Exhibit 10.1


 


EXCHANGE AGREEMENT


 


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


 


WHEREAS:


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


1. Exchange of Securities.


 


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


 


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


 




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


 


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


 


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


 


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


 


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


 


e. Governmental Review. The Investor
understands that no United States federal or state agency or any other government or governmental agency has passed upon or made
any recommendation or endorsement of the Securities.


 


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


 




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


 


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


 


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


 


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


 


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


 




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


 


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


 


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


 


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


 




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


 


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


 


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


 




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


 


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


 


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


 


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


 




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


 


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


 


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


 


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


 




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


 


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


 


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


 


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


 


s. Environmental Matters.


 


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


 


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


 


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


 




    	 	8	 



     


    

 


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


 


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


 


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


 


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


 


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


 




    	 	9	 



     


    

 


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


 


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


 


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


 


bb. Bad Actor Disqualification.


 


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


 


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


 


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


 


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


 


4. COVENANTS.


 


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


 


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


 




    	 	10	 



     


    

 


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


 


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


 


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


 


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


 


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


 




    	 	11	 



     


    

 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 




    	 	12	 



     


    

 


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


 


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


 


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


 


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


 


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


 




    	 	13	 



     


    

 


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


 


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


 




    	 	14	 



     


    

 


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


 


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


 


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


 


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


 


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


 


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


 


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


 




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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


8. Governing Law; Miscellaneous.


 


a. Governing Law. This Agreement
shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts
of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall
be brought only in the state courts of New York or in the federal courts located in the state and county of New York. The parties
to this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall
not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The Company and Investor
waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees
and costs. In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid
or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may
prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement.
Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding
in connection with this Agreement or any other agreement or document executed in connection with this transaction (each a “Transaction
Document”), by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to
serve process in any other manner permitted by law.


 




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


 


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


 


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


 


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


 


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


 


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


 


If to the Company, to:


 


Eastside Distilling, Inc.


1805 SE Martin Luther King Jr. Blvd.


Portland, OR 97214


Attn: Steven Earles, CEO


Email: steven@eastsidedistilling.com


 




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If to the Investor:


 


MR Group I, LLC. 


c/o Magna Equities II LLC


5 Hanover Square


16th Floor


New York, NY 10004


Attn: Joshua Sason, CEO


Email: Joshua.sason@magna.ca


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 




    	 	18	 



     


    

 


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


 


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


 




    	 	19	 



     


    

 


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


 


EASTSIDE DISTILLING, INC.


 


	By:	 /s/Steven Earles	 
	 	Steven Earles	 
	 	CEO	 


 


MR GROUP, I, LLC


 


	By:	 /s/Joshua Sason	 
	 	Joshua Sason	 
	 	CEO	 


 




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