Exhibit 10.1

 

SECURITIES PURCHASE AGREEMENT

 

SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of December 26, 2017,
by and among (i) Workhorse Group Inc., a Nevada corporation, with headquarters
located at 100 Commerce Drive, Loveland, Ohio 45140 (the “Company”), (ii)
Surefly, Inc., a newly formed indirect Subsidiary (as hereinafter defined) of
the Company incorporated in the State of Delaware (“SFI”), solely with respect
to Sections 4(o) and 4(p) hereof and (iii) the investors listed on the Schedule
of Buyers attached hereto (individually, a “Buyer” and collectively, the
“Buyers”).

 

WHEREAS:

 

A. The Company and each Buyer is executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Section
4(a)(2) of the Securities Act of 1933, as amended (the “1933 Act”), and Rule
506(b) of Regulation D (“Regulation D”) as promulgated by the United States
Securities and Exchange Commission (the “SEC”) under the 1933 Act.

 

B. The Company has authorized a new series of senior secured notes of the
Company, in substantially the form attached hereto as Exhibit A (the “Notes”).

 

C. Each Buyer wishes to purchase, and the Company wishes to sell, upon the terms
and conditions stated in this Agreement, that aggregate principal amount of
Notes set forth opposite such Buyer’s name in column (3) on the Schedule of
Buyers attached hereto (which aggregate principal amount of Notes for all Buyers
shall be $5,750,000).

 

D. The Notes will rank senior to all future indebtedness of the Company and its
Subsidiaries (as defined below), will be guaranteed by Workhorse Technologies
Inc., a Subsidiary (as defined in Section 3(a)) of the Company (“WTI”), and SFI,
as evidenced by a guarantee agreement, in the form attached hereto as Exhibit B
(as amended or modified from time to time in accordance with its terms, the
“Guarantee Agreement”), and will be secured by (i) a first priority perfected
security interest (subject to Permitted Liens under and as defined in the Notes)
in all assets of SFI, as evidenced by a pledge and security agreement,
substantially in the form attached hereto as Exhibit C, (as amended or modified
from time to time in accordance with its terms, the “Security Agreement”) and
(ii) a first priority, perfected security interest in all shares of SFI’s common
stock pledged by WTI, as evidenced by the pledge agreement attached hereto as
Exhibit D (as amended or modified from time to time in accordance with its
terms, the “Pledge Agreement”).

 

NOW, THEREFORE, the Company and each Buyer hereby agree as follows:

 

1. PURCHASE AND SALE OF NOTES.

 

(a) Purchase of Notes. Subject to the satisfaction (or waiver) of the conditions
set forth in Sections 6 and 7 below, the Company shall issue and sell to each
Buyer, and each Buyer severally, but not jointly, agrees to purchase from the
Company on the Closing Date (as defined below), a principal amount of Notes as
is set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers
(the “Closing”).

 

 

 

 

(b) Closing. The date and time of the Closing (the “Closing Date”) shall be
10:00 a.m., New York City time, on the date hereof (or such other date and time
as is mutually agreed to by the Company and each Buyer) after notification of
satisfaction (or waiver) of the conditions to the Closing set forth in Sections
6 and 7 below, at the offices of Schulte Roth & Zabel LLP, 919 Third Avenue, New
York, New York 10022.

 

(c) Purchase Price. The aggregate purchase price for the Notes to be purchased
by each Buyer at the Closing (the “Purchase Price”) shall be the amount set
forth opposite each Buyer’s name in column (4) of the Schedule of Buyers. Each
Buyer shall pay $1,000 for each $1,150 of principal amount of Notes to be
purchased by such Buyer at the Closing.

 

(d) Form of Payment. On the Closing Date, (i) each Buyer shall pay for the Notes
to be issued and sold to such Buyer at the Closing by paying: (1) 96.5% of its
Purchase Price to the Company (less, in the case of the applicable Buyers, the
amounts withheld pursuant to Section 4(f)), by wire transfer of immediately
available funds in accordance with the Company’s written wire instructions and
(2) 3.5% of its Purchase Price to the Placement Agent (as defined in Section
3(g)) by wire transfer of immediately available funds in accordance with the
Placement Agent’s written wire instructions and (ii) the Company shall deliver
to each Buyer the Notes (allocated in the principal amounts as such Buyer shall
request) which such Buyer is then purchasing hereunder, duly executed on behalf
of the Company and registered in the name of such Buyer or its designee.

 

2. BUYER’S REPRESENTATIONS AND WARRANTIES. Each Buyer, severally and not
jointly, represents and warrants with respect to only itself that, as of the
date hereof and as of the Closing Date:

 

(a) No Public Sale or Distribution. Such Buyer is acquiring the Notes for its
own account and not with a view towards, or for resale in connection with, the
public sale or distribution thereof, except pursuant to sales registered or
exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer does not agree to hold any of the Notes for
any minimum or other specific term and reserves the right to dispose of the
Notes at any time in accordance with or pursuant to a registration statement or
an exemption under the 1933 Act. Such Buyer is acquiring the Notes hereunder in
the ordinary course of its business. Such Buyer does not presently have any
agreement or understanding, directly or indirectly, with any Person (as defined
below) to distribute any of the Notes. For purposes of this Agreement, “Person”
means an individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization, any other
entity and any government or any department or agency thereof.

 

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

 

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

 

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(d) Information. Such Buyer and its advisors, if any, have been furnished with
all materials relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Notes that have been
requested by such Buyer. Such Buyer and its advisors, if any, have been afforded
the opportunity to ask questions of the Company. Neither such inquiries nor any
other due diligence investigations conducted by such Buyer or its advisors, if
any, or its representatives shall modify, amend or affect such Buyer’s right to
rely on the Company’s representations and warranties contained herein. Such
Buyer understands that its investment in the Notes involves a high degree of
risk. Such Buyer has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to its
acquisition of the Notes.

 

(e) No Governmental Review. Such Buyer understands that no United States federal
or state agency or any other government or governmental agency has passed on or
made any recommendation or endorsement of the Notes or the fairness or
suitability of the investment in the Notes nor have such authorities passed upon
or endorsed the merits of the offering of the Notes.

 

(f) Transfer or Resale. Such Buyer understands that: (i) the Notes have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Notes to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) such Buyer
provides the Company with reasonable assurance that such Notes can be sold,
assigned or transferred pursuant to Rule 144 or Rule 144A promulgated under the
1933 Act, as amended, (or a successor rule thereto) (collectively, “Rule 144”);
(ii) any sale of the Notes made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Notes 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 the Notes under the 1933 Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder. Notwithstanding the
foregoing, the Notes may be pledged in connection with a bona fide margin
account or other loan or financing arrangement secured by the Notes and such
pledge of Notes shall not be deemed to be a transfer, sale or assignment of the
Notes hereunder, and no Buyer effecting a pledge of Notes shall be required to
provide the Company with any notice thereof or otherwise make any delivery to
the Company pursuant to this Agreement or any other Transaction Document (as
defined in Section 3(b)), including, without limitation, this Section 2(f).

 

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(g) Legends. Such Buyer understands that the certificates or other instruments
representing the Notes, except as set forth below, shall bear a restrictive
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of such stock certificates):

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT 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 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 the Notes upon which it is
stamped, if (i) such Notes are registered for resale under the 1933 Act, (ii) in
connection with a sale, assignment or other transfer, such holder provides the
Company with an opinion of counsel, in a generally acceptable form, to the
effect that such sale, assignment or transfer of the Notes may be made without
registration under the applicable requirements of the 1933 Act, or (iii) the
Notes can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A.

 

(h) Validity; Enforcement. This Agreement has been duly and validly authorized,
executed and delivered on behalf of such Buyer and shall constitute the legal,
valid and binding obligations of such Buyer enforceable against such Buyer in
accordance with their respective terms, except as such enforceability may be
limited by general principles of equity or to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and
remedies.

 

(i) No Conflicts. The execution, delivery and performance by such Buyer of this
Agreement and the consummation by such Buyer of the transactions contemplated
hereby will not (i) result in a violation of the organizational documents of
such Buyer or (ii) conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which such Buyer is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws) applicable to such Buyer, except
in the case of clauses (ii) and (iii) above, for such conflicts, defaults,
rights or violations which would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the ability of such
Buyer to perform its obligations hereunder.

 

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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

The Company represents and warrants to each of the Buyers that, as of the date
hereof and as of the Closing Date:

 

(a) Organization and Qualification. Each of the Company and each of its
“Subsidiaries” (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns any of the capital stock or holds an
equity or similar interest) are entities duly organized and validly existing and
in good standing under the laws of the jurisdiction in which they are formed,
and have the requisite power and authorization to own their properties and to
carry on their business as now being conducted and as presently proposed to be
conducted. Each of the Company and each of its Subsidiaries is duly qualified as
a foreign entity to do business and is in good standing in every jurisdiction in
which its ownership of property or the nature of the business conducted by it
makes such qualification necessary, except to the extent that the failure to be
so qualified or be in good standing would not reasonably be expected to have a
Material Adverse Effect. As used in this Agreement, “Material Adverse Effect”
means any material adverse effect on the business, properties, assets,
liabilities, operations, results of operations, condition (financial or
otherwise) or prospects of the Company and its Subsidiaries, individually or
taken as a whole, or on the transactions contemplated hereby or on the other
Transaction Documents or by the agreements and instruments to be entered into in
connection herewith or therewith, or on the authority or ability of the Company
to perform any of its obligations under any of the Transaction Documents. The
Company has no Subsidiaries except as set forth on Schedule 3(a).

 

(b) Authorization; Enforcement; Validity. The Company has the requisite power
and authority to enter into and perform its obligations under this Agreement,
the Notes, the Security Documents (as defined below) and each of the other
agreements entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the “Transaction
Documents”) and to issue the Notes in accordance with the terms hereof and
thereof. The execution and delivery of this Agreement and the other Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of
the Notes, have been duly authorized by the Company’s Board of Directors and
(other than the filing of a Form D with the SEC and other filings as may be
required by state securities agencies) no further filing, consent, or
authorization is required by the Company, its Board of Directors or its
shareholders. This Agreement and the other Transaction Documents have been duly
executed and delivered by the Company, and constitute the legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and
remedies. Each of the Subsidiaries party to any of the Transaction Documents has
the requisite power and authority to enter into and perform its obligations
under such Transaction Documents. The execution and delivery by the Subsidiaries
party to any of the Transaction Documents of such Transaction Documents and the
consummation by such Subsidiaries of the transactions contemplated thereby have
been duly authorized by such Subsidiaries’ respective boards of directors (or
other applicable governing body) and (other than filings as may be required by
state securities agencies) no further filing, consent, or authorization is
required by such Subsidiaries, their respective boards of directors (or other
applicable governing body) or shareholders (or other applicable owners of equity
of such Subsidiaries). The Transaction Documents to which any of the
Subsidiaries are parties have been duly executed and delivered by such
Subsidiaries, and constitute the legal, valid and binding obligations of such
Subsidiaries, enforceable against them in accordance with their respective
terms, except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the enforcement
of applicable creditors’ rights and remedies. For purposes of this Agreement,
the term “Security Documents” means Guarantee Agreement, the Security Agreement,
the Pledge Agreement, any account control agreement, any and all financing
statements, fixture filings, security agreements, pledges, assignments,
mortgages, deeds of trust, opinions of counsel, and all other documents
requested by the Collateral Agent to create, perfect, and continue perfected or
to better perfect the Collateral Agent’s security interest in and liens on all
of the assets of the Company and each of its Subsidiaries (whether now owned or
hereafter arising or acquired, tangible or intangible, real or personal), and in
order to fully consummate all of the transactions contemplated hereby and under
the other Transaction Documents.

 

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(c) Issuance of Securities. The issuance of the Notes is duly authorized and,
upon issuance, the Notes shall be validly issued and free from all preemptive or
similar rights, taxes, liens, charges and other encumbrances with respect to the
issue thereof. Assuming the accuracy of each of the representations and
warranties set forth in Section 2 of this Agreement, the offer and issuance by
the Company of the Notes is exempt from registration under the 1933 Act.

 

(d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and any of its Subsidiaries parties to any of the
Transaction Documents and the consummation by the Company and any of its
Subsidiaries of the transactions contemplated hereby and thereby (including,
without limitation, the issuance of the Notes) will not (i) result in a
violation of the Company’s Articles of Incorporation, as amended and as in
effect on the date hereof (the “Articles of Incorporation”), or the Company’s
Bylaws, as amended and as in effect on the date hereof (the “Bylaws”), any
memorandum of association, certificate of incorporation, certificate of
formation, bylaws, any certificate of designations or other constituent
documents of the Company or any of its Subsidiaries, any capital stock of the
Company or any of its Subsidiaries or the articles of association or bylaws of
the Company or any of its Subsidiaries or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) in any respect under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including other foreign, federal and state securities laws and regulations and
the rules and regulations of the Nasdaq Capital Market (the “Principal Market”)
and including all applicable laws of the State of Nevada, the State of Ohio, the
State of Delaware and any foreign, federal and state laws, rules and
regulations) applicable to the Company or any of its Subsidiaries or by which
any property or asset of the Company or any of its Subsidiaries is bound or
affected. Nothing in the Notes or any other Transaction Document violate any
applicable usury laws and the original issue discount, together with any other
interest or amounts payable under the Notes and each other Transaction
Documents, collectively, do not exceed the maximum rate permitted by applicable
law.

 

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(e) Consents. Neither the Company nor any of its Subsidiaries is required to
obtain any consent, authorization or order of, or make any filing or
registration with (other than the filing of a Form D with the SEC and other
filings as may be required by state securities agencies), any court,
governmental agency or any regulatory or self-regulatory agency or any other
Person in order for it to execute, deliver or perform any of its obligations
under or contemplated by the Transaction Documents, in each case in accordance
with the terms hereof or thereof. All consents, authorizations, orders, filings
and registrations which the Company or any of its Subsidiaries is required to
obtain pursuant to the preceding sentence have been obtained or effected on or
prior to the Closing Date (or in the case of the filings detailed above, will be
made timely after the Closing Date), and the Company and its Subsidiaries is
unaware of any facts or circumstances that might prevent the Company or any of
its Subsidiaries from obtaining or effecting any of the registration,
application or filings pursuant to the preceding sentence. The Company is not in
violation of the listing requirements of the Principal Market and has no
knowledge of any facts or circumstances that would reasonably lead to delisting
or suspension of the Common Stock in the foreseeable future. The issuance by the
Company of the Notes shall not have the effect of delisting or suspending the
Common Stock from the Principal Market.

 

(f) Acknowledgment Regarding Buyer’s Purchase of Securities. The Company
acknowledges and agrees that each Buyer is acting solely in the capacity of an
arm’s length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company or any of its Subsidiaries, (ii) an “affiliate” of
the Company or any of its Subsidiaries (as defined in Rule 144) or (iii) to the
knowledge of the Company, a “beneficial owner” of more than 10% of the shares of
Common Stock (as defined for purposes of Rule 13d-3 of the Securities Exchange
Act of 1934, as amended (the “1934 Act”)). The Company further acknowledges that
no Buyer is acting as a financial advisor or fiduciary of the Company or any of
its Subsidiaries (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby, and any advice
given by a Buyer or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to such Buyer’s purchase of the Notes. The Company further
represents to each Buyer that the Company’s decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.

 

(g) No General Solicitation; Placement Agent’s Fees. Neither the Company, nor
any of its Subsidiaries or affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offer or sale of the
Notes. The Company shall be responsible for the payment of any placement agent’s
fees, financial advisory fees, or brokers’ commissions (other than for persons
engaged by any Buyer or its investment advisor) relating to or arising out of
the transactions contemplated hereby, including, without limitation, any
placement agent fees payable to Oppenheimer & Co. Inc., as placement agent (the
“Placement Agent”) in connection with the sale of the Notes. The Company shall
pay, and hold each Buyer harmless against, any liability, loss or expense
(including, without limitation, attorney’s fees and out-of-pocket expenses)
arising in connection with any such claim. The Company acknowledges that it has
engaged the Placement Agent in connection with the sale of the Notes. Other than
the Placement Agent, neither the Company nor any of its Subsidiaries has engaged
any placement agent or other agent in connection with the sale of the Notes.

 

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(h) No Integrated Offering. None of the Company, its Subsidiaries, any of their
affiliates, nor any Person acting on their behalf has, directly or indirectly,
made any offers or sales of any security or solicited any offers to buy any
security, under circumstances that would require registration of the issuance of
any of the Notes under the 1933 Act, whether through integration with prior
offerings or otherwise, or cause this offering of the Notes to require approval
of shareholders of the Company for purposes of the 1933 Act or any applicable
shareholder approval provisions, including, without limitation, under the rules
and regulations of any exchange or automated quotation system on which any of
the securities of the Company are listed or designated for quotation. None of
the Company, its Subsidiaries, their affiliates nor any Person acting on their
behalf will take any action or steps referred to in the preceding sentence that
would require registration of the issuance of any of the Notes under the 1933
Act or cause the offering of any of the Notes to be integrated with other
offerings for purposes of any such applicable shareholder approval provisions.

 

(i) SEC Documents; Financial Statements. During the two (2) years prior to the
date hereof, the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the 1934 Act (all of the foregoing filed prior
to the date hereof or prior to the Closing Date, and all exhibits included
therein and financial statements, notes and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the “SEC
Documents”). The Company has delivered to the Buyers or their respective
representatives true, correct and complete copies of the SEC Documents not
available on the EDGAR system. As of their respective filing 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 the light of the circumstances under which they
were made, not misleading. As of their respective filing 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 generally accepted accounting principles,
consistently applied, during the periods involved (“GAAP”) (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company and its Subsidiaries as
of the dates thereof and the results of its operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments which will not be material either individually or in
the aggregate). No other information provided by or on behalf of the Company to
any of the Buyers which is not included in the SEC Documents, including, without
limitation, information referred to in Section 2(d) of this Agreement or in the
disclosure schedules to this Agreement, contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstance under which they are or
were made, not misleading.

 

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(j) Absence of Certain Changes. Except as disclosed in Schedule 3(j), since
December 31, 2016, there has been no material adverse change and no material
adverse development in the business, assets, liabilities, properties,
operations, condition (financial or otherwise), results of operations or
prospects of the Company or any of its Subsidiaries. Except as disclosed in
Schedule 3(j), since December 31, 2016, neither the Company nor any of its
Subsidiaries has (i) declared or paid any dividends, (ii) sold any assets,
individually or in the aggregate, in excess of $150,000 outside of the ordinary
course of business or (iii) had capital expenditures, individually or in the
aggregate, in excess of $150,000. Neither the Company nor any of its
Subsidiaries has taken any steps to seek protection pursuant to any law or
statute relating to bankruptcy, insolvency, reorganization, receivership,
liquidation or winding up nor does the Company or any Subsidiary have any
knowledge or reason to believe that any of its respective creditors intend to
initiate involuntary bankruptcy proceedings or any actual knowledge of any fact
that would reasonably lead a creditor to do so. The Company and its
Subsidiaries, individually and on a consolidated basis, are not as of the date
hereof, and after giving effect to the transactions contemplated hereby to occur
at the Closing, will not be Insolvent (as defined below). For purposes of this
Section 3(j), “Insolvent” means, with respect to any Person, (i) the present
fair saleable value of such Person’s assets is less than the amount required to
pay such Person’s total Indebtedness (as defined in Section 3(p)), (ii) such
Person is unable to pay its debts and liabilities, subordinated, contingent or
otherwise, as such debts and liabilities become absolute and matured, (iii) such
Person intends to incur or believes that it will incur debts that would be
beyond its ability to pay as such debts mature or (iv) such Person has
unreasonably small capital with which to conduct the business in which it is
engaged as such business is now conducted and is proposed to be conducted.

 

(k) No Undisclosed Events, Liabilities, Developments or Circumstances. No event,
liability, development or circumstance has occurred or exists, or is
contemplated to occur with respect to the Company, its Subsidiaries or their
respective business, properties, prospects, operations or financial condition,
that would be required to be disclosed by the Company under applicable
securities laws on a registration statement on Form S-1 filed with the SEC
relating to an issuance and sale by the Company of its Common Stock and which
has not been publicly announced.

 

(l) Conduct of Business; Regulatory Permits. Neither the Company nor any of its
Subsidiaries is in violation of any term of or in default under any certificate
of designations of any outstanding series of preferred stock of the Company (if
any), its Articles of Incorporation or Bylaws or their organizational charter or
memorandum of association or certificate of incorporation or articles of
association or bylaws, respectively. Neither the Company nor any of its
Subsidiaries is in violation of any judgment, decree or order or any statute,
ordinance, rule or regulation applicable to the Company or any of its
Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct
its business in violation of any of the foregoing, except for possible
violations which could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Without limiting the generality of
the foregoing, the Company is not in violation of any of the rules, regulations
or requirements of the Principal Market and has no knowledge of any facts or
circumstances that would reasonably lead to delisting or suspension of the
Common Stock by the Principal Market in the foreseeable future. During the two
(2) years prior to the date hereof, the Common Stock has been designated for
quotation on the Principal Market. During the two (2) years prior to the date
hereof, (i) trading in the Common Stock has not been suspended by the SEC or the
Principal Market and (ii) the Company has received no communication, written or
oral, from the SEC or the Principal Market regarding the suspension or delisting
of the Common Stock from the Principal Market. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, except where the failure to possess such certificates,
authorizations or permits would not have, individually or in the aggregate, a
Material Adverse Effect, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.

 

 - 9 - 

 

 

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

 

(n) Sarbanes-Oxley Act. The Company is in compliance with any and all applicable
requirements of the Sarbanes-Oxley Act of 2002, as amended, that are effective
as of the date hereof, and any and all applicable rules and regulations
promulgated by the SEC thereunder that are effective as of the date hereof.

 

(o) Transactions With Affiliates. None of the officers, directors or employees
of the Company or any of its Subsidiaries is presently a party to any
transaction with the Company or any of its Subsidiaries (other than for ordinary
course services as employees, officers or 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 such officer, director or employee or, to the
knowledge of the Company or any of its Subsidiaries, any corporation,
partnership, trust or other entity in which any such officer, director, or
employee has a substantial interest or is an officer, director, employee,
trustee or partner.

 

 - 10 - 

 

 

(p) Indebtedness and Other Contracts. Neither the Company nor any of its
Subsidiaries (i) except as disclosed in Schedule 3(p)(i), has any outstanding
Indebtedness (as defined below), (ii) is a party to any contract, agreement or
instrument, the violation of which, or default under which, by the other
party(ies) to such contract, agreement or instrument could reasonably be
expected to result in a Material Adverse Effect, (iii) is in violation of any
term of or in default under any contract, agreement or instrument relating to
any Indebtedness, except where such violations and defaults would not result,
individually or in the aggregate, in a Material Adverse Effect, (iv) is a party
to any contract, agreement or instrument relating to any Indebtedness, the
performance of which, in the judgment of the Company’s officers, has or is
expected to have a Material Adverse Effect, or (v) except as disclosed in
Schedule 3(p)(v), has any outstanding Indebtedness that is secured by any liens.
Schedule 3(p) provides a detailed description of the material terms of any such
outstanding Indebtedness. For purposes of this Agreement: (x) “Indebtedness” of
any Person means, without duplication (A) all indebtedness for borrowed money,
(B) all obligations issued, undertaken or assumed as the deferred purchase price
of property or services, including, without limitation, “capital leases” in
accordance with GAAP (other than trade payables entered into in the ordinary
course of business consistent with past practice), (C) all reimbursement or
payment obligations with respect to letters of credit, surety bonds and other
similar instruments, (D) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with GAAP, consistently applied for the periods covered thereby, is
classified as a capital lease, (G) all indebtedness referred to in clauses (A)
through (F) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any mortgage, deed
of trust, lien, pledge, charge, security interest or other encumbrance of any
nature whatsoever in or upon any property or assets (including accounts and
contract rights) with respect to any asset or property owned by any Person, even
though the Person which owns such assets or property has not assumed or become
liable for the payment of such indebtedness, and (H) all Contingent Obligations
in respect of indebtedness or obligations of others of the kinds referred to in
clauses (A) through (G) above; and (y) “Contingent Obligation” means, as to any
Person, any direct or indirect liability, contingent or otherwise, of that
Person with respect to any Indebtedness, lease, dividend or other obligation of
another Person if the primary purpose or intent of the Person incurring such
liability, or the primary effect thereof, is to provide assurance to the obligee
of such liability that such liability will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
liability will be protected (in whole or in part) against loss with respect
thereto.

 

(q) Absence of Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by the Principal Market, any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries, the Common Stock or any of the Company’s Subsidiaries or any
of the Company’s or its Subsidiaries’ officers or directors, whether of a civil
or criminal nature or otherwise, in their capacities as such, except as set
forth in Schedule 3(q). The matters set forth in Schedule 3(q) would not
reasonably be expected to have a Material Adverse Effect.

 

 - 11 - 

 

 

(r) Insurance. The Company and each of its Subsidiaries are 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 and its Subsidiaries are engaged. Neither the
Company nor any such Subsidiary has been refused any insurance coverage sought
or applied for and neither the Company nor any such Subsidiary has any 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.

 

(s) Employee Relations.

 

(i) Neither the Company nor any of its Subsidiaries is a party to any collective
bargaining agreement or employs any member of a union. The Company and its
Subsidiaries believe that their relations with their respective employees are
good. No executive officer of the Company or any of its Subsidiaries (as defined
in Rule 501(f) of the 1933 Act) has notified the Company or any such Subsidiary
that such officer intends to leave the Company or any such Subsidiary or
otherwise terminate such officer’s employment with the Company or any such
Subsidiary. No executive officer of the Company or any of its Subsidiaries, to
the knowledge of the Company or any of its Subsidiaries, is, or is now expected
to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters.

 

(ii) The Company and its Subsidiaries are in compliance with all federal, state,
local and foreign laws and regulations respecting labor, employment and
employment practices and benefits, terms and conditions of employment and wages
and hours, except where failure to be in compliance would not, either
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect.

 

(t) Title. Except as set forth in Schedule 3(p)(i), the Company and its
Subsidiaries have 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 and its Subsidiaries, in each case free
and clear of all liens, encumbrances and defects except such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and any of its
Subsidiaries. Any real property and facilities held under lease by the Company
and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.

 

(u) Intellectual Property Rights. The Company and its Subsidiaries own or
possess adequate rights or licenses to use all trademarks, trade names, service
marks, service mark registrations, service names, original works of authorship,
patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and other intellectual property
rights and all applications and registrations therefor (“Intellectual Property
Rights”) necessary to conduct their respective businesses as now conducted and
as presently proposed to be conducted. Each of patents owned by the Company or
any of its Subsidiaries is listed in the SEC Documents. None of the Company’s or
its Subsidiaries’ Intellectual Property Rights have expired or terminated or
have been abandoned or are expected to expire or terminate or are expected to be
abandoned, within three years from the date of this Agreement. The Company does
not have any knowledge of any infringement by the Company or its Subsidiaries of
Intellectual Property Rights of others. There is no claim, action or proceeding
being made or brought, or to the knowledge of the Company or any of its
Subsidiaries, being threatened, against the Company or any of its Subsidiaries
regarding its Intellectual Property Rights. Neither the Company nor any of its
Subsidiaries is aware of any facts or circumstances which might give rise to any
of the foregoing infringements or claims, actions or proceedings. The Company
and its Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of all of their Intellectual Property Rights.

 

 - 12 - 

 

 

(v) Environmental Laws. The Company and its Subsidiaries (i) are in compliance
with any and all Environmental Laws (as hereinafter defined), (ii) have received
all permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit, license or approval
where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so
comply could be reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect. 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.

 

(w) Subsidiary Rights. The Company or one of its Subsidiaries has the
unrestricted right to vote, and (subject to limitations imposed by applicable
law) to receive dividends and distributions on, all capital securities of its
Subsidiaries as owned by the Company or such Subsidiary.

 

(x) Investment Company Status. Neither the Company nor any Subsidiary is, and
upon consummation of the sale of the Notes, and for so long any Buyer holds any
Notes, will be, an “investment company,” a company controlled by an “investment
company” or an “affiliated person” of, or “promoter” or “principal underwriter”
for, an “investment company” as such terms are defined in the Investment Company
Act of 1940, as amended.

 

(y) Tax Status. The Company and each of its Subsidiaries (i) has made or filed
all U.S. federal, state and foreign income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject and all
such returns, reports, and declarations are true and correct in all material
respects, (ii) 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 for which
adequate reserves have been set aside and (iii) has set aside on its books
provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
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.

 

 - 13 - 

 

 

(z) Internal Accounting and Disclosure Controls. The Company and each of its
Subsidiaries maintain 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 and liability accountability, (iii)
access to assets or incurrence of liabilities is permitted only in accordance
with management’s general or specific authorization and (iv) the recorded
accountability for assets and liabilities is compared with the existing assets
and liabilities at reasonable intervals and appropriate action is taken with
respect to any difference. The Company maintains disclosure controls and
procedures (as such term is defined in Rule 13a-15 under the 1934 Act) that are
effective in ensuring that information required to be disclosed by the Company
in the reports that it files or submits under the 1934 Act is recorded,
processed, summarized and reported, within the time periods specified in the
rules and forms of the SEC, including, without limitation, controls and
procedures designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the 1934 Act is
accumulated and communicated to the Company’s management, including its
principal executive officer or officers and its principal financial officer or
officers, as appropriate, to allow timely decisions regarding required
disclosure. During the twelve months prior to the date hereof neither the
Company nor any of its Subsidiaries has received any notice or correspondence
from any accountant relating to any material weakness in any part of the system
of internal accounting controls of the Company or any of its Subsidiaries.

 

(aa) Off Balance Sheet Arrangements. There is no transaction, arrangement, or
other relationship between the Company and an unconsolidated or other off
balance sheet entity that is required to be disclosed by the Company in its 1934
Act filings and is not so disclosed or that otherwise would be reasonably likely
to have a Material Adverse Effect.

 

(bb) Ranking of Notes. Except as set forth in Schedule 3(bb), no Indebtedness of
the Company or any of its Subsidiaries is senior to or ranks pari passu with the
Notes in right of payment, whether with respect of payment of redemptions,
interest, damages or upon liquidation or dissolution or otherwise.

 

(cc) Transfer Taxes. On the Closing Date, all stock transfer or other taxes
(other than income or similar taxes) which are required to be paid in connection
with the sale and transfer of the Notes to be sold to each Buyer hereunder will
be, or will have been, fully paid or provided for by the Company, and all laws
imposing such taxes will be or will have been complied with.

 

 - 14 - 

 

 

(dd) Manipulation of Price. The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action designed
to cause or to result, or that could reasonably be expected to cause or result,
in the stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of any of the Notes, (ii) other than the
Placement Agent, sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the Notes, or (iii) other than the Placement
Agent, paid or agreed to pay to any Person any compensation for soliciting
another to purchase any other securities of the Company.

 

(ee) U.S. Real Property Holding Corporation. The Company is not, has never been,
and so long as any Notes remain outstanding, shall not become, a U.S. real
property holding corporation within the meaning of Section 897 of the Internal
Revenue Code of 1986, as amended, and the Company shall so certify upon any
Buyer’s request.

 

(ff) Bank Holding Company Act. Neither the Company nor any of its Subsidiaries
or affiliates is subject to the Bank Holding Company Act of 1956, as amended
(the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve
System (the “Federal Reserve”). Neither the Company nor any of its Subsidiaries
or affiliates owns or controls, directly or indirectly, five percent (5%) or
more of the outstanding shares of any class of voting securities or twenty-five
percent (25%) or more of the total equity of a bank or any entity that is
subject to the BHCA and to regulation by the Federal Reserve. Neither the
Company nor any of its Subsidiaries or affiliates exercises a controlling
influence over the management or policies of a bank or any entity that is
subject to the BHCA and to regulation by the Federal Reserve.

 

(gg) No Additional Agreements. Neither the Company nor any of its Subsidiaries
has any agreement or understanding with any Buyer with respect to the
transactions contemplated by the Transaction Documents other than as specified
in the Transaction Documents.

 

(hh) Disclosure. Except for discussions specifically regarding the offer and
sale of the Notes, the Company confirms that neither it nor any other Person
acting on its behalf has provided any of the Buyers or their agents or counsel
with any information that constitutes or could reasonably be expected to
constitute material, nonpublic information concerning the Company or any of its
Subsidiaries, other than the existence of the transactions contemplated by this
Agreement and the other Transaction Documents. The Company understands and
confirms that each of the Buyers will rely on the foregoing representations in
effecting transactions in securities of the Company. All disclosure provided to
the Buyers regarding the Company and its Subsidiaries, their businesses and the
transactions contemplated hereby, including the schedules to this Agreement,
furnished by or on behalf of the Company or any of its Subsidiaries is true and
correct and does not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
All of the written information furnished after the date hereof by or on behalf
of the Company or any of its Subsidiaries to you pursuant to or in connection
with this Agreement and the other Transaction Documents, taken as a whole, will
be true and correct in all material respects as of the date on which such
information is so provided and will not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they are
made, not misleading. Each press release issued by the Company or any of its
Subsidiaries during the twelve (12) months preceding the date of this Agreement
did not at the time of release contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. No event or circumstance has occurred or
information exists with respect to the Company or any of its Subsidiaries or its
or their business, properties, liabilities, prospects, operations (including
results thereof) or conditions (financial or otherwise), which, under applicable
law, rule or regulation, requires public disclosure at or before the date hereof
or announcement by the Company but which has not been so publicly announced or
disclosed. The Company acknowledges and agrees that no Buyer makes or has made
any representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 2.

 

 - 15 - 

 

 

(ii) Shell Company Status. The Company is not, and has not been for the last
five years, an issuer identified in Rule 144(i)(1) of the 1933 Act.

 

(jj) Stock Option Plans. Each stock option granted by the Company was granted
(i) in accordance with the terms of the applicable stock option plan of the
Company and (ii) with an exercise price at least equal to the fair market value
of the Common Stock on the date such stock option would be considered granted
under GAAP and applicable law. No stock option granted under the Company’s stock
option plan has been backdated. The Company has not knowingly granted, and there
is no and has been no policy or practice of the Company to knowingly grant,
stock options prior to, or otherwise knowingly coordinate the grant of stock
options with, the release or other public announcement of material information
regarding the Company or its Subsidiaries or their financial results or
prospects.

 

(kk) No Disagreements with Accountants and Lawyers. There are no material
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 current with respect to
any fees owed to its accountants and lawyers which could affect the Company’s
ability to perform any of its obligations under any of the Transaction
Documents.

 

(ll) Compliance with Anti-Money Laundering Laws. The operations of the Company
and its Subsidiaries are and have been conducted at all times in compliance with
applicable financial recordkeeping and reporting requirements and all other
applicable U.S. and non-U.S. anti-money laundering laws and regulations,
including, but not limited to, those of the Currency and Foreign Transactions
Reporting Act of 1970, as amended, the USA Patriot Act of 2001 and the
applicable money laundering statutes of all applicable jurisdictions, the rules
and regulations thereunder and any related or similar rules, regulations or
guidelines, issued, administered or enforced by any governmental agency
(collectively, the “Anti-Money Laundering Laws”), and no action, suit or
proceeding by or before any court or governmental agency, authority or body or
any arbitrator involving the Company or any of its Subsidiaries with respect to
the Anti-Money Laundering Laws is pending or, to the knowledge of the Company,
threatened.

 

 - 16 - 

 

 

(mm) No Conflicts with Sanctions Laws. Neither the Company nor any of the
Subsidiaries has made any contribution or other payment to any official of, or
candidate for, any federal, state or foreign office in violation of any law
which violation is required to be disclosed in the Prospectus. Neither the
Company nor any of its Subsidiaries, nor any director, officer, employee, agent,
affiliate or other person associated with or acting on behalf of the Company or
any of its Subsidiaries or affiliates is, or is directly or indirectly owned or
controlled by, a Person that is currently the subject or the target of any
sanctions administered or enforced by the U.S. government (including, without
limitation, the Office of Foreign Assets Control of the U.S. Department of the
Treasury (“OFAC”) or the U.S. Departments of State or Commerce and including,
without limitation, the designation as a “specially designated national” or
“blocked person”), the United Nations Security Council (“UNSC”), the European
Union, Her Majesty’s Treasury (“HMT”) or any other relevant sanctions authority
(collectively, “Sanctions”), or is the Company, any of its Subsidiaries located,
organized or resident in a country or territory that is the subject or target of
a comprehensive embargo or Sanctions prohibiting trade with the country or
territory, including, without limitation, Crimea, Cuba, Iran, North Korea, Sudan
and Syria (each, a “Sanctioned Country”); no action of the Company or any of its
Subsidiaries in connection with (i) the execution, delivery and performance of
this Agreement and the other Transaction Documents, (ii) the issuance and sale
of the Notes or (iii) the direct or indirect use of proceeds from the Notes or
the consummation of any other transaction contemplated hereby or by the other
Transaction Documents or the fulfillment of the terms hereof or thereof, will
result in the proceeds of the transactions contemplated hereby and by the other
Transaction Documents being used, or loaned, contributed or otherwise made
available, directly or indirectly, to any Subsidiary, joint venture partner or
other person or entity, for the purpose of (i) unlawfully funding or
facilitating any activities of or business with any person that, at the time of
such funding or facilitation, is the subject or target of Sanctions, (ii)
unlawfully funding or facilitating any activities of or business in any
Sanctioned Country or (iii) in any other manner that will result in a violation
by any Person (including any Person participating in the transaction, whether as
underwriter, advisor, investor or otherwise) of Sanctions. For the past five
years, the Company and its Subsidiaries have not knowingly engaged in and are
not now knowingly engaged in any dealings or transactions with any person that
at the time of the dealing or transaction is or was the subject or the target of
Sanctions or with any Sanctioned Country.

 

(nn) Anti-Bribery. Neither the Company, nor any of its Subsidiaries or
affiliates, nor any director, officer, agent, employee or other person
associated with or acting on behalf of the Company, or any of its Subsidiaries
or affiliates, has (i) used any funds for any unlawful contribution, gift,
entertainment or other unlawful expense relating to political activity, (ii)
made any direct or indirect unlawful payment to any foreign or domestic
government official or employee, to any employee or agent of a private entity
with which the Company does or seeks to do business (a “Private Sector
Counterparty”) or to foreign or domestic political parties or campaigns from
corporate funds, (iii) violated or is in violation of any provision of any
applicable law or regulation implementing the OECD Convention on Combating
Bribery of Foreign Public Officials in International Business Transactions or
any applicable provision of the U.S. Foreign Corrupt Practices Act of 1977, as
amended (the “FCPA”), the U.K Bribery Act 2010, or any other similar law of any
other jurisdiction in which the Company operates its business, including, in
each case, the rules and regulations thereunder, (iv) taken, is currently taking
or will take any action in furtherance of an offer, payment, gift or anything
else of value, directly or indirectly, to any person while knowing that all or
some portion of the money or value will be offered, given or promised to anyone
to improperly influence official action, to obtain or retain business or
otherwise to secure any improper advantage or (v) otherwise made any bribe,
rebate, payoff, influence payment, unlawful kickback or other unlawful payment;
the Company and each of its respective Subsidiaries has instituted and has
maintained, and will continue to maintain, policies and procedures reasonably
designed to promote and achieve compliance with the laws referred to in (iii)
above and with this representation and warranty; and none of the Company, nor
any of its Subsidiaries or affiliates will directly or indirectly use the
proceeds of the convertible securities or lend, contribute or otherwise make
available such proceeds to any subsidiary, affiliate, joint venture partner or
other person or entity for the purpose of financing or facilitating any activity
that would violate the laws and regulations referred to in (iii) above.

 

 - 17 - 

 

 

(oo) No Disqualification Events. With respect to Notes to be offered and sold
hereunder in reliance on Rule 506(b) under the 1933 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 hereunder, 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
1933 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 1933 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 Buyers a copy of any disclosures provided thereunder.

 

(pp) Other Covered Persons. The Company is not aware of any Person (other than
the Placement Agent) that has been or will be paid (directly or indirectly)
remuneration for solicitation of Buyers or potential purchasers in connection
with the sale of any Regulation D Securities.

 

(qq) Surefly Assets. The Company hereby represents that the assets contained in
SFI constitute all of the Company’s and its direct and indirect Subsidiaries’
assets related to aerial technology and aviation other than relating to the
Horsefly division of the Company and its direct and indirect Subsidiaries.

 

4. COVENANTS.

 

(a) Reasonable Best Efforts. Each party shall use its reasonable best efforts
timely to satisfy each of the covenants and the conditions to be satisfied by it
as provided in Sections 6 and 7 of this Agreement. In addition, the Company
shall use its reasonable best efforts to: (i) continue to invest and develop the
Company’s and its direct and indirect Subsidiaries’ assets relating to aerial
technology and aviation and (ii) pursue the transactions described in the draft
of the Company’s press release provided to the Buyers prior to the date hereof
with respect to the Company’s and its direct and indirect Subsidiaries’ assets
relating to aerial technology and aviation, including, without limitation, using
reasonable best efforts to ensure that the Company is sufficiently capitalized
to effect the spin-off described in such press release (the “Spin-Off”).

 

 - 18 - 

 

 

(b) Form D and Blue Sky. The Company agrees to file a Form D with respect to the
Notes as required under Regulation D and to provide a copy thereof to each Buyer
promptly after such filing. The Company shall, on or before the Closing Date,
take such action as the Company shall reasonably determine is necessary in order
to obtain an exemption for or to qualify the Notes for sale to the Buyers at the
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
Buyers on or prior to the Closing Date. The Company shall make all filings and
reports relating to the offer and sale of the Notes required under applicable
securities or “Blue Sky” laws of the states of the United States following the
Closing Date.

 

(c) Reporting Status. Until the date none of the Notes are outstanding (the
“Reporting Period”), the Company shall timely file all reports required to be
filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate
its status as an issuer required to file reports under the 1934 Act even if the
1934 Act or the rules and regulations thereunder would no longer require or
otherwise permit such termination.

 

(d) Use of Proceeds. The Company will use the proceeds from the sale of the
Notes solely as set forth on Schedule 4(d).

 

(e) Financial Information. The Company agrees to send the following to each
holder of Notes (an “Investor”) during the Reporting Period (i) unless the
following are filed with the SEC through EDGAR and are available to the public
through the EDGAR system, within one (1) Business Day after the filing thereof
with the SEC, a copy of its Annual Reports on Form 10-K, any Quarterly Reports
on Form 10-Q, any Current Reports on Form 8-K (or any analogous reports under
the 1934 Act) and any registration statements (other than on Form S-8) or
amendments filed pursuant to the 1933 Act, (ii) on the same day as the release
thereof, facsimile or e-mailed copies of all press releases issued by the
Company or any of its Subsidiaries, and (iii) copies of any notices and other
information made available or given to the shareholders of the Company
generally, contemporaneously with the making available or giving thereof to the
shareholders. As used herein, “Business Day” means any day other than Saturday,
Sunday or other day on which commercial banks in The City of New York are
authorized or required by law to remain closed.

 

(f) Fees. The Company shall reimburse the Lead Investor (a Buyer) or its
designee(s) (in addition to any other expense amounts paid to any Buyer or its
counsel prior to the date of this Agreement) for all costs and expenses incurred
in connection with the transactions contemplated by the Transaction Documents
(including all legal fees and disbursements in connection therewith,
documentation and implementation of the transactions contemplated by the
Transaction Documents and due diligence in connection therewith), which amount
may be withheld by such Buyer from its purchase price for any Notes purchased at
the Closing to the extent not previously reimbursed by the Company and which
shall not exceed $75,000. (the “Lead Investor Counsel Amount”). In addition to
the Lead Investor Counsel Amount, the Company shall reimburse Kelley Drye &
Warren LLP for all costs and expenses incurred in connection with the
transactions contemplated by the Transaction Documents (including all legal fees
and disbursements in connection therewith, documentation and implementation of
the transactions contemplated by the Transaction Documents and due diligence in
connection therewith), which amount may be withheld by such Buyer in which
Kelley Drye & Warren LLP is acting as legal representative in connection
herewith (as disclosed across from such Buyer’s name in column (5) of the
Schedule of Buyers) from its purchase price for any Notes purchased at the
Closing to the extent not previously reimbursed by the Company and which shall
not exceed $15,000. The Company shall be responsible for the payment of any
placement agent’s fees, financial advisory fees, or broker’s commissions (other
than for Persons engaged by any Buyer) relating to or arising out of the
transactions contemplated hereby, including, without limitation, any fees or
commissions payable to the Placement Agent. The Company shall pay, and hold each
Buyer harmless against, any liability, loss or expense (including, without
limitation, reasonable attorney’s fees and out-of-pocket expenses) arising in
connection with any claim relating to any such payment. Except as otherwise set
forth in the Transaction Documents, each party to this Agreement shall bear its
own expenses in connection with the sale of the Notes to the Buyers.

 

 - 19 - 

 

 

(g) Pledge of Securities. The Company acknowledges and agrees that the Notes may
be pledged by an Investor in connection with a bona fide margin agreement or
other loan or financing arrangement that is secured by the Notes. The pledge of
Notes shall not be deemed to be a transfer, sale or assignment of the Notes
hereunder, and no Investor effecting a pledge of Notes shall be required to
provide the Company with any notice thereof or otherwise make any delivery to
the Company pursuant to this Agreement or any other Transaction Document,
including, without limitation, Section 2(f) hereof; provided that an Investor
and its pledgee shall be required to comply with the provisions of Section 2(f)
hereof in order to effect a sale, transfer or assignment of Notes to such
pledgee. The Company hereby agrees to execute and deliver such documentation as
a pledgee of the Notes may reasonably request in connection with a pledge of the
Notes to such pledgee by an Investor.

 

(h) Disclosure of Transactions and Other Material Information. On or before 8:30
a.m., New York City time, on the first Business Day after this Agreement has
been executed, the Company shall issue a press release reasonably acceptable to
the Buyers and file a Current Report on Form 8-K describing the terms of the
transactions contemplated by the Transaction Documents in the form required by
the 1934 Act and attaching the material Transaction Documents (including,
without limitation, this Agreement (and all schedules and exhibits to this
Agreement), the form of Notes and the Security Documents as exhibits to such
filing (including all attachments), the “8-K Filing”). From and after the filing
of the 8-K Filing with the SEC, no Buyer shall be in possession of any material,
nonpublic information received from the Company, any of its Subsidiaries or any
of their respective officers, directors, employees, affiliates or agents, that
is not disclosed in the 8-K Filing. In addition, effective upon the filing of
the 8-K Filing, the Company acknowledges and agrees that any and all
confidentiality or similar obligations under any agreement, whether written or
oral, between the Company, any of its Subsidiaries or any of their respective
officers, directors, employees, affiliates or agents, on the one hand, and any
of the Buyers or any of their affiliates, on the other hand, shall terminate and
be of no further force or effect. The Company understands and confirms that each
Buyer will rely on the foregoing in effecting transactions in securities of the
Company. The Company shall not, and shall cause each of its Subsidiaries and its
and each of their respective officers, directors, employees, affiliates and
agents, not to, provide any Buyer with any material, nonpublic information
regarding the Company or any of its Subsidiaries from and after the date hereof
without the express prior written consent of such Buyer. If a Buyer has, or
believes it has, received any such material, nonpublic information regarding the
Company or any of its Subsidiaries from the Company, any of its Subsidiaries or
any of their respective officers, directors, employees, affiliates or agents, it
may provide the Company with written notice thereof. The Company shall, within
two (2) Business Days of receipt of such notice, make public disclosure of such
material, nonpublic information. In the event of a breach of the foregoing
covenant by the Company, any of its Subsidiaries, or any of its or their
respective officers, directors, employees, affiliates and agents, in addition to
any other remedy provided herein or in the Transaction Documents, a Buyer shall
have the right to make a public disclosure, in the form of a press release,
public advertisement or otherwise, of such material, nonpublic information
without the prior approval by the Company, its Subsidiaries, or any of its or
their respective officers, directors, employees, affiliates or agents. No Buyer
shall have any liability to the Company, its Subsidiaries, or any of its or
their respective officers, directors, employees, affiliates, shareholders or
agents for any such disclosure. To the extent that the Company delivers any
material, nonpublic information to a Buyer without such Buyer’s consent, the
Company hereby covenants and agrees that such Buyer shall not have any duty of
confidentiality to the Company, any of its Subsidiaries or any of their
respective officers, directors, employees, affiliates or agent with respect to,
or a duty to the Company, any of its Subsidiaries or any of their respective
officers, directors, employees, affiliates or agent not to trade on the basis
of, such material, nonpublic information. Subject to the foregoing, neither the
Company, its Subsidiaries nor any Buyer shall issue any press releases 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 any Buyer, to make any press release or other public disclosure with
respect to such transactions (i) in substantial conformity with the 8-K Filing
and contemporaneously therewith and (ii) as is required by applicable law and
regulations (provided that in the case of clause (i) each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release). Without the prior written consent of
any applicable Buyer, neither the Company nor any of its Subsidiaries or
affiliates shall disclose the name of such Buyer in any filing, announcement,
release or otherwise.

 

 - 20 - 

 

 

(i) Additional Notes. So long as any Buyer beneficially owns any Notes, the
Company will not issue any Notes other than to the Buyers as contemplated hereby
and the Company shall not issue any other securities that would cause a breach
or default under the Notes.

 

(j) Corporate Existence. So long as any Buyer beneficially owns any Notes, each
of the Company, WTI and SFI shall (i) maintain its corporate existence and (ii)
not be party to any Fundamental Transaction (as defined in the Notes) unless the
Company is in compliance with the applicable provisions governing Fundamental
Transactions set forth in the Notes.

 

(k) Conduct of Business. The business of the Company and its Subsidiaries shall
not be conducted in violation of any law, ordinance or regulation of any
governmental entity, except where such violations would not result, either
individually or in the aggregate, in a Material Adverse Effect.

 

(l) Notice of Disqualification Events. The Company will notify the Buyers in
writing, prior to the Closing Date 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.

 

(m) Collateral Agent.

 

(i) Each Buyer hereby (a) appoints Empery Tax Efficient, LP as the collateral
agent hereunder and under the Security Documents (in such capacity, the
“Collateral Agent”), and (b) authorizes the Collateral Agent (and its officers,
directors, employees and agents) to take such action on such Buyer’s behalf in
accordance with the terms hereof and thereof. The Collateral Agent shall not
have, by reason hereof or pursuant to any Security Documents, a fiduciary
relationship in respect of any Buyer. Neither the Collateral Agent nor any of
its officers, directors, employees and agents shall have any liability to any
Buyer for any action taken or omitted to be taken in connection hereof or the
Security Documents except to the extent caused by its own gross negligence or
willful misconduct, and each Buyer agrees to defend, protect, indemnify and hold
harmless the Collateral Agent and all of its officers, directors, employees and
agents (collectively, the “Collateral Agent Indemnitees”) from and against any
losses, damages, liabilities, obligations, penalties, actions, judgments, suits,
fees, costs and expenses (including, without limitation, reasonable attorneys’
fees, costs and expenses) incurred by such Collateral Agent Indemnitee, whether
direct, indirect or consequential, arising from or in connection with the
performance by such Collateral Agent Indemnitee of the duties and obligations of
Collateral Agent pursuant hereto or any of the Security Documents.

 

(ii) The Collateral Agent shall be entitled to rely upon any written notices,
statements, certificates, orders or other documents or any telephone message
believed by it in good faith to be genuine and correct and to have been signed,
sent or made by the proper Person, and with respect to all matters pertaining to
this Agreement or any of the other Transaction Documents and its duties
hereunder or thereunder, upon advice of counsel selected by it.

 

(iii) The Collateral Agent may resign from the performance of all its functions
and duties hereunder and under the Notes and the Security Documents at any time
by giving at least ten (10) Business Days prior written notice to the Company
and each holder of the Notes. Such resignation shall take effect upon the
acceptance by a successor Collateral Agent of appointment as provided below.
Upon any such notice of resignation, the holders of a majority of the
outstanding principal amount of Notes shall appoint a successor Collateral
Agent. Upon the acceptance of the appointment as Collateral Agent, such
successor Collateral Agent shall succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Collateral Agent, and the
retiring Collateral Agent shall be discharged from its duties and obligations
under this Agreement, the Notes, the Guarantee Agreement, the Pledge Agreement
and the Security Agreement. After any Collateral Agent’s resignation hereunder,
the provisions of this Section 4(m) shall inure to its benefit. If a successor
Collateral Agent shall not have been so appointed within said ten (10) Business
Day period, the retiring Collateral Agent shall then appoint a successor
Collateral Agent who shall serve until such time, if any, as the holders of a
majority of the outstanding principal amount of Notes appoints a successor
Collateral Agent as provided above.

 

 - 21 - 

 

 

(iv) The Company hereby covenants and agrees to take all actions as promptly as
practicable reasonably requested by either the holders of a majority of the
outstanding principal amount of Notes or the Collateral Agent (or its
successor), from time to time pursuant to the terms of this Section 4(m), to
secure a successor Collateral Agent satisfactory to such requesting
part(y)(ies), in their sole discretion, including, without limitation, by paying
all fees of such successor Collateral Agent, by having the Company agree to
indemnify any successor Collateral Agent and by each of the Company executing a
collateral agency agreement or similar agreement and/or any amendment to the
Security Documents reasonably requested or required by the successor Collateral
Agent.

 

(n) No Transfer of Assets. From the date hereof until the Closing Date, the
Company shall not, without the prior written approval of the Required Holders,
assign, sell, transfer or otherwise dispose of any assets held by WTI as of the
date hereof.

 

(o) Right to Purchase Preferred Stock of SFI. Each of the Company and SFI hereby
acknowledges and grants to each Buyer, severally, the right, but not an
obligation, exercisable at any time at the option of each such Buyer with
respect to the Note held by such Buyer (without regard to the Notes of any other
Buyer or election of any other Buyer to effect an exchange pursuant to this
Section 4(o)) to exchange all, or any portion of its Notes (including, without
limitation, any accrued and unpaid Interest (as defined in the Notes) with
respect to the principal amount of the Notes and any accrued and unpaid Late
Charges (as defined in the Notes) with respect to such portion of such Principal
and such Interest, if any) as set forth in such Buyer’s election notice to the
Company and SFI into its pro rata share (based on the principal amount of Notes
held by such holder compared to the aggregate principal amount of Notes held by
all holders of Notes) of stated value of convertible preferred stock of SFI and
warrants to purchase common stock of SFI on the terms described in the draft of
the Company’s press release attached hereto as Exhibit E. The forgoing
provisions shall be subject to definitive documentation reasonably acceptable to
each Buyer, the Company and SFI to give effect to the terms set forth above.

 

(p) Participation in Future Financing.

 

(i) From the date hereof until the date that is the earlier of (i) the second
(2nd) anniversary of the Closing Date and (ii) the Business Day immediately
following the date on which SFI has raised at least $20 million of capital
pursuant to one or more sales of securities (which, for the avoidance of doubt,
must include gross proceeds of at least $15 million in cash and the remaining $5
million shall either (i) also be paid in cash, (ii) the exchange of Notes for
securities of SFI or (iii) a combination thereof), the Company and SFI hereby
acknowledge and agree that upon any issuance by (i) SFI, (ii) any direct or
indirect subsidiary of the Company that holds any or all of the Collateral (as
defined in the Pledge Agreement), or (iii) any of their respective subsidiaries,
of equity, debt or Common Stock Equivalents (as defined below) for consideration
consisting of cash, an exchange of Notes or a combination thereof (a “Subsequent
Financing”), each Buyer shall have the right, but not an obligation, severally,
at each such Buyer’s sole option, to participate in up to an amount of the
Subsequent Financing equal to 50% of the Subsequent Financing (the
“Participation Maximum”) on the same terms, conditions and price provided for in
the Subsequent Financing. Further, in connection with any Subsequent Financing,
each of the Company and SFI hereby acknowledges and agrees that each holder of
Notes shall have the right, but not an obligation, severally, at each such
Buyer’s sole option, to exchange all or any portion of such Notes (including,
without limitation, any accrued and unpaid Interest with respect to the
principal amount of the Notes and any accrued and unpaid Late Charges with
respect to such portion of such Principal and such Interest, if any) to SFI (or
such other issuer in the Subsequent Financing) as payment of all or any portion
of the purchase price with respect to the securities to be acquired in such
Subsequent Placement by such holder. If a Buyer elects to effect such an
exchange, each dollar of principal amount, any accrued and unpaid Interest and
any Late Charges of Notes so exchanged shall reduce by one dollar the purchase
price to be otherwise paid by such holder to SFI (or such other issuer). If a
Buyer seeks to participate in a Subsequent Financing, prior to participating in
such Subsequent Financing by paying the applicable purchase price in cash, it
shall first exchange all its Notes as payment of consideration in such
Subsequent Financing until it no longer holds any Notes. As used herein, “Common
Stock Equivalents” means any securities of any subject entity which would
entitle the holder thereof to acquire at any time common stock of the subject
entity, including, without limitation, any debt, preferred stock, right, option,
warrant or other instrument that is at any time convertible into or exercisable
or exchangeable for, or otherwise entitles the holder thereof to receive, common
stock of such subject entity.

 

 - 22 - 

 

 

(ii) At least one (1) Business Day prior to the signing of definitive documents
with respect to any Subsequent Financing, the Company shall deliver to each
Buyer a written notice (a “Subsequent Financing Notice”) of its intention to
effect a Subsequent Financing, which Subsequent Financing Notice shall describe
in reasonable detail the proposed terms of such Subsequent Financing, the amount
of proceeds intended to be raised thereunder and the Person or Persons through
or with whom such Subsequent Financing is proposed to be effected and shall
include a term sheet or similar document relating thereto as an attachment.

 

(iii) Any Buyer desiring to participate in such Subsequent Financing must
provide written notice to the Company by not later than 5:30 p.m. (New York City
time) on the Business Day after all of the Buyers have received the Subsequent
Financing Notice (the “Election Deadline”) that such Buyer is willing to
participate in the Subsequent Financing, the amount of such Buyer’s
participation, including the form of payment (e.g., exchange of Notes, cash or
percentage of each), and representing and warranting that such Buyer has such
funds ready, willing, and available for investment on the terms set forth in the
Subsequent Financing Notice. If the Company receives no such notice from a Buyer
prior the expiration of such Election Deadline, such Buyer shall be deemed to
have notified the Company that it does not elect to participate.

 

(iv) If by the Election Deadline, notifications by the Buyers of their
willingness to participate in the Subsequent Financing (or to cause their
designees to participate) is, in the aggregate, less than the total amount of
the Subsequent Financing, then the Company may effect the remaining portion of
such Subsequent Financing on the terms and with the Persons set forth in the
Subsequent Financing Notice.

 

 - 23 - 

 

 

(v) If by the Election Deadline, the Company receives responses to a Subsequent
Financing Notice from Buyers seeking to purchase more than the aggregate amount
of the Participation Maximum, each such Buyer shall have the right to purchase
its Pro Rata Portion (as defined below) of the Participation Maximum.  As used
herein, “Pro Rata Portion” means the ratio of (x) the aggregate principal amount
of Notes purchased on the Closing Date by a Buyer participating under this
Section 4(p) and (y) the sum of the aggregate principal amount of Notes
purchased on the Closing Date by all Buyers participating under this Section
4(p).

 

(vi) The Company must provide the Buyers with a second Subsequent Financing
Notice, and the Buyers will again have the right of participation set forth
above in this Section 4(p), if the Subsequent Financing subject to the initial
Subsequent Financing Notice is not consummated for any reason on the terms set
forth in such Subsequent Financing Notice within five (5) Business Days after
the date of the initial Subsequent Financing Notice.

 

(vii) The Company and each Buyer agree that if any Buyer elects to participate
in the Subsequent Financing, the transaction documents related to the Subsequent
Financing shall not include any term or provision whereby such Buyer shall be
required to agree to any restrictions on trading as to any of the securities
purchased hereunder or be required to consent to any amendment to or termination
of, or grant any waiver, release or the like under or in connection with, this
Agreement, without the prior written consent of such Buyer. In addition, the
Company and each Buyer agree that, in connection with a Subsequent Financing,
the transaction documents related to the Subsequent Financing shall include a
requirement for the Company to issue a widely disseminated press release by 9:30
am (New York City time) on the Business Day immediately following execution of
the transaction documents in such Subsequent Financing that discloses the
material terms of the transactions contemplated by the transaction documents in
such Subsequent Financing.

 

(viii) Notwithstanding anything to the contrary in this Section 4(p) and unless
otherwise agreed to by such Buyer, the Company shall either confirm in writing
to such Buyer that the transaction with respect to the Subsequent Financing has
been abandoned or shall publicly disclose its intention to issue the securities
in the Subsequent Financing, in either case in such a manner such that such
Buyer will not be in possession of any material, non-public information, by the
fifth (5th) Business Day following delivery of the Subsequent Financing Notice.
If by such fifth (5th) Business Day, no public disclosure regarding a
transaction with respect to the Subsequent Financing has been made, and no
notice regarding the abandonment of such transaction has been received by such
Buyer, such transaction shall be deemed to have been abandoned and such Buyer
shall not be deemed to be in possession of any material, non-public information
with respect to the Company or any of its Subsidiaries.

 

(q) Future Assets. The Company hereby covenants and agrees that any and all
assets purchased, developed or otherwise acquired after the date hereof by the
Company and/or any of its direct and indirect Subsidiaries relating to, or
determined after the date hereof to relate to,  aerial technology and aviation
shall promptly be transferred to SFI, or, in the case of assets relating to the
Horsefly division of the Company and its direct and indirect Subsidiaries,
become subject to the Co-License Agreement (as defined in the Notes) in which
the Collateral Agent will obtain a first priority security interest in SFI’s
interest in the Co-License Agreement in accordance with the provisions of
Section 11(b) of the Notes.

 

 - 24 - 

 

 

(r) Closing Documents. On or prior to fourteen (14) calendar days after the
Closing Date, the Company agrees to deliver, or cause to be delivered, to each
Buyer and Schulte Roth & Zabel LLP a complete closing set of the executed
Transaction Documents, Notes and any other documents required to be delivered to
any party pursuant to Section 7 hereof or otherwise.

 

5. REGISTER. The Company shall maintain at its principal executive offices (or
such other office or agency of the Company as it may designate by notice to each
holder of Notes), a register for the Notes in which the Company shall record the
name and address of the Person in whose name the Notes have been issued
(including the name and address of each transferee) and the principal amount of
Notes held by such Person. The Company shall keep the register open and
available at all times during business hours for inspection of any Buyer or its
legal representatives. The Notes shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this Agreement
and the other Transaction Documents. If a Buyer effects a sale, assignment or
transfer of the Notes in accordance with Section 2(f), the Company shall permit
the transfer and shall promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such Buyer
to effect such sale, transfer or assignment. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to a
Buyer. Accordingly, the Company acknowledges that the remedy at law for a breach
of its obligations under this Section 5 will be inadequate and agrees, in the
event of a breach or threatened breach by the Company of the provisions of this
Section 5, that a Buyer shall be entitled, in addition to all other available
remedies, to an order and/or injunction restraining any breach and requiring
immediate issuance and 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 SELL.

 

The obligation of the Company hereunder to issue and sell the Notes to each
Buyer 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 Company’s sole benefit and may be waived by the Company at any time in
its sole discretion by providing each Buyer with prior written notice thereof:

 

(i) Such Buyer shall have executed each of the Transaction Documents to which it
is a party and delivered the same to the Company.

 

(ii) Such Buyer shall have delivered: (1) 96.5% of its Purchase Price to the
Company (less, in the case of the applicable Buyers, the amounts withheld
pursuant to Section 4(f)), for the Notes being purchased by such Buyer at the
Closing by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company and (2)_ 3.5% of its Purchase Price to the
Placement Agent by wire transfer of immediately available funds pursuant to the
Placement Agent’s wire instructions provided by the Company.

 

 - 25 - 

 

 

(iii) The representations and warranties of such Buyer shall be true and correct
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
which shall be true and correct as of such specified date), and such Buyer 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 such Buyer at or prior to the Closing Date.

 

7. CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.

 

The obligation of each Buyer hereunder to purchase 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 each Buyer’s sole
benefit and may be waived by such Buyer at any time in its sole discretion by
providing the Company with prior written notice thereof:

 

(i) The Company and each of its Subsidiaries shall have duly executed and
delivered to such Buyer each of the following documents to which it is a party:
(A) each of the Transaction Documents and (B) the Notes (allocated in such
principal amounts as such Buyer shall request), being purchased by such Buyer at
the Closing pursuant to this Agreement

 

(ii) Such Buyer shall have received the opinion of Fleming PLLC, the Company’s
outside counsel, dated as of the Closing Date, in substantially the form of
Exhibit F attached hereto.

 

(iii) The Company shall have delivered to such Buyer a certificate evidencing
the formation and good standing of the Company and each of its Subsidiaries in
such entity’s jurisdiction of formation issued by the Secretary of State (or
comparable office) of such jurisdiction, as of a date within ten (10) days of
the Closing Date.

 

(iv) The Company shall have delivered to such Buyer a certificate evidencing the
Company’s and each of its Subsidiaries’ qualification as a foreign corporation
and good standing issued by the Secretary of State (or comparable office) of
each jurisdiction in which the Company and its Subsidiaries conduct business, as
of a date within ten (10) days of the Closing Date.

 

(v) The Company shall have delivered to such Buyer a certified copy of the
Articles of Incorporation of the Company and each of its Subsidiaries as
certified by the Secretary of State (or comparable office) of the jurisdiction
of formation of the Company and each of its Subsidiaries within ten (10) days of
the Closing Date.

 

(vi) The Company shall have delivered to such Buyer a certificate, executed by
the Secretary of the Company and dated as of the Closing Date, as to (i) the
resolutions consistent with Section 3(b) as adopted by the Company’s and each of
its Subsidiaries’ Board of Directors in a form reasonably acceptable to such
Buyer, (ii) the Articles of Incorporation of the Company and each of its
Subsidiaries and (iii) the Bylaws of the Company and each of its Subsidiaries,
each as in effect at the Closing, in the form attached hereto as Exhibit G.

 

 - 26 - 

 

 

(vii) The representations and warranties of the Company shall be true and
correct 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 which shall be true and correct as of such specified date) and the Company
shall have performed, satisfied and complied in all respects with the covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to the Closing Date. Such
Buyer shall have received a certificate, 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 such Buyer in the form
attached hereto as Exhibit H.

 

(viii) Each of WTI, as transferor, and SFI, as transferee, shall have executed
the bill of sale (the “Bill of Sale”) attached hereto as Exhibit I.

 

(ix) WTI shall have filed with the United States Patent and Trademark Office an
assignment form to give effect to the transfer of all intellectual property
assets being transferred from WTI to SFI pursuant to the Bill of Sale.

 

(x) The Collateral Agent shall have received certified copies of request for
copies of information on Form UCC-11, listing all effective financing statements
which name as debtor the Company or any of its Subsidiaries and which are filed
in such office or offices as may be necessary or, in the opinion of the
Collateral Agent, desirable to perfect the security interests purported to be
created by the Security Agreement, together with copies of such financing
statements, none of which, except as otherwise agreed in writing by the
Collateral Agent, shall cover any of the Collateral, and the results of searches
for any tax lien and judgment lien filed against such person or its property,
which results, except as otherwise agreed to in writing by the Collateral Agent,
shall not show any such liens.

 

(xi) The Common Stock (I) shall be designated for quotation or listed on the
Principal Market and (II) shall not have been suspended, as of the Closing Date,
by the SEC or the Principal Market from trading on the Principal Market nor
shall suspension by the SEC or the Principal Market have been threatened, as of
the Closing Date, either (A) in writing by the SEC or the Principal Market or
(B) by falling below the minimum listing maintenance requirements of the
Principal Market.

 

(xii) The Collateral Agent shall have received the Security Agreement, duly
executed by the Company and SFI, together with any copyright, patent and
trademark agreements required by the terms of the Security Agreement and the
Company, in accordance with the terms of the Security Agreement, shall have
delivered to the Collateral Agent with a copy to each Buyer, appropriate
financing statements on Form UCC-1 to be duly filed in such office or offices as
may be necessary or, in the opinion of the Collateral Agent, desirable to
perfect the security interests purported to be created by the Security
Agreement.

 

 - 27 - 

 

 

(xiii) The Collateral Agent shall have received the Pledge Agreement, duly
executed by WTI, and WTI, in accordance with the terms of the Pledge Agreement,
shall have delivered to the Collateral Agent, with a copy to each Buyer,
certificates representing the Pledged Equity (as defined in the Pledge
Agreement), along with duly executed blank assignment form and/or stock powers
for the Pledged Equity in a form reasonably acceptable to the Collateral Agent,
including a Medallion Guarantee on such assignment form and/or stock powers.

 

(xiv) The Company shall have obtained all governmental, regulatory or third
party consents and approvals, if any, necessary for the sale of the Notes.

 

(xv) The Company shall have delivered to such Buyer such other documents
relating to the transactions contemplated by this Agreement as such Buyer or its
counsel may reasonably request.

 

8. TERMINATION. In the event that the Closing shall not have occurred with
respect to a Buyer on or before five (5) Business Days from the date hereof due
to the Company’s or such Buyer’s failure to satisfy the conditions set forth in
Sections 6 and 7 above (and the nonbreaching party’s failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date by delivering a written notice to that effect to each
other party to this Agreement and without liability of any party to any other
party; provided, however, that if this Agreement is terminated pursuant to this
Section 8, the Company shall remain obligated to reimburse the Empery Asset
Master Ltd. (the “Lead Investor”) or its designee(s), as applicable, and Hudson
Bay Master Fund Ltd. or its designee(s), as applicable, for the expenses
described in Section 4(f) above.

 

9. MISCELLANEOUS.

 

(a) Governing Law; Jurisdiction; Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such 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 manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

 - 28 - 

 

 

(b) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which 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; provided that a facsimile or .pdf signature shall
be considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
or .pdf signature.

 

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

 

(d) Severability. If any provision of this Agreement is prohibited by law or
otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or
unenforceable shall be deemed amended to apply to the broadest extent that it
would be valid and enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining provisions of this
Agreement so long as this Agreement as so modified continues to express, without
material change, the original intentions of the parties as to the subject matter
hereof and the prohibited nature, invalidity or unenforceability of the
provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the parties.
The parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).

 

(e) Entire Agreement; Amendments. This Agreement and the other Transaction
Documents supersede all other prior oral or written agreements between the
Buyers, the Company, their affiliates and Persons acting on their behalf with
respect to the matters discussed herein, and this Agreement, the other
Transaction Documents and the instruments referenced herein and therein 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 any Buyer makes any representation, warranty, covenant
or undertaking with respect to such matters. Provisions of this Agreement may be
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the holders of at least a majority of the
aggregate principal amount of Notes issued or issuable hereunder, which majority
must include Hudson Bay Master Fund Ltd. (solely to the extent Hudson Bay Master
Fund Ltd. or any of its affiliates holds any Notes) and affiliates of Empery
Asset Management, LP (solely to the extent such affiliates of Empery Asset
Management, LP holds any Notes) (each, a “Designee”, and such majority including
such required Designees, if any, the “Required Holders”); provided, further,
that the provisions of Section 4(m) cannot be amended without the additional
prior written approval of the Collateral Agent or its successor. Any amendment
or waiver effected in accordance with this Section 9(e) shall be binding upon
each Buyer and holder of Notes and the Company. No such amendment shall be
effective to the extent that it applies to less than all of the Buyers or
holders of Notes. No consideration shall be offered or paid to any Person to
amend or consent to a waiver or modification of any provision of any of the
Transaction Documents unless the same consideration (other than the
reimbursement of legal fees) also is offered to all of the parties to the
Transaction Documents or holders of Notes, as the case may be. The Company has
not, directly or indirectly, made any agreements with any Buyers relating to the
terms or conditions of the transactions contemplated by the Transaction
Documents except as set forth in the Transaction Documents. Without limiting the
foregoing, the Company confirms that, except as set forth in this Agreement, no
Buyer has made any commitment or promise or has any other obligation to provide
any financing to the Company or otherwise.

 

 - 29 - 

 

 

(f) Notices. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement or any of the other
Transaction Document’s must be in writing and will be deemed to have been
delivered: (i) upon receipt, when delivered personally; (ii) upon delivery, when
sent by facsimile (provided confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party), (iii) upon
delivery, when sent by electronic mail (provided that the sending party does not
receive an automated rejection notice); or (iv) one Business Day after deposit
with an overnight courier service, in each case properly addressed to the party
to receive the same. The addresses, facsimile numbers and e-mail addresses for
such communications shall be:

 

If to the Company:

 

  Workhorse Group Inc.   100 Commerce Drive   Loveland, Ohio 45140   Telephone:
844-937-9547   Facsimile: 513-900-8845   Attention: Stephen S. Burns, CEO  
E-mail: steve.burns@workhorse.com

 

With a copy to (for informational purposes only):

 

  Fleming PLLC   30 Wall Street, 8th Floor   New York, New York 10005  
Telephone:    516-833-5034   Facsimile: 516-977-1209   Attention: Stephen M.
Fleming, Esq.   E-mail: smf@flemingpllc.com

 

 - 30 - 

 

 

If to SFI:

 

  Surefly, Inc.   100 Commerce Drive   Loveland, Ohio 45140   Telephone:   
844-937-9547   Facsimile: 513-900-8845   Attention: Duane Hughes, Interim CEO  
E-mail: duane.hughes@workhorse.com

 

If to a Buyer, to its address, facsimile number and e-mail address set forth on
the Schedule of Buyers, with copies to such Buyer’s representatives as set forth
on the Schedule of Buyers,

 

with a copy (for informational purposes only) to:

  

  Schulte Roth & Zabel LLP   919 Third Avenue   New York, New York 10022  
Telephone:    (212) 756-2000   Facsimile: (212) 593-5955   Attention: Eleazer N.
Klein, Esq.   E-mail: eleazer.klein@srz.com

 

or to such other address, facsimile number and/or e-mail address and/or to the
attention of such other Person as the recipient party has specified by written
notice given to each other party five (5) days prior to the effectiveness of
such change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender’s facsimile machine or e-mail containing
the time, date, recipient facsimile number and an image of the first page of
such transmission or (C) provided by an overnight courier service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from an
overnight courier service in accordance with clause (i), (ii) or (iii) above,
respectively.

 

(g) Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and assigns,
including any purchasers of the Notes. The Company shall not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the Required Holders, including by way of a Fundamental Transaction
(unless the Company is in compliance with the applicable provisions governing
Fundamental Transactions set forth in the Notes). A Buyer may assign some or all
of its rights hereunder without the consent of the Company, in which event such
assignee shall be deemed to be a Buyer hereunder with respect to such assigned
rights.

 

(h) No 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, except that each Indemnitee shall have the right to enforce the
obligations of the Company with respect to Section 9(k).

 

(i) Survival. Unless this Agreement is terminated under Section 8, the
representations and warranties of the Company and the Buyers contained in
Sections 2 and 3, and the agreements and covenants set forth in Sections 4, 5
and 9 shall survive the Closing. Each Buyer shall be responsible only for its
own representations, warranties, agreements and covenants hereunder.

 

 - 31 - 

 

 

(j) 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 any 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.

 

(k) Indemnification. (i) In consideration of each Buyer’s execution and delivery
of the Transaction Documents and acquiring the Notes thereunder and in addition
to all of the Company’s other obligations under the Transaction Documents, the
Company shall defend, protect, indemnify and hold harmless each Buyer and each
other holder of the Notes and all of their shareholders, partners, members,
officers, directors, employees and direct or indirect investors and any of the
foregoing Persons’ agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the “Indemnitees”) from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys’ fees and disbursements
(the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company contained
in the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby or (c) any cause of action, suit or claim brought
or made against such Indemnitee by a third party (including for these purposes a
derivative action brought on behalf of the Company) and arising out of or
resulting from (i) the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (ii) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Notes, (iii) any disclosure made by such Buyer pursuant to Section 4(h),
or (iv) the status of such Buyer or holder of the Notes as an investor in the
Company pursuant to the transactions contemplated by the Transaction Documents.
To the extent that the foregoing undertaking by the Company may be unenforceable
for any reason, the Company shall make the maximum contribution to the payment
and satisfaction of each of the Indemnified Liabilities that is permissible
under applicable law.

 

(ii) Promptly after receipt by an Indemnitee under this Section 9(k) of notice
of the commencement of any action or proceeding (including any governmental
action or proceeding) involving an Indemnified Liability, such Indemnitee shall,
if a claim for indemnification in respect thereof is to be made against any
indemnifying party under this Section 9(k), deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnitee; provided, however, that an Indemnitee
shall have the right to retain its own counsel with the fees and expenses of not
more than one counsel for such Indemnitee to be paid by the indemnifying party,
if, in the reasonable opinion of the Indemnitee, the representation by such
counsel of the Indemnitee and the indemnifying party would be inappropriate due
to actual or potential differing interests between such Indemnitee and any other
party represented by such counsel in such proceeding. Legal counsel referred to
in the immediately preceding sentence shall be selected by the Buyers holding at
least a majority of the Notes issued and issuable hereunder. The Indemnitee
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or Indemnified Liabilities by the
indemnifying party and shall furnish to the indemnifying party all information
reasonably available to the Indemnitee that relates to such action or
Indemnified Liabilities. The indemnifying party shall keep the Indemnitee fully
apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. No indemnifying party shall be liable for any
settlement of any action, claim or proceeding effected without its prior written
consent, provided, however, that the indemnifying party shall not unreasonably
withhold, delay or condition its consent. No indemnifying party shall, without
the prior written consent of the Indemnitee, which consent shall not be
unreasonably withheld conditioned or delayed, consent to entry of any judgment
or enter into any settlement or other compromise which (i) does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnitee of a release from all liability in respect to such Indemnified
Liabilities or litigation, (ii) requires any admission of wrongdoing by such
Indemnitee, or (iii) obligates or requires an Indemnitee to take, or refrain
from taking, any action. Following indemnification as provided for hereunder,
the indemnifying party shall be subrogated to all rights of the Indemnitee with
respect to all third parties, firms or corporations relating to the matter for
which indemnification has been made. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnitee under this Section 9(k), except to the extent that the indemnifying
party is prejudiced in its ability to defend such action.

 

 - 32 - 

 

 

(iii) The indemnification required by this Section 9(k) shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Liabilities are
incurred.

 

(iv) The indemnity agreements contained herein shall be in addition to (x) any
cause of action or similar right of the Indemnitee against the indemnifying
party or others, and (y) any liabilities the indemnifying party may be subject
to pursuant to the law.

 

(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. Each Buyer and each holder of the Notes shall have all rights and
remedies set forth in the Transaction Documents and all rights and remedies
which such holders have been granted at any time under any other agreement or
contract and all of the rights which such holders have under any law. Any Person
having any rights under any provision of this Agreement shall be entitled to
enforce such rights specifically (without posting a bond or other security), to
recover damages by reason of any breach of any provision of this Agreement and
to exercise all other rights granted by law. Furthermore, the Company recognizes
that in the event that it fails to perform, observe, or discharge any or all of
its obligations under the Transaction Documents, any remedy at law may prove to
be inadequate relief to the Buyers. The Company therefore agrees that the Buyers
shall be entitled to seek temporary and permanent injunctive relief in any such
case without the necessity of proving actual damages and without posting a bond
or other security.

 

(n) Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction
Documents, whenever any Buyer 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 such Buyer 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.

 

(o) Payment Set Aside. To the extent that the Company makes a payment or
payments to the Buyers hereunder or pursuant to any of the other Transaction
Documents or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, foreign, state or federal law, common law or equitable cause of
action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.

 

(p) Independent Nature of Buyers’ Obligations and Rights. The obligations of
each Buyer under any Transaction Document are several and not joint with the
obligations of any other Buyer, and no Buyer shall be responsible in any way for
the performance of the obligations of any other Buyer under any Transaction
Document. Nothing contained herein or in any other Transaction Document, and no
action taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as, and the Company acknowledges that the Buyers do not so
constitute, a partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Buyers are in any way acting in concert
or as a group, and the Company shall not assert any such claim with respect to
such obligations or the transactions contemplated by the Transaction Documents
and the Company acknowledges that the Buyers are not acting in concert or as a
group with respect to such obligations or the transactions contemplated by the
Transaction Documents. The Company acknowledges and each Buyer confirms that it
has independently participated in the negotiation of the transaction
contemplated hereby with the advice of its own counsel and advisors. Each Buyer
shall be entitled to independently protect and enforce its rights, including,
without limitation, the rights arising out of this Agreement or out of any other
Transaction Documents, and it shall not be necessary for any other Buyer to be
joined as an additional party in any proceeding for such purpose.

 

[Signature Page Follows]

 

 - 33 - 

 

 

IN WITNESS WHEREOF, each Buyer, SFI and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

 

 

COMPANY:       WORKHORSE GROUP INC.         By:       Name:     Title:

  

 

 

 

 

 

 

[Signature Page to Securities Purchase Agreement]

 

 

 

 

IN WITNESS WHEREOF, each Buyer, SFI and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

 

  SFI:       Solely with respect to Sections 4(o) & 4(p) hereof:       SUREFLY,
INC.         By:       Name:     Title:

  

 

 

 

 

 

 

 

[Signature Page to Securities Purchase Agreement]

 

 

 

 

IN WITNESS WHEREOF, each Buyer, SFI and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

 

  BUYERS:         By:       Name:       Title:  

 

 

 

 

SCHEDULE OF BUYERS

 

 

(1)  (2)  (3)  (4)  (5) Buyer  Address and
Facsimile Number  Aggregate
Principal
Amount of Notes  Purchase Price  Legal Representative’s Address and Facsimile
Number                                                        

 

 

 

 

EXHIBITS

 

Exhibit A Form of Notes Exhibit B Form of Guarantee Agreement Exhibit C Form of
Security Agreement Exhibit D Form of Pledge Agreement Exhibit E Form of Press
Release Exhibit F Form of Opinion of Company Counsel Exhibit G Form of
Secretary’s Certificate Exhibit H Form of Officer’s Certificate Exhibit I Form
of Bill of Sale

 

SCHEDULES

 

Schedule 3(a) Subsidiaries Schedule 3(i) SEC Documents Schedule 3(j) Absence of
Certain Changes Schedule 3(l) Regulatory Permits Schedule 3(o) Transactions with
Affiliates Schedule 3(p) Indebtedness and Other Contracts Schedule 3(q) Absence
of Litigation Schedule 3(u) Intellectual Property Rights Schedule 3(bb) Ranking
of Notes Schedule 4(d) Use of Proceeds