Exhibit 10.1

 

EXCHANGE AGREEMENT

 

This EXCHANGE AGREEMENT (the “Agreement”), dated as of May 13, 2016, by and
between EASTSIDE DISTILLING, INC., a NEVADA corporation, with headquarters
located at 1805 S.E. MARTIN LUTHER KING JR. BLVD., PORTLAND, OR 97214 (the
“Company”), and MR GROUP I, LLC a New York limited liability company, with its
address at 5 Hanover Square, 16th Floor, New York, NY 10004 (the “Investor”).

 

WHEREAS:

 

A.           On September 10, 2015, WWOD Holdings, LLC purchased a 14% secured
convertible promissory note in the aggregate principal amount of $275,000, which
note was assigned to Investor on April 14, 2016 (the “Initial Note”).

 

B.           On April 18, 2016, the Investor purchased a 14% secured convertible
promissory note in the aggregate principal amount of $300,000 (the “Additional
Note”).

 

C.           As of the date hereof, the Initial Note is in default and the
outstanding amount due thereunder (including accrued interest of $21,992.32) is
$219,200.65

 

D.           As of the date hereof, the Additional Note is in default and the
outstanding amount due thereunder (including accrued interest of $2,646.58) is
$302.646.58.

 

E.           The Company and the Investor desire to exchange the Initial Note
(including accrued interest) for a new 14% secured convertible promissory note
in the aggregate principal amount of $219,200.65 (the “Note”), the form of which
is attached hereto as Exhibit A, on the terms and subject to the conditions set
forth herein. The Note is convertible into shares (the “Conversion Shares”) of
the Company’s common stock, $.0001 par value per share (the “Common Stock”) at
the Conversion Price set forth in the Note.

 

F.           The Company and the Investor desire to exchange the Additional Note
(including accrued interest) for a new 14% secured convertible promissory note
in the aggregate principal amount of $302.646.58 (the “Second Note”, together
with the Note, the “Notes”), the form of which is attached hereto as Exhibit B,
on the terms and subject to the conditions set forth herein. The Second Note is
convertible into at the Conversion Price set forth in the Second Note.

 

G.           The Company’s obligations to the Investor under this Agreement and
the Notes shall be secured by a first priority security interest in the
Company’s and each of its current and hereafter existing subsidiaries, right,
title and interest in and to their respective assets, presently existing or
hereafter created or acquired, pursuant to the terms of a Security Agreement,
dated May 13, 2016 (the “Security Agreement”);

 

NOW THEREFORE, the Company and the Investor severally (and not jointly) hereby
agree as follows:

 

1. Exchange of Securities.

 

a. Exchange of Securities. On the Closing Date (as defined below), in reliance
upon the representations and warranties of the Company and the Investor
contained herein, and subject to the terms and conditions set forth herein, the
Investor agrees to sell, assign, transfer, and deliver to the Company, and the
Company agrees to purchase from the Investor, (i) the Initial Note (and all
accrued interest thereunder), in exchange for the issuance of the Note by the
Company to the Investor and (ii) the Additional Note (and all accrued interest
thereunder), in exchange for the issuance of the Second Note by the Company to
the Investor

 

b. Closing Date. Subject to the satisfaction (or written waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance, exchange and sale of the Notes pursuant to this Agreement (the
“Closing Date”) shall be 12:00 noon, Eastern Standard Time on May 13, 2016, or
such other mutually agreed upon time. The closing of the transactions
contemplated by this Agreement (the “Closing”) shall occur on the Closing Date
at such location as may be agreed to by the parties.

 

 1 

 

 

2. Investor’s Representations and Warranties. The Investor represents and
warrants to the Company that:

 

a. Investment Purpose. As of the date hereof, the Investor is purchasing the
Notes and the shares of Common Stock issuable upon conversion of or otherwise
pursuant to the Notes (including, without limitation, such additional shares of
Common Stock, if any, as are issuable (i) on account of interest on the Notes,
(ii) as a result of the events described in Sections 1.3 and 1.4(g) of the Notes
or (iii) in payment of the Standard Liquidated Damages Amount (as defined in
Section 2(f) below) pursuant to this Agreement, such shares of Common Stock
being collectively referred to herein as the “Conversion Shares” and,
collectively with the Notes, the “Securities”) for its own account and not with
a present view towards the public sale or distribution thereof, except pursuant
to sales registered or exempted from registration under the 1933 Act; provided,
however, that by making the representations herein, the Investor does not agree
to hold any of the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in accordance with
or pursuant to a registration statement or an exemption under the 1933 Act.

 

b. Accredited Investor Status. The Investor is an “accredited investor” as that
term is defined in Rule 501(a) of Regulation D (an “Accredited Investor”).

 

c. Reliance on Exemptions. The Investor understands that the Securities are
being offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of, and the Investor’s
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Investor set forth herein in order to determine the
availability of such exemptions and the eligibility of the Investor to acquire
the Securities.

 

d. Information. The Investor and its advisors, if any, have been, and for so
long as the Notes remain outstanding will continue to be, furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Securities which have been
requested by the Investor or its advisors. The Investor and its advisors, if
any, have been, and for so long as the Note remain outstanding will continue to
be, afforded the opportunity to ask questions of the Company. Notwithstanding
the foregoing, the Company has not disclosed to the Investor any material
nonpublic information and will not disclose such information unless such
information is disclosed to the public prior to or promptly following such
disclosure to the Investor. Neither such inquiries nor any other due diligence
investigation conducted by Investor or any of its advisors or representatives
shall modify, amend or affect Investor’s right to rely on the Company’s
representations and warranties contained in Section 3 below. The Investor
understands that its investment in the Securities involves a significant degree
of risk. The Investor is not aware of any facts that may constitute a breach of
any of the Company’s representations and warranties made herein.

 

e. Governmental Review. The Investor 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.

 

f. Transfer or Re-sale. The Investor understands that (i) the sale or resale of
the Securities has not been and is not being registered under the 1933 Act or
any applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the 1933 Act, (b) the Investor shall have delivered to the
Company, at the cost of the Investor, an opinion of counsel that shall be in
form, substance and scope customary for opinions of counsel in comparable
transactions to the effect that the Securities to be sold or transferred may be
sold or transferred pursuant to an exemption from such registration, which
opinion shall be accepted by the Company, (c) the Securities are sold or
transferred to an “affiliate” (as defined in Rule 144 promulgated under the 1933
Act (or a successor rule) (“Rule 144”)) of the Investor who agrees to sell or
otherwise transfer the Securities only in accordance with this Section 2(f) and
who is an Accredited Investor, (d) the Securities are sold pursuant to Rule 144,
or (e) the Securities are sold pursuant to Regulation S under the 1933 Act (or a
successor rule) (“Regulation S”), and the Investor shall have delivered to the
Company, at the cost of the Investor, an opinion of counsel that shall be in
form, substance and scope customary for opinions of counsel in corporate
transactions, which opinion shall be accepted by the Company; (ii) any sale of
such Securities made in reliance on Rule 144 may be made only in accordance with
the terms of said Rule and further, if said Rule is not applicable, any re-sale
of such Securities under circumstances in which the seller (or the person
through whom the sale is made) may be deemed to be an underwriter (as that term
is defined in the 1933 Act) may require compliance with some other exemption
under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other person is under any obligation to register
such Securities under the 1933 Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder (in each case).
Notwithstanding the foregoing or anything else contained herein to the contrary,
the Securities may be pledged as collateral in connection with a bona fide
margin account or other lending arrangement.

 

 2 

 

 

g. Legends. The Investor understands that the Note and, until such time as the
Conversion Shares have been registered under the 1933 Act may be sold pursuant
to Rule 144 or Regulation S without any restriction as to the number of
securities as of a particular date that can then be immediately sold, the
Conversion Shares may bear a restrictive legend in substantially the following
form (and a stop-transfer order may be placed against transfer of the
certificates for such Securities):

 

“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

 

The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or
Regulation S without any restriction as to the number of securities as of a
particular date that can then be immediately sold, or (b) such holder provides
the Company with an opinion of counsel, in form, substance and scope customary
for opinions of counsel in comparable transactions, to the effect that a public
sale or transfer of such Security may be made without registration under the
1933 Act, which opinion shall be accepted by the Company so that the sale or
transfer is effected. The Investor agrees to sell all Securities, including
those represented by a certificate(s) from which the legend has been removed, in
compliance with applicable prospectus delivery requirements, if any. In the
event that the Company does not accept the opinion of counsel provided by the
Investor with respect to the transfer of Securities pursuant to an exemption
from registration, such as Rule 144 or Regulation S, at the Deadline, it will be
considered an Event of Default pursuant to Section 3.2 of the Note.

 

h. Authorization; Enforcement. This Agreement has been duly and validly
authorized. This Agreement has been duly executed and delivered on behalf of the
Investor, and this Agreement constitutes a valid and binding agreement of the
Investor enforceable in accordance with its terms.

 

i. Residency. The Investor is a resident of the jurisdiction set forth
immediately below the Investor’s name on the signature pages hereto.

 

 3 

 

 

3. Representations and Warranties of the Company. The Company represents and
warrants to the Investor that:

 

a. Organization and Qualification. The Company is a corporation duly organized,
validly existing and in good standing under the laws of Nevada, with full power
and authority (corporate and other) to own, lease, use and operate its
properties and to carry on its business as and where now owned, leased, used,
operated and conducted, except where any such failure would not have a Material
Adverse Effect (as defined below). The Company does not have any Subsidiaries.
The Company is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which its ownership or use of property or
the nature of the business conducted by it makes such qualification necessary
except where the failure to be so qualified or in good standing would not have a
Material Adverse Effect. “Material Adverse Effect” means any material adverse
effect on the business, operations, assets, financial condition or prospects of
the Company taken as a whole, or on the transactions contemplated hereby or by
the agreements or instruments to be entered into in connection herewith.
“Subsidiaries” means any corporation or other organization, whether incorporated
or unincorporated, in which the Company owns, directly or indirectly, any equity
or other ownership interest.

 

b. Authorization; Enforcement. (i) The Company has all requisite corporate power
and authority to enter into and perform this Agreement, the Notes, and the
Security Agreement and to consummate the transactions contemplated hereby and
thereby and to issue the Securities, in accordance with the terms hereof and
thereof, (ii) the execution and delivery of this Agreement, the Notes and the
Security Agreement by the Company and the consummation by it of the transactions
contemplated hereby and thereby (including without limitation, the issuance of
the Note and the issuance and reservation for issuance of the Conversion Shares
issuable upon conversion or exercise thereof) have been duly authorized by the
Company’s Board of Directors and except as set forth on Schedule 3(b) or the
Required Approvals (as defined below) no further consent or authorization of the
Company, its Board of Directors, or its shareholders is required, (iii) this
Agreement has been duly executed and delivered by the Company by its authorized
representative, and such authorized representative is the true and official
representative with authority to sign this Agreement and the other documents
executed in connection herewith and bind the Company accordingly, and (iv) this
Agreement, the Security Agreement and the Notes constitute legal, valid and
binding obligations of the Company enforceable against the Company in accordance
with their respective terms, except: (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, fraudulent transfer,
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.

 

c. Capitalization. As of the date hereof, the authorized capital stock of the
Company consists of: (i) 900,000,000 shares of Common Stock, of which
49,369,591shares are issued and outstanding; and (ii) 100,000,000 shares of
preferred stock, of which 3,000 shares have been designated as “Series A
Preferred Stock” of which 930 shares are issued and outstanding. Except as set
forth in Schedule 3(c), no shares of Common Stock have been reserved for
issuance pursuant to the Company’s stock option plans, and, except for shares of
Common Stock issuable upon conversion of the Notes, no shares of Common Stock
have been reserved for issuance pursuant to any securities exercisable for, or
convertible into or exchangeable for shares of Common Stock. Subject to Schedule
3(c), the Company has reserved a sufficient number of shares of Common Stock for
issuance upon conversion of the Notes (subject to adjustment pursuant to the
Company’s covenant set forth in Section 4(g) below). All of such outstanding
shares of Common Stock have been duly authorized, validly issued, fully paid and
non-assessable and have been issued in material compliance with all federal and
state securities laws. No shares of capital stock of the Company are subject to
preemptive rights or any other similar rights of the shareholders of the Company
or any liens or encumbrances imposed through the actions or failure to act of
the Company. As of the effective date of this Agreement, except as set forth in
the SEC Documents (as defined below) (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of any
character whatsoever relating to, or securities or rights convertible into or
exchangeable for any shares of capital stock of the Company or any of its
Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its Subsidiaries, (ii) except as set forth on Schedule 3(c), there are
no agreements or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of its or their securities under the
1933 Act and (iii) there are no anti-dilution or price adjustment provisions
contained in any security issued by the Company (or in any agreement providing
rights to security holders) that will be triggered by the issuance of the Note
or the Conversion Shares. The Company has furnished (or made available on the
SEC website) to the Investor true and correct copies of the Company’s Amended
and Restated Articles of Incorporation as in effect on the date hereof
(“Articles of Incorporation”), the Company’s Bylaws, as in effect on the date
hereof (the “By-laws”), and the terms of all securities convertible into or
exercisable for Common Stock of the Company and the material rights of the
holders thereof in respect thereto. The Company shall provide the Investor with
a written update of this representation signed by the Company’s Chief Executive
on behalf of the Company as of the Closing Date.

 

 4 

 

 

d. Issuance of Shares. The Conversion Shares are duly authorized and reserved
for issuance and, upon conversion of the Notes in accordance with its respective
terms, will be validly issued, fully paid and non-assessable, and free from all
taxes, liens, claims and encumbrances with respect to the issue thereof and
shall not be subject to preemptive rights or other similar rights of
shareholders of the Company and will not impose personal liability upon the
holder thereof.

 

e. Acknowledgment of Dilution. The Company understands and acknowledges the
potentially dilutive effect to the Common Stock upon the issuance of the
Conversion Shares upon conversion of the Notes. The Company further acknowledges
that its obligation to issue Conversion Shares upon conversion of the Notes in
accordance with this Agreement, the Notes is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other shareholders of the Company.

 

f. No Conflicts. Subject to the Required Approvals and except as set forth on
Schedule 3(f), the execution, delivery and performance of this Agreement, the
Notes by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance and
reservation for issuance of the Conversion Shares) will not (i) conflict with or
result in a violation of any provision of the Articles of Incorporation or
By-laws or (ii) violate or conflict with, or result in a breach of any provision
of, or constitute a default (or an event which with notice or lapse of time or
both could become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture, patent,
patent license or instrument to which the Company is a party, or (iii) result in
a violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations and regulations of any
self-regulatory organizations to which the Company or its securities are
subject) applicable to the Company or by which any property or asset of the
Company is bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). The Company
is not in violation of its Articles of Incorporation, By-laws or other
organizational documents and the Company is not in default (and no event has
occurred which with notice or lapse of time or both could put the Company in
default) under, and the Company has not taken any action or failed to take any
action that would give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company is a party or by which any property or assets of the Company is
bound or affected, except for possible defaults as would not, individually or in
the aggregate, have a Material Adverse Effect. The businesses of the Company are
not being conducted, and shall not be conducted so long as a Investor owns any
of the Securities, in material violation of any law, ordinance or regulation of
any governmental entity. Except as specifically contemplated by this Agreement
and as required under the 1933 Act and any applicable state securities laws, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court, governmental agency, regulatory
agency, self regulatory organization or stock market or any third party in order
for it to execute, deliver or perform any of its obligations under this
Agreement, the Notes in accordance with the terms hereof or thereof or to issue
and sell the Notes in accordance with the terms hereof and to issue the
Conversion Shares upon conversion of the Note other than: (i) any filings
required pursuant to Section 4(b) of this Agreement, (ii) any such consents,
waivers, authorizations or orders as have already been obtained, (iii) any other
filings that have been made pursuant to applicable state securities laws and
(iv) any post-sale filings pursuant to applicable state and federal securities
laws (including, without limitation, the filing of Form D with the SEC) which
the Company undertakes to file within the applicable time periods (collectively,
the “Required Approvals”). All consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof. The
Company is not in violation of the listing requirements of the Over-the-Counter
Bulletin Board (the “OTCQB”) and does not reasonably anticipate that the Common
Stock will be delisted by the OTCQB in the foreseeable future. The Company and
its Subsidiaries are unaware of any facts or circumstances which might give rise
to any of the foregoing.

 

 5 

 

 

g. SEC Documents; Financial Statements. Since October 31, 2014, the Company has
filed all reports, schedules, forms, statements and other documents required to
be filed by it with the SEC (other than Form 8-K Reports) pursuant to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
“1934 Act”) (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents (other than exhibits to such documents) incorporated by reference
therein, being hereinafter referred to herein as the “SEC Documents”). To the
extent not available on the SEC website, the Company has delivered to the
Investor true and complete copies of the SEC Documents, except for such exhibits
and incorporated documents. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the 1934 Act and the
rules and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of the statements made in any such SEC Documents is, or has
been, required to be amended or updated under applicable law (except for such
statements as have been amended or updated in subsequent filings prior the date
hereof). As of their respective dates, the financial statements of the Company
included in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto. Such financial statements have been prepared in
accordance with United States generally accepted accounting principles,
consistently applied, during the periods involved and fairly present in all
material respects the consolidated financial position of the Company as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). Except as set forth in the financial
statements of the Company included in the SEC Documents, the Company has no
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to four months prior to the date hereof
and (ii) obligations under contracts and commitments incurred in the ordinary
course of business and not required under generally accepted accounting
principles to be reflected in such financial statements, which, individually or
in the aggregate, are not material to the financial condition or operating
results of the Company. The Company is subject to the reporting requirements of
the 1934 Act.

 

h. Absence of Certain Changes. Since the date of the latest financial statements
included in the SEC reports: (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result in a
Material Adverse Effect, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and
(B) liabilities not required to be reflected in the Company’s financial
statements pursuant to generally accepted accounting principles (“GAAP”) or
disclosed in filings made with the SEC, (iii) the Company has not altered its
method of accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock and (v) the Company has not issued any equity securities to any officer,
director or affiliate, except pursuant to existing Company equity incentive
plans. The Company does not have pending before the SEC any request for
confidential treatment of information. Except for the issuance of the Securities
contemplated by this Agreement, no event, liability or development has occurred
or exists with respect to the Company or its business, properties, operations or
financial condition, that would be required to be disclosed by the Company under
applicable securities laws at the time this representation is made or deemed
made that has not been publicly disclosed at least one trading day prior to the
date that this representation is made.

 

i. Absence of Litigation. There is no action, suit, claim, proceeding, inquiry
or investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company
or any of its Subsidiaries, threatened against or affecting the Company, or its
officers or directors in their capacity as such, that could have a Material
Adverse Effect. Schedule 3(i) contains a complete list and summary description
of any pending or, to the knowledge of the Company, threatened proceeding
against or affecting the Company, without regard to whether it would have a
Material Adverse Effect. The Company and its Subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing.

 

j. Patents, Copyrights, etc. To its knowledge, the Company owns or possesses the
requisite licenses or rights to use all patents, patent applications, patent
rights, inventions, know-how, trade secrets, trademarks, trademark applications,
service marks, service names, trade names and copyrights (“Intellectual
Property”) necessary to enable it to conduct its business as now operated (and,
as presently contemplated to be operated in the future); there is no claim or
action by any person pertaining to, or proceeding pending, or to the Company’s
knowledge threatened, which challenges the right of the with respect to any
Intellectual Property necessary to enable it to conduct its business as now
operated (and, as presently contemplated to be operated in the future); to the
best of the Company’s knowledge, the Company’s current and intended products,
services and processes do not infringe on any Intellectual Property or other
rights held by any person; and the Company is unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company has
taken reasonable security measures to protect the secrecy, confidentiality and
value of their Intellectual Property.

 

 6 

 

 

k. No Materially Adverse Contracts, Etc. The Company is not subject to any
charter, corporate or other legal restriction, or any judgment, decree, order,
rule or regulation which in the judgment of the Company’s officers has or is
expected in the future to have a Material Adverse Effect. The Company is not a
party to any contract or agreement which in the judgment of the Company’s
officers has or is expected to have a Material Adverse Effect. Except as set
forth on Schedule 3k., the Company: (i) is not in default under or in violation
of (and no event has occurred that has not been waived that, with notice or
lapse of time or both, would result in a default by the Company, nor has the
Company received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other material
agreement or instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has been waived),
(ii) to its knowledge is not in violation of any order of any court, arbitrator
or governmental body or (iii) to its knowledge is or has been in violation of
any statute, rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its business
and all such laws that affect the environment, except in each of the foregoing
cases as could not have or reasonably be expected to result in a Material
Adverse Effect.

 

l. Tax Status. To its knowledge, the Company has made or filed all federal,
state and foreign income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject (unless and only to the
extent that the Company has set aside on its books provisions reasonably
adequate for the payment of all unpaid and unreported taxes) and has paid all
taxes and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and has set aside on its books
provisions reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
Except as set forth on Schedule 3l., to the Company’s knowledge, there are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim. The Company has not executed a waiver with respect to the statute of
limitations relating to the assessment or collection of any foreign, federal,
state or local tax. None of the Company’s tax returns is presently being audited
by any taxing authority.

 

m. Certain Transactions. Except as set forth in the SEC Documents and for arm’s
length transactions pursuant to which the Company makes payments in the ordinary
course of business upon terms no less favorable than the Company could obtain
from third parties and other than the grant of stock options disclosed on
Schedule 3(c), none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.

 

n. Disclosure. All information relating to or concerning the Company set forth
in this Agreement and provided to the Investor pursuant to Section 2(d) hereof
and otherwise in connection with the transactions contemplated hereby is true
and correct in all material respects and the Company has not omitted to state
any material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or exists with respect to the
Company or its business, properties, prospects, operations or financial
conditions, which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so publicly
announced or disclosed (assuming for this purpose that the Company’s reports
filed under the 1934 Act are being incorporated into an effective registration
statement filed by the Company under the 1933 Act).

 

 7 

 

 

o. Acknowledgment Regarding Investor’s Purchase and Exchange of Securities. The
Company acknowledges and agrees that the Investor is acting solely in the
capacity of arm’s length purchasers with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no
Investor is acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any statement made by any Investor or any of their
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation and is merely
incidental to the Investor’s purchase and exchange of the Securities. The
Company further represents to the Investor that the Company’s decision to enter
into this Agreement has been based solely on the independent evaluation of the
Company and its representatives.

 

p. No Integrated Offering. Neither the Company, nor any of its affiliates, nor
any person acting on behalf of the Company or such affiliate, will sell, offer
for sale, or solicit offers to buy or otherwise negotiate with respect to any
security (as defined in the 1933 Act) which will be integrated with the sale of
the securities in a manner which would require the registration of the
securities under the Securities Act of 1933, or require stockholder approval,
under the rules and regulations of the trading market for the common stock. The
Company will take all action that is appropriate or necessary to assure that its
offerings of other securities will not be integrated for purposes of the
Securities Act of 1933 or the rules and regulations of the trading market, with
the issuance of securities contemplated hereby.

 

q. No Brokers. The Company has taken no action which would give rise to any
claim by any person for brokerage commissions, transaction fees or similar
payments relating to this Agreement or the transactions contemplated hereby.

 

r. Permits; Compliance. To its knowledge, the Company is in possession of all
material franchises, grants, authorizations, licenses, permits, easements,
variances, exemptions, consents, certificates, approvals and orders necessary to
own, lease and operate its properties and to carry on its business as it is now
being conducted (collectively, the “Company Permits”), and there is no action
pending or, to the knowledge of the Company, threatened regarding suspension or
cancellation of any of the Company Permits. The is not in conflict with, or in
default or violation of, any of the Company Permits, except for any such
conflicts, defaults or violations which, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect. In the prior four
months to the date hereof, the Company has not received any notification with
respect to possible conflicts, defaults or violations of applicable laws, except
for notices relating to possible conflicts, defaults or violations, which
conflicts, defaults or violations would not have a Material Adverse Effect.

 

s. Environmental Matters.

 

(i) There are, to the Company’s knowledge, with respect to the Company or any
predecessor of the Company, no past or present violations of Environmental Laws
(as defined below), releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental liability or any
liability under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 or similar federal, state, local or foreign laws and the
Company has not received any notice with respect to any of the foregoing, nor is
any action pending or, to the Company’s knowledge, threatened in connection with
any of the foregoing. The term “Environmental Laws” means all federal, state,
local or foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants contaminants, or toxic or hazardous substances or wastes
(collectively, “Hazardous Materials”) into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.

 

(ii) Other than those that are or were stored, used or disposed of in compliance
with applicable law, no Hazardous Materials are contained on or about any real
property currently owned, leased or used by the Company, and no Hazardous
Materials were released on or about any real property previously owned, leased
or used by the Company during the period the property was owned, leased or used
by the Company, except in the normal course of the Company’s business.

 

(iii) There are no underground storage tanks on or under any real property
owned, leased or used by the Company that are not in compliance with applicable
law.

 

 8 

 

 

t. Title to Property. The Company has good and marketable title in fee simple to
all real property and good and marketable title to all personal property owned
by them which is material to the business of the Company, in each case free and
clear of all liens, encumbrances and defects except such as are described in
Schedule 3t. or such as would not have a Material Adverse Effect. Any real
property and facilities held under lease by the Company are held by them under
valid, subsisting and enforceable leases with such exceptions as would not have
a Material Adverse Effect.

 

u. Insurance. The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as management
of the Company believes to be prudent and customary in the businesses in which
the Company is engaged. The Company has no reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not have a Material Adverse Effect.
The Company has provided to Investor true and correct copies of all policies
relating to directors’ and officers’ liability coverage, errors and omissions
coverage, and commercial general liability coverage.

 

v. Internal Accounting Controls. Except as set forth in the SEC Documents, the
Company is in material compliance with all provisions of the Sarbanes-Oxley Act
of 2002 which are applicable to it as of the Closing Date. Except as disclosed
in the SEC Documents, the Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that: (i) transactions are
executed in accordance with management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and designed such disclosure controls and procedures
to ensure that information required to be disclosed by the Company in the
reports it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Commission’s
rules and forms. The Company’s certifying officers have evaluated the
effectiveness of the Company’s disclosure controls and procedures as of the end
of the period covered by the Company’s most recently filed periodic report under
the Exchange Act (such date, the “Evaluation Date”). The Company presented in
its most recently filed periodic report under the Exchange Act the conclusions
of the certifying officers about the effectiveness of the disclosure controls
and procedures based on their evaluations as of the Evaluation Date. Since the
Evaluation Date, there have been no changes in the Company’s internal control
over financial reporting (as such term is defined in the Exchange Act) that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.

 

w. Foreign Corrupt Practices. Neither the Company, nor any director, officer,
agent, employee or other person acting on behalf of the Company has, in the
course of his actions for, or on behalf of, the Company, used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended, or made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.

 

x. Solvency. Except as set forth in the SEC Documents, the Company (after giving
effect to the transactions contemplated by this Agreement) is solvent (i.e., its
assets have a fair market value in excess of the amount required to pay its
probable liabilities on its existing debts as they become absolute and matured)
and currently the Company has no information that would lead it to reasonably
conclude that the Company would not, after giving effect to the transaction
contemplated by this Agreement, have the ability to, nor does it intend to take
any action that would impair its ability to, pay its debts from time to time
incurred in connection therewith as such debts mature. The Company did not
receive a qualified opinion from its auditors with respect to its most recent
fiscal year end and, after giving effect to the transactions contemplated by
this Agreement, does not anticipate or know of any basis upon which its auditors
might issue a qualified opinion in respect of its current fiscal year.

 

 9 

 

 

y. Application of Takeover Protections. The Company and the Board of Directors
have, to their knowledge, taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company’s Articles of Incorporation (or
similar charter documents) or the laws of its state of incorporation that is or
could become applicable to the Investor as a result of the Investor and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation as a result of the Company’s
issuance of the Securities and the Investor’ ownership of the Securities.

 

z. No Investment Company. The Company is not, and upon the issuance and sale of
the Securities as contemplated by this Agreement will not be an “investment
company” required to be registered under the Investment Company Act of 1940 (an
“Investment Company”). The Company is not controlled by an Investment Company.

 

aa. No Disagreements with Accountants and Lawyers; Outstanding SEC Comments.
There are no disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the Company and the accountants and
lawyers formerly or presently employed by the Company and the Company is or
immediately after the Closing Date will be current with respect to any fees owed
to its accountants which could affect the Company’s ability to perform any of
its obligations under any of the Transaction Documents. There are no unresolved
comments or inquiries received by the Company or its Affiliates from the SEC
which remain unresolved as of the date hereof.

 

bb. Bad Actor Disqualification.

 

(i) No Disqualification Events. With respect to Securities to be offered and
sold hereunder in reliance on Rule 506 under the Securities Act (“Regulation D
Securities”), none of the Company, any of its predecessors, any affiliated
issuer, any director, executive officer, other officer of the Company
participating in the offering, any beneficial owner of 20% or more of the
Company’s outstanding voting equity securities, calculated on the basis of
voting power, nor any promoter (as that term is defined in Rule 405 under the
Securities Act) connected with the Company in any capacity at the time of sale
(each, an “Issuer Covered Person” and, together, “Issuer Covered Persons”) is
subject to any of the “Bad Actor” disqualifications described in Rule
506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification Event”),
except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The
Company has exercised reasonable care to determine whether any Issuer Covered
Person is subject to a Disqualification Event. The Company has complied, to the
extent applicable, with its disclosure obligations under Rule 506(e), and has
furnished to the Placement Agent and the Purchaser a copy of any disclosures
provided thereunder.

 

(ii) Other Covered Persons. The Company is not aware of any person that (i) has
been or will be paid (directly or indirectly) remuneration for solicitation of
Purchaser in connection with the sale of the Securities and (ii) who is subject
to a Disqualification Event.

 

(iii) Notice of Disqualification Events. The Company will notify the Purchaser
in writing of (i) any Disqualification Event relating to any Issuer Covered
Person and (ii) any event that would, with the passage of time, become a
Disqualification Event relating to any Issuer Covered Person, prior to any
Closing of this Offering.

 

cc. Breach of Representations and Warranties by the Company. If the Company
breaches any of the representations or warranties set forth in this Section 3,
and in addition to any other remedies available to the Investor pursuant to this
Agreement, it will be considered an Event of default under Section 3.4 of the
Note.

 

4. COVENANTS.

 

a. Best Efforts. The parties shall use their best efforts to satisfy timely each
of the conditions described in Section 6 and 7 of this Agreement.

 

b. Blue Sky Laws; Form 8-K. The Company shall, on or before the Closing Date,
take such action as the Company shall reasonably determine is necessary to
qualify the Securities for sale to the Investor at the applicable closing
pursuant to this Agreement under applicable securities or “blue sky” laws of the
states of the United States (or to obtain an exemption from such qualification),
and shall provide evidence of any such action so taken to the Investor on or
prior to the Closing Date. If required under the requirements of materiality,
the Company shall file a Current Report on Form 8-K (or a Quarterly Report on
Form 10-Q) disclosing this transaction not later than one business day after the
Closing Date.

 

 10 

 

 

c. Holding Period. The Company agrees and stipulates that, for purposes of Rule
144 of the Securities Act of 1933, as amended (the “Securities Act”), (i) the
Note (and the Conversion Shares) are deemed to have been acquired by Investor on
or before September 10, 2015, pursuant to Rule 144(d)(3)(i) and Rule
144(d)(3)(ii) of the Securities Act and (ii) the Second Note (and the Conversion
Shares) are deemed to have been acquired by Investor on or before April 18,
2016, pursuant to Rule 144(d)(3)(i) and Rule 144(d)(3)(ii) of the Securities Act

 

d. Section 3(A)(9) or 3(A)(10) Transaction. Except as set forth on Schedule
4(d), so long as the Notes are outstanding, the Company shall not enter into any
transaction or arrangement structured in accordance with, based upon, or related
or pursuant to, in whole or in part, either Section 3(a)(9) of the Securities
Act (a “3(a)(9) Transaction”) or Section 3(a)(10) of the Securities Act (a
“3(a)(10) Transaction”). In the event that the Company does enter into, or makes
any issuance of Common Stock related to a 3(a)(9) Transaction (other than as set
forth in Schedule 4(d)) or a 3(a)(10) Transaction while the Notes outstanding, a
liquidated damages charge of 25% of the outstanding principal balance of the
Note or the Second Note, as applicable, but not less than $25,000, will be
assessed and will become immediately due and payable to the Holder at its
election in the form of cash payment or addition to the balance of the Note or
the Second Note, as applicable.

 

e. Rollover of Second Note. The parties hereto acknowledge and agree that, in
connection with the consummation of the transactions contemplated in the term
sheet attached hereto as Exhibit C (the “Subsequent Placement”), $200,000 of
aggregate principal of the Additional Note, together with any accrued, and
unpaid, interest then outstanding or any additional amounts due and payable as a
result of an Event of Default under the Second Note, shall be applied, on a
dollar-for-dollar basis, to reduce the purchase price of the Investor in such
Subsequent Placement and upon the closing of such Subsequent Placement and such
application, the remainder of the Second Note then outstanding shall be deemed
cancelled for no additional consideration

 

f. Financial Information. To the extent such items are not publicly available,
upon written request the Company agrees to send or make available the following
reports to the Investor until the Investor transfers, assigns, or sells all of
the Securities: (i) within two (2) days after the filing with the SEC, a copy of
its Annual Report on Form 10-K its Quarterly Reports on Form 10-Q and any
Current Reports on Form 8-K; (ii) within one (1) day after release, copies of
all press releases issued by the Company; and (iii) contemporaneously with the
making available or giving to the shareholders of the Company, copies of any
notices or other information the Company makes available or gives to such
shareholders.

 

g. Authorization and Reservation of Shares. The Company shall at all times have
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion or exercise of the
outstanding Notes and issuance of the Conversion Shares in connection therewith
(based on the Conversion Price of the Notes in effect from time to time) and as
otherwise required by the Notes. The Company shall not reduce the number of
shares of Common Stock reserved for issuance upon conversion of Notes without
the consent of the Investor. The Company shall at all times maintain the number
of shares of Common Stock so reserved for issuance at an amount (“Reserved
Amount”) equal to five times the number that is then actually issuable upon full
conversion of the Notes (based on the Conversion Price of the Note in effect
from time to time). If at any time the number of shares of Common Stock
authorized and reserved for issuance (“Authorized and Reserved Shares”) is below
the Reserved Amount, the Company will promptly take all corporate action
reasonably necessary to authorize and reserve a sufficient number of shares,
including, without limitation, calling a special meeting of shareholders to
authorize additional shares to meet the Company’s obligations under this Section
4(g), in the case of an insufficient number of authorized shares, obtain
shareholder approval of an increase in such authorized number of shares, and
voting the management shares of the Company in favor of an increase in the
authorized shares of the Company to ensure that the number of authorized shares
is sufficient to meet the Reserved Amount. If the Company fails to obtain such
shareholder approval within ninety (90) days following the date on which the
number of Reserved Amount exceeds the Authorized and Reserved Shares, it will be
considered an Event of default under Section 3.4 of the Notes.

 

 11 

 

 

h. Listing. The Company shall promptly secure the listing of the Conversion
Shares upon each national securities exchange or automated quotation system, if
any, upon which shares of Common Stock are then listed (subject to official
notice of issuance) and, so long as any Investor owns any of the Securities,
shall maintain, so long as any other shares of Common Stock shall be so listed,
such listing of all Conversion Shares from time to time issuable upon conversion
of the Note. The Company will obtain and, so long as any Investor owns any of
the Securities, maintain the listing and trading of its Common Stock on the
OTCQB or any equivalent replacement exchange, the Nasdaq National Market
(“Nasdaq”), the Nasdaq SmallCap Market (“Nasdaq SmallCap”), the New York Stock
Exchange (“NYSE”), or the American Stock Exchange (“AMEX”) and will comply in
all respects with the Company’s reporting, filing and other obligations under
the bylaws or rules of the Financial Industry Regulatory Authority (“FINRA”) and
such exchanges, as applicable. The Company shall promptly provide to the
Investor copies of any notices it receives from the OTCQB and any other
exchanges or quotation systems on which the Common Stock is then listed
regarding the continued eligibility of the Common Stock for listing on such
exchanges and quotation systems. If the market price of the Company’s Common
Stock shall at any time fall below the price required to continue to be quoted
on the Company’s then principal exchange or automated quotation system, the
Company shall as soon as practicable take all actions necessary to effect a
reverse split of the Company’s Common Stock, such that the price would then be
at least fifty percent (50%) above the required price, post-split. If the
Company fails to achieve the required reverse split within thirty (30) days
following the date on which the price fell below the required minimum trading
price, it will be considered an Event of default under Section 3.4 of the Notes.

 

i. Corporate Existence. So long as a Investor beneficially owns the Notes, the
Company shall maintain its corporate existence and shall not sell all or
substantially all of the Company’s assets, except in the event of a merger or
consolidation or sale of all or substantially all of the Company’s assets, where
the surviving or successor entity in such transaction (i) assumes the Company’s
obligations hereunder and under the agreements and instruments entered into in
connection herewith and (ii) is a publicly traded corporation whose Common Stock
is listed for trading on the OTCQB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX.

 

j. No Integration. The Company shall not make any offers or sales of any
security (other than the Securities) under circumstances that would require
registration of the Securities being offered or sold hereunder under the 1933
Act or cause the offering of the Securities to be integrated with any other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.

 

k. Breach of Covenants. If the Company breaches any of the covenants set forth
in this Section 4, and in addition to any other remedies available to the
Investor pursuant to this Agreement, it will be considered an Event of default
under Section 3.3 of the Notes.

 

l. Failure to Comply with the 1934 Act. So long as the Investor beneficially
owns the Notes, the Company shall comply with the periodic reporting
requirements of the 1934 Act; and the Company shall continue to be subject to
the reporting requirements of the 1934 Act. Notwithstanding anything contained
herein and for the avoidance of any doubt, this covenant shall include the
continued public disclosure by the Company of the Company’s Common Stock in the
public domain upon any material change in its shares outstanding.

 

m. Trading Activities. Neither the Investor nor their affiliates has an open
short position in the common stock of the Company and the Investor agree that
they shall not, and that they will cause their affiliates not to, engage in any
short sales of or hedging transactions with respect to the common stock of the
Company.

 

n. Piggyback Registration Rights. In the event that the Company files a
registration statement with respect to its Common Stock with the SEC (other than
a registration statement on Form S- 4 or S-8 or any successor form thereto)
after the Closing Date but before the Investor sells the Conversion Shares, the
Conversion Shares shall be registered pursuant to such registration statement,
subject to standard underwriter cutbacks.

 

o. Non-Frustration of Purpose. So long as the Investor or its affiliates hold
any Securities, neither the Company nor any of its affiliates or subsidiaries,
nor any of its or their respective officers, employees, directors, agents or
other representatives, will effect, enter into, announce or recommend to its
stockholders any agreement, plan, arrangement or transaction the terms of which
would or would reasonably be expected to (i) have a material adverse effect on
the Investor’s investment in the Note or Conversion Shares or (ii) restrict,
delay, conflict with or impair the ability or right of the Company to timely
perform its obligations under this Agreement or the Notes, including, without
limitation, the obligation of the Company to timely deliver shares of Common
Stock to the Investor or its affiliates in accordance with this Agreement or the
Note.

 

 12 

 

 

p. Right of First Refusal. Commencing on the Closing Date and until nine (9)
months thereafter, the Company shall provide the Investor not less than three
(3) Business Days prior written notice of any proposed sale by the Company for
cash of its common stock or other securities or debt obligations, except in
connection with the proposed inventory line of credit of up to $8 million (ii)
the issuance of shares of Common Stock or options to employees, officers,
consultants or directors of the Company (iii) full or partial consideration in
connection with a strategic merger, acquisition, consolidation or purchase of
substantially all of the securities or assets of a corporation or other entity;
(iv) the Company’s issuance of securities in connection with strategic license
agreements, the entering into or acquiring of material contracts in connection
with the Company’s business as currently being conducted, and other partnering
arrangements so long as such issuances are not for the purpose of raising
capital; (iv) as a result of the exercise of warrants outstanding on the date
hereof; (v) upon conversion of Notes issued pursuant to this Agreement or any
other convertible notes outstanding on the date hereof, and (v) the payment of
any interest on the Notes and liquidated damages, or other damages pursuant to
the Transaction Documents. The Investor will have the right during the three (3)
Business Days following receipt of the notice to purchase all or any part of
such offered common stock, debt or other securities in accordance with the terms
and conditions set forth in the notice of sale.

 

q. Rule 144. With a view to making available to Investor the benefits of Rule
144 under the Securities Act (“Rule 144”), or any similar rule or regulation of
the SEC that may at any time permit Investor to sell shares of Common Stock
issuable to Investor under any Transaction Documents to the public without
registration, the Company represents and warrants that:

 

(i) the Company is, and has been for a period of at least ninety (90) days
immediately preceding the date hereof, subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act; (ii) the Company has filed all required
reports under Section 13 or 15(d) of the Exchange Act, as applicable, during the
twelve (12) months preceding the Closing Date (or for such shorter period that
the Company was required to file such reports); and (iii) the Company is not
currently and has not been an issuer defined as a “Shell Company” (as
hereinafter defined). For the purposes hereof, the term “Shell Company” shall
mean an issuer that meets such a description as defined under Rule 144. In
addition, so long as Investor owns, legally or beneficially, any securities of
the Company, the Company shall, at its sole expense:

 

(1) Make, keep and ensure that adequate current public information with respect
to the Company, as required in accordance with Rule 144,is publicly available;

 

(2) furnish to the Investor, promptly upon reasonable request: (a) a written
statement by the Company that it has complied with the reporting requirements of
Rule 144, the Securities Act and the Exchange Act; and (b) such other
information as may be reasonably requested by Investor to permit the Investor to
sell any of the shares of Common Stock acquired hereunder or under any other
Transaction Documents pursuant to Rule 144 without limitation or restriction;
and

 

 13 

 

 

(3) promptly at the request of Investor, give the Company’s transfer agent (the
“Transfer Agent”) instructions to the effect that, upon the Transfer Agent’s
receipt from Investor of a certificate (a “Rule 144 Certificate”) certifying
that Investor’s holding period (as determined in accordance with the provisions
of Rule 144) for any portion of the shares of Common Stock issuable under any
Transaction Document which Investor proposes to sell (or any portion of such
shares which Investor is not presently selling, but for which Investor desires
to remove any restrictive legends applicable thereto) (the “Securities Being
Sold”) is not less than six (6) months, and receipt by the Transfer Agent of the
“Rule 144 Opinion” (as hereinafter defined) from the Company or its counsel (or
from Investor and its counsel as permitted below), the Transfer Agent is to
effect the transfer (or issuance of a new certificate without restrictive
legends, if applicable) of the Securities Being Sold and issue to Investor or
trans-feree(s) thereof one or more stock certificates representing the
transferred (or re-issued) Securities Being Sold without any restrictive legend
and without recording any restrictions on the transferability of such shares on
the Transfer Agent’s books and records. In this regard, upon Investor’s request,
the Company shall have an affirmative obligation to cause its counsel to
promptly issue to the Transfer Agent a legal opinion providing that, based on
the Rule 144 Certificate, the Securities Being Sold may be sold pursuant to the
provisions of Rule 144, even in the absence of an effective registration
statement (the “Rule 144 Opinion”). If the Transfer Agent requires any
additional documentation in connection with any proposed transfer (or
re-issuance) by Investor of any Securities Being Sold, the Company shall
promptly deliver or cause to be delivered to the Transfer Agent or to any other
Person, all such additional documentation as may be necessary to effectuate the
transfer (or re- issuance) of the Securities Being Sold and the issuance of an
unlegended certificate to any such Investor or any transferee thereof, all at
the Company’s expense. Any and all fees, charges or expenses, including, without
limitation, attorneys’ fees and costs, incurred by Investor in connection with
issuance of any such shares, or the removal of any restrictive legends thereon,
or the transfer of any such shares to any assignee of Investor, shall be paid by
the Company, and if not paid by the Company, the Investor may, but shall not be
required to, pay any such fees, charges or expenses, and the amount thereof,
together with interest thereon at the highest non- usurious rate permitted by
law, from the date of outlay, until paid in full, shall be due and payable by
the Company to Investor immediately upon demand therefor, and all such amounts
shall be additional Obligations of the company to Investor secured under the
Transaction Documents. In the event that the Company and/or its counsel refuses
or fails for any reason to render the Rule 144 Opinion or any other documents,
certificates or instructions required to effectuate the transfer (or
re-issuance) of the Securities Being Sold and the issuance of an unlegended
certificate to any such Investor or any transferee thereof, then: (A) to the
extent the Securities Being Sold could be lawfully transferred (or re-issued)
without restrictions under applicable laws, Company’s failure to promptly
provide the Rule 144 Opinion or any other documents, certificates or
instructions required to effectuate the transfer (or re-issuance)of the
Securities Being Sold and the issuance of an unlegended certificate to any such
Investor or any transferee thereof shall be an immediate Event of Default under
this Agreement and all other Transaction Documents; and (B)the Company hereby
agrees and acknowledges that Investor is hereby irrevocably and expressly
authorized to have counsel to Investor render any and all opinions and other
certificates or instruments which may be required for purposes of effectuating
the transfer (or re-issuance) of the Securities Being Sold and the issuance of
an unlegended certificate to any such Investor or any transferee thereof, and
the Company hereby irrevocably authorizes and directs the Transfer Agent to,
without any further confirmation or instructions from the Company, transfer or
re-issue any such Securities Being Sold as instructed by Investor and its
counsel.

 

r. Non-Public Information. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, the
Company covenants and agrees that after the Closing Date neither it, nor any
other person acting on its behalf, will provide Investor or its agents or
counsel with any information that the Company believes constitutes material
non-public information, unless prior thereto the Investor shall have executed a
written agreement regarding the confidentiality and use of such information. The
Company understands and confirms that the Investor shall be relying on the
foregoing covenant in effecting transactions in securities of the Company. Each
Investor acknowledges that it is aware that the United States securities laws
prohibit any person who has material non-public information about a company from
purchasing or selling securities of such company, or from communicating such
information to any other person under circumstances in which it is reasonably
foreseeable that such person is likely to purchase or sell such securities, and
the Investor agrees not to engage in any unlawful trading in securities of the
Company or unlawful misuse or misappropriation of any such information. Investor
agrees to maintain the confidentiality of and not disclose or use (except for
purposes relating to the transactions contemplated by this Agreement) any
confidential, proprietary or non-public information disclosed by the Company to
Investor.

 

 14 

 

 

5. Transfer Agent Instructions. The Company covenants and agrees that it will at
all times while any Securities remain outstanding maintain a duly qualified
independent transfer agent. On or prior to the initial Closing Date, the Company
shall provide a copy of its agreement with the transfer agent to the Investor.
If a new transfer agent is appointed at any time, the Company shall provide the
Investor with a copy of the new agreement within three (3) business days of its
execution. The Company shall issue irrevocable instructions to its transfer
agent to issue certificates, registered in the name of the Investor or its
nominee, for the Conversion Shares in such amounts as specified from time to
time by the Investor to the Company upon conversion of the Note in accordance
with the terms thereof (the “Irrevocable Transfer Agent Instructions”). In the
event that the Borrower proposes to replace its transfer agent, the Borrower
shall provide, prior to the effective date of such replacement, a fully executed
Irrevocable Transfer Agent Instructions in a form as initially delivered
pursuant to the Purchase Agreement (including but not limited to the provision
to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by
the successor transfer agent to Borrower and the Borrower. Prior to registration
of the Conversion Shares under the 1933 Act or the date on which the Conversion
Shares may be sold pursuant to Rule 144 without any restriction as to the number
of Securities as of a particular date that can then be immediately sold, all
such certificates shall bear the restrictive legend specified in Section 2(g) of
this Agreement. The Company warrants that: (i) no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 5, and stop
transfer instructions to give effect to Section 2(f) hereof (in the case of the
Conversion Shares, prior to registration of the Conversion Shares under the 1933
Act or the date on which the Conversion Shares may be sold pursuant to Rule 144
without any restriction as to the number of Securities as of a particular date
that can then be immediately sold), will be given by the Company to its transfer
agent and that the Securities shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this Agreement
and the Note; (ii) 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 Conversion
Shares to be issued to the Investor upon conversion of or otherwise pursuant to
the Note as and when required by the Note and this Agreement; and (iii) it will
not fail to remove (or directs its transfer agent not to remove or impairs,
delays, and/or hinders its transfer agent from removing) any restrictive legend
(or to withdraw any stop transfer instructions in respect thereof) on any
certificate for any Conversion Shares issued to the Investor upon conversion of
or otherwise pursuant to the Note as and when required by the Note and this
Agreement. Nothing in this Section shall affect in any way the Investor’s
obligations and agreement set forth in Section 2(g) hereof to comply with all
applicable prospectus delivery requirements, if any, upon re-sale of the
Securities. If a Investor provides the Company, at the cost of the Investor,
with an opinion of counsel in form, substance and scope customary for opinions
in comparable transactions, to the effect that a public sale or transfer of such
Securities may be made without registration under the 1933 Act and such sale or
transfer is effected, the Company shall permit the transfer, and, in the case of
the Conversion Shares, promptly instruct its transfer agent to issue one or more
certificates, free from restrictive legend, in such name and in such
denominations as specified by the Investor. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
Investor, by vitiating the intent and purpose of the transactions contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5 may be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions of
this Section, that the Investor 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.

 

6. Conditions to the Company’s Obligation to Issue and Exchange. The obligation
of the Company hereunder to issue and exchange the Notes to the Investor at the
Closing is subject to the satisfaction, at or before the Closing Date of each of
the following conditions thereto, provided that these conditions are for the
Company’s sole benefit and may be waived by the Company at any time in its sole
discretion:

 

a. The Investor shall have executed this Agreement and the Security Agreement
and delivered the same to the Company.

 

b. The Investor shall have delivered to the Company the original Initial Note
and the Additional Note along with a duly endorsed note endorsement for purposes
of assigning and transferring all of the Investor’s right, title, and interest
in and to the Initial Note and the Additional Note to the Company. From time to
time after the effective date of this Agreement, and without further
consideration, Investor will execute and deliver such other instruments of
transfer and take such other actions as the Company may reasonably request in
order to facilitate the transfer to the Company of the securities intended to be
transferred hereunder.

 

c. The representations and warranties of the applicable Investor shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and the applicable Investor shall
have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the applicable Investor at or prior to the Closing
Date.

 

d. No litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.

 

7. Conditions to The Investor’s Obligation to Purchase and Exchange. The
obligation of the Investor hereunder to purchase and exchange the Notes at the
Closing is subject to the satisfaction, at or before the Closing Date of each of
the following conditions, provided that these conditions are for the Investor’s
sole benefit and may be waived by the Investor at any time in its sole
discretion:

 

 15 

 

 

a. The Company shall have executed this Agreement and the Security Agreement and
delivered the same to the Investor.

 

b. The Company shall have delivered to the Investor a duly executed Note and
Second Note in accordance with Section 1(a) above.

 

c. The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to the Investor, shall have been delivered to the Company’s
Transfer Agent.

 

d. The representations and warranties of the Company shall be true and correct
in all material respects as of the date when made and as of the Closing Date as
though made at such time (except for representations and warranties that speak
as of a specific date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date. The Investor shall have received a
certificate or certificates, executed by the chief executive officer of the
Company, dated as of the Closing Date, to the foregoing effect and as to such
other matters as may be reasonably requested by the Investor including, but not
limited to certificates with respect to the Company’s Articles of Incorporation,
By-laws and Board of Directors’ resolutions relating to the transactions
contemplated hereby.

 

e. No litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.

 

f. No event shall have occurred which could reasonably be expected to have a
Material Adverse Effect on the Company including but not limited to a change in
the 1934 Act reporting status of the Company or the failure of the Company to be
timely in its 1934 Act reporting obligations, or in the sole discretion of
Investor, the transaction’s risk profile, market pricing or implied volatility
substantially changes, due diligence concerns arise, or any other conditions
material to the successful closing of the transaction are not acceptable to the
Investor.

 

g. The Conversion Shares shall have been authorized for quotation on the OTCQB
and trading in the Common Stock on the OTCQB or such equivalent exchange and
shall not have been suspended by the SEC or the OTCQB or such equivalent
exchange.

 

h. The Investor shall have received an officer’s certificate described in
Section 7(d) above, dated as of the Closing Date.

 

8. Governing Law; Miscellaneous.

 

a. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to principles
of conflicts of laws. 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 New York or in the federal courts located in the state
and county of New York. The parties to this Agreement hereby irrevocably waive
any objection to jurisdiction and venue of any action instituted hereunder and
shall not assert any defense based on lack of jurisdiction or venue or based
upon forum non conveniens. The Company and Investor waive trial by jury. The
prevailing party shall be entitled to recover from the other party its
reasonable attorney’s fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any agreement.
Each party hereby irrevocably waives personal service of process and consents to
process being served in any suit, action or proceeding in connection with this
Agreement or any other agreement or document executed in connection with this
transaction (each a “Transaction Document”), 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 Agreement
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 law.

 

 16 

 

 

IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY
AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE
GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY,
IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.

 

b. Counterparts; Signatures by Facsimile. This Agreement may be executed in two
or more counterparts, all of which when taken together shall be considered one
and the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party, it being understood that
both parties need not sign the same counterpart. In the event that any signature
is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or “.pdf” signature page were an original
thereof.

 

c. Headings. The headings of this Agreement are for convenience of reference
only and shall not form part of, or affect the interpretation of, this
Agreement.

 

d. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.

 

e. Entire Agreement; Amendments. This Agreement and the instruments referenced
herein contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor the Investor makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the majority in interest of the Investor.

 

f. Notices. All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and, unless
otherwise specified herein, shall be (i) personally served, (ii) deposited in
the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, email or facsimile, addressed as set
forth below or to such other address as such party shall have specified most
recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile or email, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:

 

If to the Company, to:

 

Eastside Distilling, Inc.

1805 SE Martin Luther King Jr. Blvd.

Portland, OR 97214

Attn: Steven Earles, CEO

Email: steven@eastsidedistilling.com

 

 17 

 

 

If to the Investor:

 

MR Group I, LLC. 

c/o Magna Equities II LLC

5 Hanover Square

16th Floor

New York, NY 10004

Attn: Joshua Sason, CEO

Email: Joshua.sason@magna.ca

 

Each party shall provide notice to the other party of any change in address.

 

g. Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and assigns. Neither the Company nor
any Investor shall assign this Agreement or any rights or obligations hereunder
without the prior written consent of the other. Notwithstanding the foregoing,
subject to Section 2(f), any Investor may assign its rights hereunder to any
person that purchases Securities in a private transaction from a Investor or to
any of its “affiliates,” as that term is defined under the 1934 Act, without the
consent of the Company.

 

h. Third Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective permitted successors and assigns, and is not
for the benefit of, nor may any provision hereof be enforced by, any other
person.

 

i. Survival. The representations and warranties of the Company and the
agreements and covenants set forth in this Agreement shall survive the closing
hereunder notwithstanding any due diligence investigation conducted by or on
behalf of the Investor. The Company agrees to indemnify and hold harmless each
of the Investor and all their officers, directors, employees and agents for loss
or damage arising as a result of or related to any breach or alleged breach by
the Company of any of its representations, warranties and covenants set forth in
this Agreement or any of its covenants and obligations under this Agreement,
including advancement of expenses as they are incurred.

 

j. Publicity. The Company, and each of the Investor shall have the right to
review a reasonable period of time before issuance of any press releases, SEC,
OTCQB or FINRA filings, or any other public statements with respect to the
transactions contemplated hereby; provided, however, that the Company shall be
entitled, without the prior approval of each of the Investor, to make any press
release or SEC, OTCQB (or other applicable trading market) or FINRA filings with
respect to such transactions as is required by applicable law and regulations
(although each of the Investor shall be consulted by the Company in connection
with any such press release prior to its release and shall be provided with a
copy thereof and be given an opportunity to comment thereon).

 

k. Further Assurances. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

 

l. No Strict Construction. The language used in this Agreement will be deemed to
be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.

 

m. Remedies. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Investor by vitiating the intent
and purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Agreement will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Agreement, that the Investor
shall be entitled, in addition to all other available remedies at law or in
equity, and in addition to the penalties assessable herein, to an injunction or
injunctions restraining, preventing or curing any breach of this Agreement and
to enforce specifically the terms and provisions hereof, without the necessity
of showing economic loss and without any bond or other security being required.

 

 18 

 

 

n. Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) any of the other
Transaction Documents, whenever Investor exercises a right, election, demand or
option under a Transaction Document and the Company does not timely perform its
related obligations within the periods therein provided, then the Investor may
rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights; provided, however, that
in the case of a rescission of a conversion of a Note, the Investor shall be
required to return any shares of Common Stock subject to any such rescinded
conversion or exercise notice.

 

o. Usury. To the extent it may lawfully do so, the Company hereby agrees not to
insist upon or plead or in any manner whatsoever claim, and will resist any and
all efforts to be compelled to take the benefit or advantage of, usury laws
wherever enacted, now or at any time hereafter in force, in connection with any
claim, action or proceeding that may be brought by Investor in order to enforce
any right or remedy under any Transaction Document. Notwithstanding any
provision to the contrary contained in any Transaction Document, it is expressly
agreed and provided that the total liability of the Company under the
Transaction Documents for payments in the nature of interest shall not exceed
the maximum lawful rate authorized under applicable law (the “Maximum Rate”),
and, without limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other sums in the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum
contract rate of interest allowed by law and applicable to the Transaction
Documents is increased or decreased by statute or any official governmental
action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Transaction Documents
from the effective date forward, unless such application is precluded by
applicable law. If under any circumstances whatsoever, interest in excess of the
Maximum Rate is paid by the Company to Investor with respect to indebtedness
evidenced by the Transaction Documents, such excess shall be applied by the
Investor to the unpaid principal balance of any such indebtedness or be refunded
to the Company, the manner of handling such excess to be at the Investor’s
election.

 

 19 

 

 

IN WITNESS WHEREOF, the undersigned Investor and the Company have caused this
Agreement to be duly executed as of the date first above written.

 

EASTSIDE DISTILLING, INC.

 

By:  /s/Steven Earles     Steven Earles     CEO  

 

MR GROUP, I, LLC

 

By:  /s/Joshua Sason     Joshua Sason     CEO  

 

 20