Exhibit 10.1

 

 

DROPCAR, INC.

 

FORM OF LETTER AGREEMENT

 

August 31, 2018

 

Dear Warrant Holders,

 

The Warrant ledger of DropCar, Inc. (“DropCar”) indicates that you own the
Series H-4 Warrant to purchase shares of DropCar common stock, par value $0.0001
per share (the “Common Stock”) identified on Schedule A hereto (the “Warrants”)
and shares of Series H-4 Convertible Preferred Stock identified on Schedule A
hereto (the “H-4 Shares”). The Warrants were issued pursuant to Section 2 of
that certain Securities Purchase Agreement dated as of March 8, 2018.
Capitalized terms used herein and not otherwise defined shall have the
definitions ascribed to such terms in the Securities Purchase Agreement and the
Warrants.

 

Nasdaq Listing Rule 5635(d) requires DropCar to obtain stockholder approval
prior to the issuance of securities in connection with a transaction other than
a public offering involving (i) the sale, issuance or potential issuance by
DropCar of Common Stock (or securities convertible into or exercisable for
Common Stock) at a price less than the greater of book or market value which
equals 20% or more of the outstanding Common Stock or 20% or more of the voting
power outstanding before the issuance; or (ii) the sale, issuance or potential
issuance by DropCar of Common Stock (or securities convertible into or
exercisable for Common Stock) equal to 20% or more of the outstanding Common
Stock or 20% or more of the voting power outstanding before the issuance for
less than the greater of book or market value of the stock. For purposes of this
Letter Agreement, DropCar cannot issue in excess of 1,561,596 shares of Common
Stock without stockholder approval (the “Exercise Cap”).

 

DropCar desires that you exercise your permissible pro rata amount of Warrants
pursuant to Nasdaq Listing Rule 5635(d) in order to generate cash funds for
DropCar. To accomplish this goal, DropCar is willing to reduce the Exercise
Price of the Warrants and issue you an additional warrant to purchase Common
Stock on terms nearly identical to the terms of the Warrants, as an inducement
to you to presently exercise for cash your pro rata portion of the Warrants.
Notwithstanding anything herein to the contrary, in the event your exercise of
the Warrants would otherwise cause you to exceed the Maximum Percentage, DropCar
shall only issue to you such number of Warrant Shares that would not cause you
to exceed the maximum number of Warrant Shares permitted thereunder with the
balance to be held in abeyance until notice from you that the balance (or
portion thereof) may be issued in compliance with such limitations. In lieu of
presently issuing all of the Warrant Shares, DropCar shall be obligated to issue
to you, and you shall have the right to the issuance of, the number of Warrant
Shares equal to the difference between your pro rata portion of the Exercise Cap
less the number of Warrant Shares issuable to you without violating the Maximum
Percentage, subject to adjustment hereunder (the “Reserved Shares” and such
right, the “Right”).

 

DropCar hereby temporarily allows the Warrants to be exercised for an Exercise
Price equal to $0.60. The reduction of the Exercise Price shall be effective
only from the date hereof through 5:00 P.M. Eastern Standard Time on September
4, 2018 (“End Date”). During that time the Warrants will be able to be exercised
to buy some or all of the Warrant Shares on the preferential terms described in
this Letter Agreement on a cash only basis as described in Section 1(a) of your
Warrant. If any holder of Warrants has not accepted the offer set forth in this
Letter Agreement by the End Date, such holders’ pro rata amount of Warrant
Shares eligible to be exercised pursuant to the terms of this Letter Agreement
will be allocated to the respective pro rata allocations of the other Warrant
holders on a pro rata basis in proportion to the Warrant Shares underlying the
Warrants then held by each other Warrant holder. Your initial allocation will be
your pro rata amount of the Exercise Cap, provided, however, that if other
Warrant holders do not accept the offer set forth in this Letter Agreement, you
will be permitted to exercise an additional amount of Warrants. Please indicate
on the signature page hereto the maximum number of Warrant Shares you desire to
exercise. Except as otherwise set forth in this Letter Agreement, upon the
occurrence of the End Date, the offer set forth in this Letter Agreement shall
be terminated and this Letter Agreement shall be null and void.

 

 

 

 

If you exercise your Warrants prior to the End Date, you (regardless if the
Warrants are assigned or transferred by you after the date hereof and exercised
by such assignee or transferee) will receive a warrant to purchase Common Stock
substantially identical to the Warrant, representing the right to acquire one
share of Common Stock for each Warrant Share acquired upon cash exercise of the
Warrants after the date hereof and through the End Date (“Reload Warrant”). The
Reload Warrant will be identical to the Warrants and grant you the same rights,
benefits and obligations as the Warrants except (i) the Exercise Price will be
equal to $1.00, (ii) the Reload Warrant may be exercised at all times beginning
on the 6-month anniversary of the issuance date on a cash basis and also on a
cashless basis as described in Section 2(d) of the Reload Warrant and only in
the event a Registration Statement for the public resale of the Warrant Shares
issuable upon exercise thereof is not effective (unless the Warrant holder has
waived its right to have the resale of the Warrant Shares registered), (iii) the
Reload Warrant does not contain any provisions for anti-dilution adjustment and
(iv) DropCar will have the right to require you to exercise all or any portion
of the Reload Warrant still unexercised for a cash exercise if the volume
weighted average price (“VWAP”) for the Common Stock equals or exceeds $1.50
(subject to appropriate adjustments for stock splits, stock dividends,
recapitalizations, reorganizations, reclassifications, combinations, reverse
stock splits or other similar transactions after the Issuance Date) for not less
than ten (10) consecutive Trading Days. A form of Reload Warrant is annexed
hereto as Exhibit A.

 

Additionally, in lieu of registration rights granted pursuant to the Securities
Purchase Agreement and the Registration Rights Agreement referred to therein,
until the Expiration Date of the Reload Warrants and at a time when Rule
144b(1)(i) under the Securities Act is unavailable for the resale of the Warrant
Shares, if DropCar determines to prepare and file with the SEC a registration
statement relating to an offering for its own account or the account of others
under the Securities Act of any of its equity securities (but excluding Forms
S-4 or S-8 and similar forms which do not permit such registration), then
DropCar shall send to each holder of any of the Reload Warrants or Warrant
Shares issued upon exercise of the Reload Warrants (collectively, the
“Securities”) written notice of such determination and, if within fifteen
calendar days after receipt of such notice, any such holder shall so request in
writing, DropCar shall include in such registration statement all or any part of
the Warrant Shares issuable upon exercise of the Reload Warrants, that such
holder requests to be registered. Inclusion of such Warrant Shares issuable upon
exercise of the Reload Warrants will be subject to customary underwriter
cutbacks applicable to all holders of registration rights and minimum cutbacks
in accordance with guidance provided by the SEC (including, but not limited to
Rule 415). The obligations of DropCar under this paragraph may be waived by any
holder of any of the Securities entitled to registration rights under this
paragraph, in which case the Warrant Holder shall also be deemed to have waived
its right to exercise the Reload Warrant on a cashless basis with respect to the
Warrant Shares for which registration was waived. The holders whose Warrant
Shares are included or required to be included in such registration statement
are granted the same rights, benefits, liquidated or other damages and
indemnification granted to other holders of securities included in such
registration statement. In no event shall the liability of any holder of
Securities or permitted successor be greater in amount than the dollar amount of
the net proceeds actually received by such holder upon the sale of the Warrant
Shares pursuant to such registration or such lesser amount in proportion to all
other holders of securities included in such registration statement. All
expenses incurred by DropCar in complying with this paragraph, including,
without limitation, all registration and filing fees, printing expenses (if
required), fees and disbursements of counsel and independent public accountants
for DropCar, fees and expenses (including reasonable counsel fees) incurred in
connection with complying with state securities or “blue sky” laws, fees of the
FINRA, transfer taxes, and fees of transfer agents and registrars, are called
“Registration Expenses.” All underwriting discounts and selling commissions
applicable to the sale of the Securities are called “Selling Expenses.” DropCar
will pay all Registration Expenses in connection with such registration
statement. Selling Expenses in connection with such registration statement shall
be borne by the holders of the Securities and will be apportioned among all such
holders in proportion to the number of Warrant Shares included in a registration
statement for a holder relative to all the securities included therein for all
selling holders, or as all holders may otherwise agree. It shall be a condition
precedent to the obligations of DropCar to complete the registration pursuant to
this paragraph with respect to the Warrant Shares of a particular holder that
such holder shall furnish to DropCar in writing such information and
representation letters, including a completed form of a securityholder
questionnaire, with respect to itself and the proposed distribution by it as
DropCar may reasonably request to assure compliance with federal and applicable
state securities laws.

 

The Reload Warrant will be delivered within the same period after exercise of a
Warrant as the Warrant Shares are deliverable upon exercise of the Warrant. The
Reload Warrant will be deemed issued pursuant to the Securities Purchase
Agreement, including with respect to the representations, warranties and
undertakings therein contained, mutatis mutandis, which representations and
warranties are accurate as of the dates made.

  

The Warrant Shares issuable upon exercise of the Warrants are presently
registered for resale pursuant to an effective Registration Statement as
described in the Registration Rights Agreement referred to in the Securities
Purchase Agreement.

 

 

 

 

DropCar further undertakes to use best efforts to as promptly as practicable
after the date of this Letter Agreement file a proxy statement with the
Commission seeking stockholder approval to: (i) reduce the conversion price of
the H-4 Shares and the exercise price of the remaining Warrant to $0.60; and
(ii) issue all the shares of DropCar’s common stock issuable upon the full
conversion of the H-4 Shares and exercise of the Warrants at $0.60. Upon receipt
of such stockholder approval, the conversion price of the H-4 Shares and the
exercise price of the remaining Warrant shall be immediately reduced to $0.60
(subject to adjustment as set forth in the certificate of designation of the H-4
Shares and the Warrants).

 

Subject to the terms hereof, the exercise of the Right may be made by you, in
whole or in part, at any time or times on or after the date hereof by delivery
to DropCar (or such other office or agency of DropCar as it may designate by
notice in writing to you at the your address appearing on the books of DropCar)
of a duly executed facsimile copy of the Notice of Issuance Form annexed hereto
as Exhibit A. Partial exercises of the Right resulting in issuances of a portion
of the total number of Reserved Shares available hereunder shall have the effect
of lowering the outstanding number of Reserved Shares issuable hereunder in an
amount equal to the applicable number of Reserved Shares issued. You and DropCar
shall maintain records showing the number of Reserved Shares issued and the date
of such issuances. DropCar shall deliver any objection to any Notice of Issuance
Form within one (1) Business Day of receipt of such notice.

 

Certificates for the Reserved Shares issued hereunder shall be transmitted by
the Transfer Agent to you by crediting the account of your prime broker with The
Depository Trust Company through its Deposit or Withdrawal at Custodian system
(“DWAC”) if DropCar is then a participant in such system and either (A) there is
an effective registration statement permitting the issuance of the Reserved
Shares to or resale of the Reserved Shares by you or (B) the Reserved Shares are
eligible for resale by the Holder without volume or manner-of-sale limitations
pursuant to Rule 144, and otherwise by physical delivery to the address
specified by the Holder in the Notice of Issuance by the date that is three (3)
Trading Days after the delivery to DropCar of the Notice of Issuance (such date,
the “Share Delivery Date”). The Reserved Shares shall be deemed to have been
issued, and Holder or any other person so designated to be named therein shall
be deemed to have become a holder of record of such Reserved Shares for all
purposes, as of the date the Right has been exercised. Issuance of certificates
for Reserved Shares shall be made without charge to the Holder for any issue or
transfer tax or other incidental expense in respect of the issuance of such
certificate, all of which taxes and expenses shall be paid by DropCar, and such
certificates shall be issued in the name of the Holder. DropCar shall pay all
Transfer Agent fees required for same-day processing of any Notice of Issuance.
The Holder shall not have the right to exercise any portion of the Right, to the
extent that after giving effect to such issuance after exercise as set forth on
the applicable Notice of Issuance, the Holder (together with the Holder’s
Affiliates, and any other Persons acting as a group together with the Holder or
any of the Holder’s Affiliates), would beneficially own in excess of the
Beneficial Ownership Limitation. The “Beneficial Ownership Limitation” shall be
9.99% of the number of shares of the Common Stock outstanding immediately after
giving effect to the issuance of shares of Common Stock issuable upon exercise
of the Right. The Holder may decrease the Beneficial Ownership Limitation at any
time and the Holder, upon not less than 61 days’ prior notice to DropCar, may
increase the Beneficial Ownership Limitation provisions of this Section 2(e),
provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of
the number of shares of the Common Stock outstanding immediately after giving
effect to the issuance of shares of Common Stock upon exercise of the Right held
by the Holder and the provisions of this Section 2(e) shall continue to apply.
Any such increase will not be effective until the 61st day after such notice is
delivered to DropCar. The provisions of this paragraph shall be construed and
implemented in a manner otherwise than in strict conformity with the terms of
this Section 2(e) to correct this paragraph (or any portion hereof) which may be
defective or inconsistent with the intended Beneficial Ownership Limitation
herein contained or to make changes or supplements necessary or desirable to
properly give effect to such limitation. The limitations contained in this
paragraph shall apply to a successor holder of the Right. With respect to the
Reserved Shares, this Agreement does not entitle the Holder to any voting
rights, or other rights as a holder of Common Stock of DropCar prior to the
exercise of the right to the extent possessing such rights would cause the
Holder to exceed the Beneficial Ownership Limitation. It is the purpose of this
Agreement that Holder not be deemed the beneficial owner of Common Stock in
excess of the Beneficial Ownership Limitation. To the extent not available prior
to the exercise of the Right, the Holder shall have all of the rights of a
shareholder DropCar that acquired shares of DropCar under the Merger Agreement
and the Reserved Shares will be deemed Shares with respect to the amount of
Reserved Shares demanded in a Notice of Issuance. Until issuance as Shares,
Reserved Shares will not be deemed outstanding as to those matters that require
or can be effectuated by or with the consent of DropCar or DropCar shareholders
under the Merger Agreement or any other document.

 

If DropCar, at any time while the Right exists: (i) pays a stock dividend or
otherwise makes a distribution or distributions on shares of its Common Stock or
any other equity or equity equivalent securities payable in shares of Common
Stock, (ii) subdivides outstanding shares of Common Stock into a larger number
of shares, (iii) combines (including by way of reverse stock split) outstanding
shares of Common Stock into a smaller number of shares, or (iv) issues by
reclassification of shares of the Common Stock any shares of capital stock of
DropCar, then in each case the number of Reserved Shares issuable upon exercise
of the Right shall be proportionately adjusted. Any adjustment made pursuant to
this paragraph shall become effective immediately upon the record date for the
determination of stockholders entitled to receive such dividend or distribution
(provided that if the declaration of such dividend or distribution is rescinded
or otherwise cancelled, then such adjustment shall be reversed upon notice to
the Holder of the termination of such proposed declaration or distribution as to
any unexercised portion of the Right at the time of such rescission or
cancellation) and shall become effective immediately after the effective date in
the case of a subdivision, combination or re-classification. If DropCar, at any
time while the Right exists pays a cash dividend or otherwise makes a
distribution or distributions on shares of its Common Stock, DropCar shall hold
such amount that would be payable on the Reserved Shares if they had been
issued, and pay such amount of each Reserved Share as it is issued in accordance
with this Letter Agreement.

 

 

 

 

In addition to any other rights available to the Holder, if DropCar fails to
cause the Transfer Agent to transmit to the Holder a certificate or the
certificates representing the Reserved Shares pursuant to an exercise on or
before the Share Delivery Date, and if after such date and prior to the delivery
of such certificate or certificates the Holder is required to purchase (in an
open market transaction or otherwise) or the Holder’s broker otherwise
purchases, shares of Common Stock to deliver in satisfaction of a sale by the
Holder of the Reserved Shares which the Holder anticipated receiving upon such
exercise (a “Buy-In”), then DropCar shall (A) pay in cash to the Holder the
amount, if any, by which (x) the Holder’s total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so purchased
exceeds (y) the amount obtained by multiplying (1) the number of Reserved Shares
that DropCar was required to deliver to the Holder in connection with the
exercise at issue times (2) the price at which the sell order giving rise to
such purchase obligation was executed, and (B) at the option of the Holder,
either reinstate the portion of the Right and equivalent number of Reserved
Shares for which such exercise was not honored (in which case such exercise
shall be deemed rescinded, and the Holder shall promptly return to DropCar the
certificates issued to such Holder pursuant to the rescinded Notice of Issuance)
or deliver to the Holder the number of shares of Common Stock that would have
been issued had DropCar timely complied with its exercise and delivery
obligations hereunder. For example, if the Holder purchases Common Stock having
a total purchase price of $11,000 to cover a Buy-In with respect to an attempted
exercise of shares of Common Stock with an aggregate sale price giving rise to
such purchase obligation of $10,000, under clause (A) of the immediately
preceding sentence DropCar shall be required to pay the Holder $1,000. The
Holder shall provide DropCar written notice indicating the amounts payable to
the Holder in respect of the Buy-In and, upon request of DropCar, evidence of
the amount of such loss. Nothing herein shall limit a Holder’s right to pursue
any other remedies available to it hereunder, at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief
with respect to DropCar’s failure to timely deliver certificates representing
shares of Common Stock upon exercise of the Right as required pursuant to the
terms hereof.

 

If at any time DropCar grants, issues or sells any Common Stock Equivalents or
rights to purchase stock, warrants, securities or other property pro rata to the
record holders of any class of shares of Common Stock (the “Purchase Rights”),
then the Holder will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which the Holder could have
acquired if the Holder had held the number of shares of Common Stock acquirable
upon complete exercise of the Right (without regard to any limitations on
exercise hereof, including without limitation, the Maximum Percentage)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of shares of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights (provided, however, to the extent
that the Holder’s right to participate in any such Purchase Right would result
in the Holder exceeding the Maximum Percentage, then the Holder shall not be
entitled to participate in such Purchase Right to such extent (or beneficial
ownership of such shares of Common Stock as a result of such Purchase Right to
such extent) and such Purchase Right to such extent shall be held in abeyance
for the Holder until such time, if ever, as its right thereto would not result
in the Holder exceeding the Maximum Percentage). If, at any time while the Right
remains outstanding, (i) DropCar, directly or indirectly, in one or more related
transactions engages in a Fundamental Transaction as defined in the Warrants,
then, with respect to such Fundamental Transaction, the Holder will be deemed to
be the record owner of the Reserved Shares entitled to all the benefits and
rights of a holder of Common Stock and Warrants to the same extent as a holder
of Warrants has such rights with respect to Warrants and Warrant Shares issuable
upon exercise of Warrants. If (A) DropCar shall declare a dividend (or any other
distribution in whatever form) on the Common Stock, (B) DropCar shall declare a
special nonrecurring cash dividend on or a redemption of Common Stock, (C)
DropCar shall authorize the granting to all holders of Common Stock rights or
Warrants to subscribe for or purchase any shares of capital stock of any class
or of any rights, (D) the approval of any stockholders of DropCar shall be
required in connection with any reclassification of the Common Stock, any
consolidation or merger to which DropCar is a party, any sale or transfer of all
or substantially all of the assets of DropCar, or any compulsory share exchange
whereby the Common Stock is converted into other securities, cash or property,
or (E) DropCar shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of DropCar, then, in each case, DropCar
shall cause to be mailed to the Holder at least 10 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. To the extent that any notice provided hereunder constitutes, or
contains, material, non-public information regarding DropCar or any of its
subsidiaries, DropCar shall simultaneously file such notice with the Commission
pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to
exercise the Right during the period commencing on the date of such notice to
the effective date of the event triggering such notice except as may otherwise
be expressly set forth herein.

 

[Signature Page to Follow]

 

 

 

 

If this proposal is acceptable to you, please indicate your consent below and
return this Letter Agreement to DropCar electronically.

 

  Very truly yours,       DropCar, Inc.       By:  

 

Accepted and Agreed to:

 

Name of Holder: ________________________________________________________

 

Signature of Authorized Signatory of Holder: _________________________________

 

Name of Authorized Signatory: _______________________________________________

 

Title of Authorized Signatory: ________________________________________________

 

Maximum Number of Warrant Shares Desired to be Exercised:

 

Aggregate Exercise Price:

 

DTC Instructions:

 

 

 

 

SCHEDULE A

 

HOLDER  WARRANT NO.  SHARES OF SERIES H-4 SHARES CURRENTLY HELD  NUMBER OF
WARRANT SHARES UNDERLYING SERIES H-4 WARRANTS   NUMBER OF SERIES H-4 WARRANT
SHARES INITIALLY ELIGIBLE TO BE EXERCISED PURSUANT TO OFFER  

NUMBER OF WARRANT

SHARES INITIALLY ISSUABLE

UPON CASH EXERCISE

OF WARRANT

  Alpha Capital Anstalt  2018H4-1  11,093   1,109,300    645,337    645,337 
Iroquois Capital Investment Group LLC  2018H4-2  3,184   318,400    185,230  
 185,230  Iroquois Master Fund LTD.  2018H4-3  3,184   318,400    185,230  
 185,230  Mada Equities LLC  2018H4-4  1,061   106,100    61,724    61,724  The
Hewlett Fund LP  2018H4-5  1,061   106,100    61,724    61,724  Zeiger Tower
LLC  2018H4-6  530   53,000    30,833    30,833  L1 Capital Global Opportunities
Master Fund  2018H4-7  1,910   191,000    111,115    111,115  Brio Capital
Master Fund LTD.  2018H4-8  2,123   212,300    123,506    123,506  SOS Investors
Group LLC  2018H4-9  318   31,800    18,500    18,500  Isaac Fruchthandler 
2018H4-10  74   7,400    4,305    4,305  Fame Associates  2018H4-11  743 
 74,300    43,224    43,224  Richard Molinsky  2018H4-12  191   19,100  
 11,111    11,111  Palladium Capital Advisors, LLC  2018H4-13  1,371   137,100  
 79,758    79,758