition filed against it, or (vi)
becomes subject to any proceedings under the United States Bankruptcy Code or
any other federal or state bankruptcy, reorganization, receivership, insolvency
or other similar law affecting the rights of creditors generally, which
proceeding is not dismissed within thirty (30) days of filing, or has an order
for relief entered against it in any proceeding under the United States
Bankruptcy Code.

 

If an Event of Default occurs, all indebtedness under this Note shall become
immediately due and payable, and Company shall immediately pay to Holder all
such amounts. Holder shall, following and during the continuance of an Event of
Default, also have any other rights which Holder may have pursuant to applicable
law.

 

7.       Amendment and Waiver. Neither party may assign this Note nor any right
or interest arising out of this Note, in whole or in part, without consent of
the other party. Any term of this Note may be amended and the observance of any
term of this Note may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of
Company and Holder.

 

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8.       Place of Payment. Payments of principal and interest and all notices
and other communications to Holder hereunder or with respect hereto are to be
delivered to Holder at the address identified in the Credit Facility Agreement
or to such other address as specified by Holder by prior written notice to
Company, including any transferee of this Note.

 

9.       Costs of Collection. In the event that Company fails to pay when due
(including, without limitation, upon acceleration in connection with an Event of
Default) the full amount of principal and/or interest hereunder, Company shall
indemnify and hold harmless Holder of any portion of this Note from and against
all reasonable costs and expenses incurred in connection with the enforcement of
this provision or collection of such principal and interest, including, without
limitation, reasonable attorneys’ fees and expenses.

 

10.       Waivers. Company hereby waives presentment, demand, notice, protest
and all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note.

 

11.       Mutilated, Destroyed, Lost and Stolen Note. In case this Note shall be
mutilated, lost, stolen or destroyed, Company shall issue a new Note of like
date, tenor and denomination and deliver the same in exchange and substitution
for and upon surrender and cancellation of the mutilated Note, or in lieu of a
lost, stolen or destroyed Note, upon receipt of evidence satisfactory to Company
of the loss, theft or destruction of such Note.

 

12.       Interest Savings Clause. In the event any interest is paid on this
Note which is deemed to be in excess of the then legal maximum rate, then that
portion of the interest payment representing an amount in excess of the then
legal maximum rate shall be deemed a payment of principal and applied against
the principal of this Note.

 

13.       Governing Law. THIS NOTE AND THE RIGHTS AND DUTIES OF COMPANY AND
HOLDER HEREOF SHALL BE GOVERNED BY, CONSTRUED IN AND ENFORCED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS EXECUTED AND
TO BE PERFORMED ENTIRELY WITHIN THAT STATE.

 

14.       Prior Notes. Holder consents to all amendments and modifications made
to the Original Note issued in connection with the LOC. In addition, Holder
agrees that this Note amends, restates and supersedes in its entirety the
Esenjay Note and Original Note; and that upon issuance of this Note, the Esenjay
Note and the Original Note shall thereafter be of no further force and effect
and shall be deemed replaced and superseded in all respects by this Note.

 

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IN WITNESS WHEREOF, the Company has executed and delivered this Note on August
31, 2020.

 

    COMPANY:             Flux Power, Inc.             By: /s/ Ronald Dutt      
Ronald Dutt, Chief Executive Officer             HOLDER:             Esenjay
Investments, LLC              By: /s/ Michael Johnson       Michael Johnson,
Manager         Solely for purpose of Section 4 and Section 5     Flux Power
Holdings, Inc.             By: /s/ Ronald Dutt       Ronald Dutt, Chief
Executive Officer    

 

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