EXHIBIT 10.1 

 

AMENDMENT NO. 1

TO THE

STOCK PURCHASE AGREEMENT

 

AMENDMENT NO. 1 TO THE STOCK PURCHASE AGREEMENT, dated March 13, 2019 (the
“Amendment”), among 1847 CB, Inc., a Delaware corporation (the “Buyer”),
Cornerstone Builders of SW Florida, Inc., a Florida corporation (the “Company”),
and Anthony Leopardi (the “Seller”). Each of the Buyer, the Company and the
Seller are sometimes referred to in this Amendment individually as a “Party”
and, collectively, as the “Parties.”

 

RECITALS

 

A. The Parties have previously entered into that certain Stock Purchase
Agreement, dated as of November 12, 2018 (the “Stock Purchase Agreement”).

 

B. The Parties desire to amend the Stock Purchase Agreement as set forth herein.

 

C. Pursuant to Section 8.3 of the Stock Purchase Agreement, the Stock Purchase
Agreement may be amended by the Parties only by an instrument in writing signed
on behalf of the Buyer, the Company and the Seller.

 

AGREEMENT

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the Parties hereby agree to the following:

 

1. Definitions. All capitalized terms used herein without definition shall have
the meanings ascribed to them in the Stock Purchase Agreement, as applicable.

 

2. Amendments.

 

A. Section 2.1 as set forth in the Stock Purchase Agreement shall be amended and
restated in its entirety to read as follows:

 

“2.1 Purchase and Sale of the Shares. (a) Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing the Seller will sell,
transfer and deliver, and the Buyer will purchase from the Seller, all of the
Shares for an aggregate purchase price of Fifteen Million Dollars ($15,000,000)
(the “Purchase Price”), subject to the terms herein, consisting of: (i) Seven
Million, Four Hundred Twenty-Five Thousand Dollars ($7,425,000) in cash, payable
by the Buyer at the Closing through the delivery to the Seller of cash in
immediately available funds (the “Cash Portion”); (ii) the Buyer Note (as
defined below); and (iii) the Contingent Note (as defined below). The Purchase
Price assumes that the Buyer will be able to verify through its accounting due
diligence that the Company is trending to achieve at least $3,673,000 of EBITDA
on an adjusted basis as mutually agreed upon between the Buyer and the Seller.
The Purchase Price shall not be adjusted without the written consent of Seller
including based on the determined EBITDA with the exception of adjustments
pursuant to Paragraphs 2.2(a)(iii), 2.2 (b), and 2.2 (c).

 

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(b) At the Closing, the Buyer will issue to the Seller a promissory note in the
aggregate principal amount of Three Million, Three Hundred Thirty-Eight
Thousand, Three Hundred Fifty-Nine Dollars ($3,338,359) in the form attached
hereto as Exhibit A to this Agreement (the “Buyer Note”).

 

(c) At the Closing, the Buyer will issue to the Seller a contingent promissory
note in the aggregate amount of Four Million, Two Hundred Thirty-Six Thousand,
Six Hundred Forty-One Dollars ($4,236,641) in the form attached hereto as
Exhibit B to this Agreement (the “Contingent Note”).

 

B. Section 7.1(n) of the Stock Purchase Agreement shall be amended and restated
in its entirety to read as follows:

 

“(n) The Real Estate Sellers and the Buyer shall have entered into a lease
agreement for the real property described in Section 4.10(a)(i) of the
Disclosure Schedule upon terms mutually agreed to by the parties.”

 

C. Section 8.1(c) of the Stock Purchase Agreement shall be amended and restated
in its entirety to read as follows:

 

“(c) by either the Buyer or the Seller if the Closing does not occur on or
before April 15, 2019; provided that the right to terminate this Agreement under
this Section C will not be available to any party whose breach of any provision
of this Agreement results in the failure of the Closing to occur by such time;”

 

D. The Buyer Note and the Contingent Note in the forms of Exhibit A and Exhibit
B, respectively, to this Amendment are added as Exhibit A and Exhibit B to the
Stock Purchase Agreement.

 

3. Effect of Amendment. Except as amended as set forth above, the Stock Purchase
Agreement shall continue in full force and effect.

 

4. Counterparts. This Amendment may be executed in two (2) or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. Counterparts may be delivered via
facsimile, electronic mail (including pdf or any electronic signature complying
with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other
transmission method and any counterpart so delivered shall be deemed to have
been duly and validly delivered and be valid and effective for all purposes.

 

5. Governing Law. This Amendment will be governed by, and construed in
accordance with, the Laws of the State of Florida, without giving effect to any
choice of Law or conflict of Law provision or rule that would cause the
application of the Laws of any jurisdiction other than the State of Florida.

 

[Signature page follows]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the date first above written.

 

 

  BUYER:

 

 

 

 

 

1847 CB, Inc.

 

        By: /s/ Ellery Roberts

 

Name:

Ellery Roberts     Title: President          

 

COMPANY:

 

 

 

 

 

 

CORNERSTONE BUILDERS OF
SW FLORIDA, INC.

 

 

 

 

 

 

By:

/s/ Anthony Leopardi

 

 

Name:

Anthony Leopardi

 

 

Title:

Owner

 

 

 

 

 

 

SELLER:

 

 

 

 

 

 

Anthony Leopardi

 

 

 

 

 

 

/s/ Anthony Leopardi

 

 

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EXHIBIT A

Buyer Note

 

THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A
FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO
RULE 144 UNDER SAID ACT.

 

1847 CB, INC.

 

8% SUBORDINATED PROMISSORY NOTE

 

US $3,338,359

_______________, 2019

 

FOR VALUE RECEIVED, 1847 CB, Inc., a Delaware corporation (the “Company”),
promises to pay to Anthony Leopardi, in his capacity as the Seller (the
“Holder”), the principal sum of Three Million, Three Hundred Thirty-Eight
Thousand, Three Hundred Fifty-Nine Dollars ($3,338,359.00) (the “Principal”) in
lawful money of the United States of America, with interest payable thereon at
the rate of eight percent (8%) per annum. The unpaid Principal and all accrued
but unpaid interest thereon shall be paid in full to the Holder on the third
(3rd) anniversary of the date of this Note (the “Maturity Date”).

 

Capitalized terms used herein but not defined herein shall have the meaning
ascribed to them in that certain Stock Purchase Agreement, dated November 12,
2018, as amended by the Amendment No. 1 to the Stock Purchase Agreement, dated
March 13, 2019 (as so amended, the “Purchase Agreement”), among the Company, the
Holder and Cornerstone Builders of SW Florida, Inc., a Florida corporation (
“Cornerstone”), pursuant to which the Company is acquiring the Shares from the
Seller.

 

The following is a statement of the rights of the Holder of this Note and the
terms and conditions to which this Note is subject, and to which the Holder, by
acceptance of this Note, agrees:

 

1. Principal Repayment. The Principal along with any accrued, but unpaid
interest shall be paid in one lump sum on the Maturity Date.

 

2. Interest. Interest (the “Interest”) shall be paid quarterly on the Principal
from the date hereof until such Principal is repaid in full at the rate of eight
percent (8%) per annum, which payments are due on the last business day of
March, June, September and December for each year that the Note is outstanding.
Any accrued, but unpaid, Interest is payable at Maturity. All computations of
the Interest rate hereunder shall be made on the basis of a 360-day year of
twelve 30-day months. In the event that any Interest rate provided for herein
shall be determined to be unlawful, such Interest rate shall be computed at the
highest rate permitted by applicable law. Any payment by the Company of any
Interest amount in excess of that permitted by law shall be considered a
mistake, with the excess being applied to the Principal of this Note without
prepayment premium or penalty.

 

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3. Redemption. The Company will have the right to redeem all or any portion of
the Note at any time prior to the Maturity Date without premium or penalty of
any kind. The redemption price will be payable in cash and is equal to the then
outstanding principal amount of this Note plus accrued but unpaid interest
thereon.

 

4. Events of Default. In the event that any of the following (each, an “Event of
Default”) shall occur:

 

(a) Non-Payment. The Company shall default in the payment of the principal of,
or accrued interest on, this Note as and when the same shall become due and
payable, whether by acceleration or otherwise; or

 

(b) Default in Covenants. The Company shall default in any material manner in
the observance or performance of any covenants or agreements set forth in the
Purchase Agreement, this Note, or any other agreement entered into on connection
with the transactions contemplated by the Purchase Agreement (collectively, the
“Transaction Documents”); or

 

(c) Breach of Representations and Warranties. The Company materially breaches
any representation or warranty contained in the Transaction Documents; or

 

(d) Illegality of Note. Any court of competent jurisdiction issues an order
declaring the Note or any provision thereunder to be illegal; or

 

(e) Bankruptcy. The Company shall: (i) admit in writing its inability to pay its
debts as they become due; (ii) apply for, consent to, or acquiesce in, the
appointment of a trustee, receiver, sequestrator or other custodian for the
Company or any of its property, or make a general assignment for the benefit of
creditors; (iii) in the absence of such application, consent or acquiesce in,
permit or suffer to exist the appointment of a trustee, receiver, sequestrator
or other custodian for the Company or for any part of its property; or (iv)
permit or suffer to exist the commencement of any bankruptcy, reorganization,
debt arrangement or other case or proceeding under any bankruptcy or insolvency
law, or any dissolution, winding up or liquidation proceeding, in respect of the
Company, and, if such case or proceeding is not commenced by the Company or
converted to a voluntary case, such case or proceeding shall be consented to or
acquiesced in by the Company or shall result in the entry of an order for
relief;

 

then, and so long as such Event of Default is continuing for a period of two (2)
business days in the case of non-payment under Section 4(a) or for a period of
thirty (30) calendar days in the case of events under Sections 4(b) through 4(d)
(and the event which would constitute such Event of Default, if curable, has not
been cured), by written notice to the Company from the Holder, all obligations
of the Company under this Note shall be immediately due and payable without
presentment, demand, protest or any other action nor obligation of the Holder of
any kind, all of which are hereby expressly waived, and Holder may exercise any
other remedies the Holder may have at law or in equity. If an Event of Default
specified in Section 4(e) above occurs, the principal of, and accrued interest
on, the Note shall automatically, and without any declaration or other action on
the part of any Holder, become immediately due and payable.

 

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5. Affirmative Covenants of the Company. The Company hereby agrees that, so long
as the Note remains outstanding and unpaid, or any other amount is owing to the
Holder hereunder, the Company will:

 

(a) Corporate Existence and Qualification. Take the necessary steps to preserve
its corporate existence and its right to conduct business in all states in which
the nature of its business requires qualification to do business;

 

(b) Compliance with Law. Comply with the charter and bylaws or other
organizational or governing documents of the Company, and any law, treaty, rule
or regulation, or determination of an arbitrator or a court or other
governmental authority, in each case applicable to or binding upon the Company
or any of its property or to which each of the Company or any of its properties
is subject;

 

(c) Taxes. Duly pay and discharge all taxes or other claims, which might become
a lien upon any of its property except to the extent that any thereof are being
in good faith appropriately contested with adequate reserves provided therefor;

 

(d) Further Assurances. The Company shall execute and deliver any and all such
further documents and take any and all such other actions as may be reasonably
necessary or appropriate to carry out the intent and purposes of this Note and
to consummate the transactions contemplated herein.

 

6. Subordination.

 

(a) All claims of the Holder to principal, interest and any other amounts at any
time owed under this Note (collectively, “Junior Indebtedness”) is hereby
expressly subordinated in right of payment, as herein set forth, to the prior
payment in full of all Senior Indebtedness (as defined below). No payment under
Junior Indebtedness shall be made by the Company, nor shall the Holder exercise
any remedies under the Junior Indebtedness (including taking any legal action
(whether judicial or otherwise) to collect the Junior Indebtedness), if, at the
time of such payment, exercise or immediately after giving effect thereto, (i)
there shall exist any “Default” or “Event of Default” under any agreements
governing any of the Senior Indebtedness or (ii) the maturity of any of the
Senior Indebtedness has been accelerated and such acceleration has not been
waived or such Senior Indebtedness has not been paid in full; provided, however,
that (x) in the event that the holder of any Senior Indebtedness accelerates
such Senior Indebtedness, then the Holder may accelerate the indebtedness
evidenced by this Note, and (y) if the Company is permitted under the terms of
the Senior Indebtedness to pay an amount due and owing under this Note and fails
to make such payment, then so long as the terms of the Senior Indebtedness do
not prohibit such action, the Holder may exercise its rights to be paid such
amount, but only such amount (and Holder shall not be permitted to accelerate
hereunder).

 

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(b) Upon any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to creditors upon any
dissolution or winding up or total or partial liquidation or reorganization of
the Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all Senior Indebtedness of the Company shall
first be paid in full, or payment thereof provided for in money, before any
payment is made under Junior Indebtedness; and upon any such dissolution or
winding up or liquidation or reorganization, any distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
which the Holder as holder of the Junior Indebtedness would be entitled except
for the provisions hereof, shall be paid by the Company or by any receiver,
trustee in bankruptcy, liquidating trustee, agent or other person making such
payment or distribution, or by the Holder if received by Holder, directly to the
holder of the Senior Indebtedness, or its representatives, to the extent
necessary to pay all such Senior Indebtedness in full, in money, after giving
effect to any concurrent prepayment or distribution to or for the benefit of the
holders of such Senior Indebtedness, before any payment or distribution is made
to the Holder with respect to the Junior Indebtedness.

 

(c) If the holders of the Senior Indebtedness in good faith believe Holder may
fail to timely file a proof of claim in any such proceeding, the holder(s) of
the Senior Indebtedness may do so for Holder.

 

(d) In the event that any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities, prohibited by
the foregoing shall be received by the Holder before all the Senior Indebtedness
is paid in full, or provisions made for such payment, in accordance with its
terms, such payment or distribution shall be held for the benefit of, and shall
be paid over or delivered to, the holders of the Senior Indebtedness or their
representative or representatives, as their respective interests may appear, for
application to the payment of all the Senior Indebtedness remaining unpaid to
the extent necessary to pay all such Senior Indebtedness in full, in money, in
accordance with its terms, after giving effect to any concurrent payment or
distribution to or for the holders of such Senior Indebtedness.

 

(e) The provisions hereof are solely for the purpose of defining the relative
rights of the holders of the Senior Indebtedness on the one hand and the Holder
as holder of the Junior Indebtedness on the other hand, and nothing herein shall
impair, as between the Company and the Holder, the obligations of the Company
under the Junior Indebtedness, which are unconditional and absolute. With this
in mind, notwithstanding the other provisions of this Section 6, if and so long
as all documents governing the Senior Indebtedness permit one of the actions
restricted by this Section 6, the restriction shall be waived and the restricted
action permitted hereunder.

 

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(f) No right of any present or future holder of any Senior Indebtedness to
enforce the subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or any act or failure to act, in good faith, by any such holder of the Senior
Indebtedness, or any noncompliance by the Company with the terms, provisions and
covenants hereof, regardless of any knowledge thereof any holder of the Senior
Indebtedness may have or be otherwise charged with. Without in any way limiting
the generality of the foregoing, the holders of the Senior Indebtedness may, at
any time and from time to time, without the consent of or notice to the Holder,
without incurring responsibility to the Holder and without impairing or
releasing the subordination provided in this Note or the obligations hereunder
of the Holder to the holders of the Senior Indebtedness, do any one or more of
the following: (i) change the manner, place or terms of payment or extend the
time of payment of, or create, renew or alter, the Senior Indebtedness, or
otherwise amend or supplement in any manner the Senior Indebtedness or any
instrument evidencing the same or any agreement under which the Senior
Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing the Senior Indebtedness;
(iii) release any person liable or contingently liable in any manner for the
payment or collection of the Senior Indebtedness; and/or (iv) exercise or
refrain from exercising any rights against the Company or any other person.

 

(g) Each holder of any Senior Indebtedness, whether such Senior Indebtedness was
created or acquired before or after the issuance of this Note, shall be entitled
to rely on the subordination provisions set forth in this Note.

 

(h) Notwithstanding the provisions of this Section 6, the Holder shall not be
charged with knowledge of the existence of facts which would prohibit the making
of any payments on the Junior Indebtedness unless and until the holder(s) of the
Senior Indebtedness or their representatives send written notice to Holder of
same.

 

(i) Subject to the payment in full of all the Senior Indebtedness, Holder as
holder of the Junior Indebtedness shall be subrogated to the rights of the
holders of the Senior Indebtedness to receive payments or distributions of
assets of the Company applicable to the Senior Indebtedness until the Senior
Indebtedness shall be paid in full.

 

(j) The Holder shall confirm (in writing) the above subordination provisions if
requested by any holder of the Senior Indebtedness, and shall execute and
deliver such additional subordination agreements, consistent with the foregoing
as any holder of Senior Indebtedness may require.

 

(k) For purposes hereof, “Senior Indebtedness” means, with respect to the
Company, all indebtedness of the Company, up to a maximum of $7,500,000 (the
“Subordination Cap”), whether outstanding on the date of the execution of this
Note or thereafter created, to banks, insurance companies, other financial
institutions, private equity funds, hedge funds or other similar funds, unless
in the instrument creating or evidencing such indebtedness it is provided that
such indebtedness is not senior in right of payment to this Note. Senior
Indebtedness, with respect to both the Company, shall also include indebtedness
for taxes owed to federal or state agencies and other indebtedness of the
Company, as the case may be, that by operation of law has a right that is senior
to the Junior Indebtedness. Any such indebtedness of the Company whether
outstanding on the date of the execution of this Note or thereafter created,
that causes the Senior Indebtedness to exceed the Subordination Cap shall
provide in the instrument creating or evidencing such indebtedness that such
indebtedness is not senior in right of payment to this Note.

 

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7. Mutilated, Destroyed, Lost or Stolen Note. If this Note shall become
mutilated or defaced, or be destroyed, lost or stolen, the Company shall execute
and deliver a new note of like principal amount in exchange and substitution for
the mutilated or defaced Note, or in lieu of and in substitution for the
destroyed, lost or stolen Note. In the case of a mutilated or defaced Note, the
Holder shall surrender such Note to the Company. In the case of any destroyed,
lost or stolen Note, the Holder shall furnish to the Company: (i) evidence to
its satisfaction of the destruction, loss or theft of such Note and (ii) such
security or indemnity (which shall not include the posting of any bond) as may
be reasonably required by the Company to hold the Company harmless.

 

8. Waiver of Demand, Presentment, etc. The Company hereby expressly waives
demand and presentment for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, notice of acceleration or intent to accelerate,
bringing of suit and diligence in taking any action to collect amounts called
for hereunder and shall be directly and primarily liable for the payment of all
sums owing and to be owing hereunder, regardless of and without any notice,
diligence, act or omission as or with respect to the collection of any amount
called for hereunder. The Company agrees that, in the event of an Event of
Default, to reimburse the Holder for all reasonable costs and expenses
(including reasonable legal fees of one counsel) incurred in connection with the
enforcement and collection of this Note.

 

9. Payment. All payments with respect to this Note shall be made in lawful money
of the United States of America, at the address of the Holder as of the date
hereof or as designated in writing by the Holder from time to time. The receipt
by the Holder of immediately available funds shall constitute a payment of
principal and interest hereunder and shall satisfy and discharge the liability
for principal and interest on this Note to the extent of the sum represented by
such payment. Payment shall be credited first to the accrued interest then due
and payable and the remainder applied to principal.

 

10. Assignment. The rights and obligations of the Company and the Holder of this
Note shall be binding upon, and inure to the benefit of, the successors and
permitted assigns of the parties hereto. To complete an assignment or transfer
this Note, the Holder shall deliver a completed and executed Form of Assignment
attached hereto as Exhibit A and surrender and deliver this Note, duly endorsed,
to the Company’s office or such other address which the Company shall designate,
upon receipt of which a new Note, in substantially the form of this Note (any
such new Note, a “New Note”), evidencing the portion of this Note so transferred
shall be issued to the transferee and a New Note evidencing the remaining
portion of this Note not so transferred, if any, shall be issued to the
transferring Holder. The acceptance of the New Note by the transferee thereof
shall be deemed the acceptance by such transferee of all of the rights and
obligations in respect of the New Note that the Holder has in respect of this
Note. Interest and principal are payable only to the registered Holder of this
Note set forth on the books and records of the Company.

 

11. Waiver and Amendment. Any provision of this Note, including, without
limitation, the due date hereof, and the observance of any term hereof, may be
amended, waived or modified (either generally or in a particular instance and
either retroactively or prospectively) only with the written consent of the
Company and the Holder.

 

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12. Notices. Any notice, request or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been duly given if
given in accordance with the provisions of the Purchase Agreement.

 

13. Governing Law. This Note shall be governed in all respects, including
validity, interpretation and effect, by the internal laws of the State of
Florida.

 

14. Headings. The descriptive headings contained in this Note are included for
convenience of reference only and will not affect in any way the meaning or
interpretation of this Note.

 

15. Severability. If one or more provisions of this Note are held to be
unenforceable under applicable law, such provisions shall be excluded from this
Note, and the balance of this Note shall be interpreted as if such provisions
were so excluded and shall be enforceable in accordance with its terms.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the undersigned have caused this Note to be issued as of the
date first above written.

 

  1847 CB, Inc.         By:

 

Name:

Ellery W. Roberts     Title: President  

 

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EXHIBIT A

 

Form of Assignment

TO:        1847 CB, Inc.,

 

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
_________________ (name), ________________ (address), US$____________ of 8%
Subordinated Promissory Note (“Note”) of 1847 CB, Inc. (the “Company”),
including any and all accrued and unpaid interest owing thereon, registered in
the name of the undersigned on the records of the Company represented by the
within certificate, and irrevocably appoints _______________ the attorney of the
undersigned to transfer the said securities on the books or register with full
power of substitution.

 

DATED this ________ day of, __________________, 20 ____.

 

 

 

 

(Signature of Registered Note Holder)

 

 

 

 

 

(Print name of Registered Note Holder)

 

 

Instructions:

 

1. Signature of Holder must be the signature of the person appearing on the face
of the Note.

 

 

2. If the transfer of Note is signed by a trustee, executor, administrator,
curator, guardian, attorney, officer of a corporation or any person acting in a
fiduciary or representative capacity, the certificate must be accompanied by
evidence of authority to sign satisfactory to the Company.

 

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EXHIBIT B

Contingent Note

 

THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A
FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO
RULE 144 UNDER SAID ACT.

 

1847 CB, INC.

 

8% CONTINGENT SUBORDINATED PROMISSORY NOTE

 

US $4,236,641

______________, 2019

 

FOR VALUE RECEIVED, 1847 CB, Inc., a Delaware corporation (the “Company”),
promises to pay to Anthony Leopardi, in his capacity as the Seller (the
“Holder”), the principal sum of Four Million, Two Hundred Thirty-Six Thousand,
Six Hundred Forty-One Dollars ($4,236,641.00) (the “Principal”) in lawful money
of the United States of America, with interest payable thereon at the rate of
eight percent (8%) per annum. The unpaid Principal and all accrued but unpaid
interest thereon shall be paid in full to the Holder upon the occurrence of the
Contingency Event (as described below) (the “Maturity Date”).

 

Capitalized terms used herein but not defined herein shall have the meaning
ascribed to them in that certain Stock Purchase Agreement, dated November 12,
2018, as amended by the Amendment No. 1 to the Stock Purchase Agreement, dated
March 13, 2019 (as so amended, the “Purchase Agreement”), among the Company, the
Holder and Cornerstone Builders of SW Florida, Inc., a Florida corporation (
“Cornerstone”), pursuant to which the Company is acquiring the Shares from the
Seller.

 

The following is a statement of the rights of the Holder of this Note and the
terms and conditions to which this Note is subject, and to which the Holder, by
acceptance of this Note, agrees:

 

1. Contingency. This Note is contingent and shall be payable in accordance with
this Section 1 if, but only if, the Company has achieved at least an average of
$3,673,000 (the “Minimum Average EBITDA”) of Adjusted EBITDA (as defined below)
for the fiscal years ended December 31, 2019, 2020 and 2021 (the “Three-Year
Period”). The achievement of the Minimum Average EBITDA for the Three-Year
Period is referred to herein as the “Contingency Event.”

 

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Upon the occurrence of the Contingency Event, $1,467,731 of the Principal, plus
accrued but unpaid interest thereon (the “Principal Amount Due”), shall become
immediately due and payable, provided however, that if the actual average
Adjusted EBITDA for the Three-Year Period exceeds the Minimum Average EBITDA, up
to a maximum average Adjusted EBITDA for the Three-Year Period equal to
$5,509,500 (the “Maximum Average EBITDA”), the Principal Amount Due will be
increased by an amount equal to: ((actual average EBITDA - Minimum Average
EBITDA)/(Maximum Average EBITDA - Minimum Average EBITDA) * (Principal -
Principal Amount Due)). If the Company’s actual average Adjusted EBITDA for the
Three-Year Period meets or exceeds the Maximum Average EBITDA, the full
Principal, plus accrued but unpaid interest thereon, shall become due and
payable.

 

For purposes of this Note, “Adjusted EBITDA” means the earnings before interest,
taxes, depreciation and amortization expenses, in accordance with generally
accepted accounting principles applied on a basis consistent with the accounting
policies, practices and procedures used to prepare the financial statements of
Cornerstone as of the Closing Date (“GAAP”), plus to the extent deducted in
calculating such net income, (i) all expenses related to the transactions
contemplated hereby and/or potential or completed future financings or
acquisitions, including legal, accounting, due diligence and investment banking
fees and expenses, (ii) all management fees, allocations or corporate overhead
or other administrative costs that arise from the ownership of Cornerstone by
the Company including allocations of supervisory, centralized or other
parent-level expense items, (iii) one-time extraordinary expenses or losses,
(iv) any reserves or adjustments to reserves which are not consistent with GAAP.
Additionally, for purposes of calculating Adjusted EBITDA under this Note, (i)
the purchase and sales prices of goods and services sold by or purchased by
Cornerstone to or from the Company, its subsidiaries or affiliates shall be
adjusted to reflect the amounts that Cornerstone would have realized or paid if
dealing with an independent third party in an arm’s-length commercial
transaction, and (ii) inventory items shall be property categorized as such and
shall not be expenses until such inventory is sold or consumed.

 

Within ninety (90) days after the end of each fiscal year ending December 31,
2019, 2020 and 2021, the Company shall report to the Holder the Adjusted EBITDA
achieved by Cornerstone during such fiscal year. The report shall be based upon
the audited annual and reviewed quarterly financial statements of Cornerstone
that are prepared in accordance with U.S. GAAP by the Company’s external
auditor. The Holder shall be entitled to receive copies of the audited and
reviewed financial statements of Cornerstone and all work papers and
computations with supporting detail upon which such Adjusted EBITDA calculations
are based.

 

2. Repayment of Principal Amount Due. The Principal Amount Due along with any
accrued, but unpaid, interest shall be paid in one lump sum on the Maturity
Date.

 

3. Interest. Interest (the “Interest”) shall be paid in one lump sum at
Maturity. All computations of the Interest rate hereunder shall be made on the
basis of a 360-day year of twelve 30-day months. In the event that any Interest
rate provided for herein shall be determined to be unlawful, such Interest rate
shall be computed at the highest rate permitted by applicable law. Any payment
by the Company of any Interest amount in excess of that permitted by law shall
be considered a mistake, with the excess being applied to the Principal Amount
Due of this Note without prepayment premium or penalty.

 

  14

   

 

4. Redemption. The Company will have the right to redeem all or any portion of
the Note at any time prior to the Maturity Date without premium or penalty of
any kind. The redemption price will be payable in cash and is equal to the then
outstanding principal amount of this Note plus accrued but unpaid interest
thereon.

 

5. Events of Default. In the event that any of the following (each, an “Event of
Default”) shall occur:

 

(a) Non-Payment. The Company shall default in the payment of the principal of,
or accrued interest on, this Note as and when the same shall become due and
payable, whether by acceleration or otherwise; or

 

(b) Default in Covenants. The Company shall default in any material manner in
the observance or performance of any covenants or agreements set forth in the
Purchase Agreement, this Note, or any other agreement entered into on connection
with the transactions contemplated by the Purchase Agreement (collectively, the
“Transaction Documents”); or

 

(c) Breach of Representations and Warranties. The Company materially breaches
any representation or warranty contained in the Transaction Documents; or

 

(d) Illegality of Note. Any court of competent jurisdiction issues an order
declaring the Note or any provision thereunder to be illegal; or

 

(e) Bankruptcy. The Company shall: (i) admit in writing its inability to pay its
debts as they become due; (ii) apply for, consent to, or acquiesce in, the
appointment of a trustee, receiver, sequestrator or other custodian for the
Company or any of its property, or make a general assignment for the benefit of
creditors; (iii) in the absence of such application, consent or acquiesce in,
permit or suffer to exist the appointment of a trustee, receiver, sequestrator
or other custodian for the Company or for any part of its property; or (iv)
permit or suffer to exist the commencement of any bankruptcy, reorganization,
debt arrangement or other case or proceeding under any bankruptcy or insolvency
law, or any dissolution, winding up or liquidation proceeding, in respect of the
Company, and, if such case or proceeding is not commenced by the Company or
converted to a voluntary case, such case or proceeding shall be consented to or
acquiesced in by the Company or shall result in the entry of an order for
relief;

 

then, and so long as such Event of Default is continuing for a period of two (2)
business days in the case of non-payment under Section 5(a) or for a period of
thirty (30) calendar days in the case of events under Sections 5(b) through 5(d)
(and the event which would constitute such Event of Default, if curable, has not
been cured), by written notice to the Company from the Holder, all obligations
of the Company under this Note shall be immediately due and payable without
presentment, demand, protest or any other action nor obligation of the Holder of
any kind, all of which are hereby expressly waived, and Holder may exercise any
other remedies the Holder may have at law or in equity. If an Event of Default
specified in Section 5(e) above occurs, the principal of, and accrued interest
on, the Note shall automatically, and without any declaration or other action on
the part of any Holder, become immediately due and payable.

 

  15

   

 

6. Affirmative Covenants of the Company. The Company hereby agrees that, so long
as the Note remains outstanding and unpaid, or any other amount is owing to the
Holder hereunder, the Company will:

 

(a) Corporate Existence and Qualification. Take the necessary steps to preserve
its corporate existence and its right to conduct business in all states in which
the nature of its business requires qualification to do business;

 

(b) Compliance with Law. Comply with the charter and bylaws or other
organizational or governing documents of the Company, and any law, treaty, rule
or regulation, or determination of an arbitrator or a court or other
governmental authority, in each case applicable to or binding upon the Company
or any of its property or to which each of the Company or any of its properties
is subject;

 

(c) Taxes. Duly pay and discharge all taxes or other claims, which might become
a lien upon any of its property except to the extent that any thereof are being
in good faith appropriately contested with adequate reserves provided therefor;

 

(d) Further Assurances. The Company shall execute and deliver any and all such
further documents and take any and all such other actions as may be reasonably
necessary or appropriate to carry out the intent and purposes of this Note and
to consummate the transactions contemplated herein.

 

7. Subordination.

 

(a) All claims of the Holder to principal, interest and any other amounts at any
time owed under this Note (collectively, “Junior Indebtedness”) is hereby
expressly subordinated in right of payment, as herein set forth, to the prior
payment in full of all Senior Indebtedness (as defined below). No payment under
Junior Indebtedness shall be made by the Company, nor shall the Holder exercise
any remedies under the Junior Indebtedness (including taking any legal action
(whether judicial or otherwise) to collect the Junior Indebtedness), if, at the
time of such payment, exercise or immediately after giving effect thereto, (i)
there shall exist any “Default” or “Event of Default” under any agreements
governing any of the Senior Indebtedness or (ii) the maturity of any of the
Senior Indebtedness has been accelerated and such acceleration has not been
waived or such Senior Indebtedness has not been paid in full; provided, however,
that (x) in the event that the holder of any Senior Indebtedness accelerates
such Senior Indebtedness, then the Holder may accelerate the indebtedness
evidenced by this Note, and (y) if the Company is permitted under the terms of
the Senior Indebtedness to pay an amount due and owing under this Note and fails
to make such payment, then so long as the terms of the Senior Indebtedness do
not prohibit such action, the Holder may exercise its rights to be paid such
amount, but only such amount (and Holder shall not be permitted to accelerate
hereunder).

 

  16

   

 

(b) Upon any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to creditors upon any
dissolution or winding up or total or partial liquidation or reorganization of
the Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all Senior Indebtedness of the Company shall
first be paid in full, or payment thereof provided for in money, before any
payment is made under Junior Indebtedness; and upon any such dissolution or
winding up or liquidation or reorganization, any distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
which the Holder as holder of the Junior Indebtedness would be entitled except
for the provisions hereof, shall be paid by the Company or by any receiver,
trustee in bankruptcy, liquidating trustee, agent or other person making such
payment or distribution, or by the Holder if received by Holder, directly to the
holder of the Senior Indebtedness, or its representatives, to the extent
necessary to pay all such Senior Indebtedness in full, in money, after giving
effect to any concurrent prepayment or distribution to or for the benefit of the
holders of such Senior Indebtedness, before any payment or distribution is made
to the Holder with respect to the Junior Indebtedness.

 

(c) If the holders of the Senior Indebtedness in good faith believe Holder may
fail to timely file a proof of claim in any such proceeding, the holder(s) of
the Senior Indebtedness may do so for Holder.

 

(d) In the event that any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities, prohibited by
the foregoing shall be received by the Holder before all the Senior Indebtedness
is paid in full, or provisions made for such payment, in accordance with its
terms, such payment or distribution shall be held for the benefit of, and shall
be paid over or delivered to, the holders of the Senior Indebtedness or their
representative or representatives, as their respective interests may appear, for
application to the payment of all the Senior Indebtedness remaining unpaid to
the extent necessary to pay all such Senior Indebtedness in full, in money, in
accordance with its terms, after giving effect to any concurrent payment or
distribution to or for the holders of such Senior Indebtedness.

 

(e) The provisions hereof are solely for the purpose of defining the relative
rights of the holders of the Senior Indebtedness on the one hand and the Holder
as holder of the Junior Indebtedness on the other hand, and nothing herein shall
impair, as between the Company and the Holder, the obligations of the Company
under the Junior Indebtedness, which are unconditional and absolute. With this
in mind, notwithstanding the other provisions of this Section 7, if and so long
as all documents governing the Senior Indebtedness permit one of the actions
restricted by this Section 7, the restriction shall be waived and the restricted
action permitted hereunder.

 

(f) No right of any present or future holder of any Senior Indebtedness to
enforce the subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or any act or failure to act, in good faith, by any such holder of the Senior
Indebtedness, or any noncompliance by the Company with the terms, provisions and
covenants hereof, regardless of any knowledge thereof any holder of the Senior
Indebtedness may have or be otherwise charged with. Without in any way limiting
the generality of the foregoing, the holders of the Senior Indebtedness may, at
any time and from time to time, without the consent of or notice to the Holder,
without incurring responsibility to the Holder and without impairing or
releasing the subordination provided in this Note or the obligations hereunder
of the Holder to the holders of the Senior Indebtedness, do any one or more of
the following: (i) change the manner, place or terms of payment or extend the
time of payment of, or create, renew or alter, the Senior Indebtedness, or
otherwise amend or supplement in any manner the Senior Indebtedness or any
instrument evidencing the same or any agreement under which the Senior
Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing the Senior Indebtedness;
(iii) release any person liable or contingently liable in any manner for the
payment or collection of the Senior Indebtedness; and/or (iv) exercise or
refrain from exercising any rights against the Company or any other person.

 

  17

   

 

(g) Each holder of any Senior Indebtedness, whether such Senior Indebtedness was
created or acquired before or after the issuance of this Note, shall be entitled
to rely on the subordination provisions set forth in this Note.

 

(h) Notwithstanding the provisions of this Section 7, the Holder shall not be
charged with knowledge of the existence of facts which would prohibit the making
of any payments on the Junior Indebtedness unless and until the holder(s) of the
Senior Indebtedness or their representatives send written notice to Holder of
same.

 

(i) Subject to the payment in full of all the Senior Indebtedness, Holder as
holder of the Junior Indebtedness shall be subrogated to the rights of the
holders of the Senior Indebtedness to receive payments or distributions of
assets of the Company applicable to the Senior Indebtedness until the Senior
Indebtedness shall be paid in full.

 

(j) The Holder shall confirm (in writing) the above subordination provisions if
requested by any holder of the Senior Indebtedness, and shall execute and
deliver such additional subordination agreements, consistent with the foregoing
as any holder of Senior Indebtedness may require.

 

(k) For purposes hereof, “Senior Indebtedness” means, with respect to the
Company, up to a maximum of $7,500,000 (the “Subordination Cap”), all
indebtedness of the Company, whether outstanding on the date of the execution of
this Note or thereafter created, to banks, insurance companies, other financial
institutions, private equity funds, hedge funds or other similar funds, unless
in the instrument creating or evidencing such indebtedness it is provided that
such indebtedness is not senior in right of payment to this Note. Senior
Indebtedness, with respect to both the Company, shall also include indebtedness
for taxes owed to federal or state agencies and other indebtedness of the
Company, as the case may be, that by operation of law has a right that is senior
to the Junior Indebtedness. Any such indebtedness of the Company whether
outstanding on the date of the execution of this Note or thereafter created,
that causes the Senior Indebtedness to exceed the Subordination Cap shall
provide in the instrument creating or evidencing such indebtedness that such
indebtedness is not senior in right of payment to this Note.

 

8. Mutilated, Destroyed, Lost or Stolen Note. If this Note shall become
mutilated or defaced, or be destroyed, lost or stolen, the Company shall execute
and deliver a new note of like principal amount in exchange and substitution for
the mutilated or defaced Note, or in lieu of and in substitution for the
destroyed, lost or stolen Note. In the case of a mutilated or defaced Note, the
Holder shall surrender such Note to the Company. In the case of any destroyed,
lost or stolen Note, the Holder shall furnish to the Company: (i) evidence to
its satisfaction of the destruction, loss or theft of such Note and (ii) such
security or indemnity (which shall not include the posting of any bond) as may
be reasonably required by the Company to hold the Company harmless.

 

  18

   

 

9. Waiver of Demand, Presentment, etc. The Company hereby expressly waives
demand and presentment for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, notice of acceleration or intent to accelerate,
bringing of suit and diligence in taking any action to collect amounts called
for hereunder and shall be directly and primarily liable for the payment of all
sums owing and to be owing hereunder, regardless of and without any notice,
diligence, act or omission as or with respect to the collection of any amount
called for hereunder. The Company agrees that, in the event of an Event of
Default, to reimburse the Holder for all reasonable costs and expenses
(including reasonable legal fees of one counsel) incurred in connection with the
enforcement and collection of this Note.

 

10. Payment. All payments with respect to this Note shall be made in lawful
money of the United States of America, at the address of the Holder as of the
date hereof or as designated in writing by the Holder from time to time. The
receipt by the Holder of immediately available funds shall constitute a payment
of principal and interest hereunder and shall satisfy and discharge the
liability for principal and interest on this Note to the extent of the sum
represented by such payment. Payment shall be credited first to the accrued
interest then due and payable and the remainder applied to principal.

 

11. Assignment. The rights and obligations of the Company and the Holder of this
Note shall be binding upon, and inure to the benefit of, the successors and
permitted assigns of the parties hereto. To complete an assignment or transfer
this Note, the Holder shall deliver a completed and executed Form of Assignment
attached hereto as Exhibit A and surrender and deliver this Note, duly endorsed,
to the Company’s office or such other address which the Company shall designate,
upon receipt of which a new Note, in substantially the form of this Note (any
such new Note, a “New Note”), evidencing the portion of this Note so transferred
shall be issued to the transferee and a New Note evidencing the remaining
portion of this Note not so transferred, if any, shall be issued to the
transferring Holder. The acceptance of the New Note by the transferee thereof
shall be deemed the acceptance by such transferee of all of the rights and
obligations in respect of the New Note that the Holder has in respect of this
Note. Interest and principal are payable only to the registered Holder of this
Note set forth on the books and records of the Company. Any assignment pursuant
to this Section 11 remains subject to the occurrence of the Contingency Event.

 

12. Waiver and Amendment. Any provision of this Note, including, without
limitation, the due date hereof, and the observance of any term hereof, may be
amended, waived or modified (either generally or in a particular instance and
either retroactively or prospectively) only with the written consent of the
Company and the Holder.

 

13. Notices. Any notice, request or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been duly given if
given in accordance with the provisions of the Purchase Agreement.

 

  19

   

 

14. Governing Law. This Note shall be governed in all respects, including
validity, interpretation and effect, by the internal laws of the State of
Florida.

 

15. Headings. The descriptive headings contained in this Note are included for
convenience of reference only and will not affect in any way the meaning or
interpretation of this Note.

 

16. Severability. If one or more provisions of this Note are held to be
unenforceable under applicable law, such provisions shall be excluded from this
Note, and the balance of this Note shall be interpreted as if such provisions
were so excluded and shall be enforceable in accordance with its terms.

 

[Signature Page Follows]

 

  20

   

 

IN WITNESS WHEREOF, the undersigned have caused this Note to be issued as of the
date first above written.

 

  1847 CB, Inc.         By:

 

Name:

Ellery W. Roberts     Title: President  

 

  21

   

 

EXHIBIT A

 

FORM OF ASSIGNMENT

TO:        1847 CB, INC.,

 

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
___________________ (name), __________________________________________
(address), US$____________ of 8% Contingent Subordinated Promissory Note
(“Note”) of 1847 CB, Inc. (the “Company”), including any and all accrued and
unpaid interest owing thereon, registered in the name of the undersigned on the
records of the Company represented by the within certificate, and irrevocably
appoints ___________________ the attorney of the undersigned to transfer the
said securities on the books or register with full power of substitution.

 

DATED this ________ day of, __________________, 20 ____.

 

          

 

 

 

(Signature of Registered Note Holder)

 

 

 

 

 

(Print name of Registered Note Holder)

 

 

Instructions:

 

1. Signature of Holder must be the signature of the person appearing on the face
of the Note.

 

 

2. If the transfer of Note is signed by a trustee, executor, administrator,
curator, guardian, attorney, officer of a corporation or any person acting in a
fiduciary or representative capacity, the certificate must be accompanied by
evidence of authority to sign satisfactory to the Company.

 

 

22