EXECUTION
COPY


 


MASTER
NETTING AGREEMENT


 


MASTER
NETTING AGREEMENT (the “Agreement”), dated as of August 19, 2019, by and among Toughbuilt Industries, Inc.,
a Nevada corporation with offices located at 25371 Commercentre Drive, #200, Lake Forest, CA 92630 (the “Company”)
and the investor signatory hereto (the “Investor”, and together with the Company, the “Parties”
and each a “Party”).


 


WHEREAS,
prior to the date hereof, (i) the Parties and certain other investors have entered into that certain Securities Purchase Agreement,
dated August 19, 2019, pursuant to which, among other things, the Investor shall, among other things, acquire a senior secured
convertible note (the “Series B Note”) issued by the Company (the “Securities Purchase Agreement”),
which is secured by a first priority perfected lien in the Investor Note (as defined below) and (ii) the Parties have entered
into that certain Note Purchase Agreement, dated August 19, 2019, pursuant to which, among other things, the Company shall acquire
certain secured promissory note (the “Investor Note”) issued by the Investor (the “Note Purchase Agreement”),
which is secured by certain Eligible Assets (as defined in the Investor Note), as payment of the purchase price of the Series
B Note pursuant to the Securities Purchase Agreement. The Note Purchase Agreement, the Investor Note, the Series B Notes and the
Securities Purchase Agreement are collectively referred to herein as the “Underlying Agreements”;


 


WHEREAS,
each Party desires to provide in this Master Netting Agreement for, among other things, further clarification of its right (but
not, in the case of Investor only, its obligation) to Net (as defined below) all Obligations (as defined below) arising under
the Underlying Agreements upon the occurrence of (i) with respect to Investor, at the Investor’s option from and after the
occurrence of either (A) a Minimum Price Failure (as defined in the Investor Note), an Investor Note Acceleration (as defined
in the Investor Note, a Redemption Netting (as defined in the Investor Note), an Event of Default (as defined in the Series B
Note) or a Change of Control (as defined in the Series B Note) (in each case, whether or not the Investor has effected an Acceleration
(as defined below)) or, if after February 19, 2020, an Equity Conditions Failure (as defined in the Series B Note) that is continuing
or (B) any date on or after the Eligible Optional Netting Date (as defined in the Investor Note) (whether or not a Default then
exists or the Investor has effected an Acceleration) or (ii) automatically upon the occurrence of Maturity Netting (as defined
in the Investor Note), Bankruptcy Event of Default Netting (as defined in the Investor Note) or any Prohibited Transfer (as defined
in the Investor Note), in each case, and recover against the other Party under and across the Underlying Agreements as herein
specified and to treat this Agreement and the Underlying Agreements as a single agreement for the purposes set forth herein and
the Note Purchase Agreement and the Securities Purchase Agreement each as a “securities contract” (11 U.S.C. §
741), or other similar agreements; and


 


WHEREAS,
the Parties desire that the provisions of each Underlying Agreement remain in force under each applicable Underlying Agreement
to the extent such provisions are not expressly superseded or amended hereby.


 






    	 



     


    

 


NOW
THEREFORE, in consideration of the mutual agreements herein made and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each Party agrees as follows:


 


1.
Single Agreement. This Agreement is entered into in reliance on the Parties’ agreement that for the purposes set forth
herein this Agreement and the Underlying Agreements form a single integrated agreement between the Parties, and the Parties would
not otherwise enter into this Agreement and the Underlying Agreements. The Company and the Investor hereby acknowledge and agree
(a) that the Note Purchase Agreement and the Securities Purchase Agreement each are a “securities contract” as defined
in 11 U.S.C. § 741 and that Investor shall have all rights in respect of the Underlying Agreements as are set forth in 11
U.S.C. § 555 and 11 U.S.C. § 362(b)(6), and (b) that this Agreement is a “master netting agreement” as that
term is used in 11 U.S.C. § 362(b)(27) and 11 U.S.C. § 561 and is a “master agreement” as that term is used
in 11 U.S.C. § 362(b)(6) and that Investor shall have all rights in respect of this Agreement (and in respect of the Underlying
Agreements as incorporated herein) as are set forth in 11 U.S.C. § 362(b)(27), 11 U.S.C. § 561, and 11 U.S.C. §
362(b)(6), including in respect of both the foregoing clause (a) and the foregoing clause (b), without limitation, all rights
of credit, deduction, setoff, offset, recoupment, and netting (collectively, “Netting” or “Net”)
as set forth in this Agreement, the Investor Note and the Series B Note.


 


2.
Definitions. Terms capitalized herein but not defined herein shall have the meanings given to such terms in the Securities
Purchase Agreement. In the event of any conflict or inconsistency between a term defined herein and in any of the Underlying Agreements,
such term as used in this Agreement shall govern and have the meaning ascribed to it in this Agreement for the purposes of this
Agreement. All references to “$” shall be to lawful currency of the United States of America, unless otherwise specified.
All references to Sections, Exhibits, and other provisions are to Sections, Exhibits and other provisions of this Agreement unless
otherwise expressly stated. The following terms used in this Agreement are defined as follows:


 


“Acceleration”
means the acceleration, exercise of redemption rights, required redemption, exercise of prepayment rights or the occurrence of
the Maturity Date (as defined in the Series B Note or Investor Note, as applicable), in whole or in part, of the Series B Note
or the Investor Note, as applicable, in accordance with this Agreement or the applicable Underlying Agreement.


 


“Bankruptcy
Code” means Title 11 of the U.S. Bankruptcy Code.


 


“Default”
means, as applicable, a Default (as defined in the Investor Note) or an Event of Default (as defined in the Series B Note).


 


“Netting
Party” means the Party exercising the right to effect any Netting hereunder or under the applicable Underlying Agreement.


 


“Other
Party” means the Party other than the Netting Party.


 


“Obligation”
or “Obligations” means, with respect to a Party, each and every present or future payment or performance obligation
or liability of such Party under this Agreement or an Underlying Agreement, whether fixed, matured, unmatured, liquidated, or
unliquidated.


 


“Unpaid
Amounts” means, as of any date of determination, the Obligations owed by one Party to the other under such Underlying
Agreements that have not been paid as of the date of determination, whether or not such amounts are then due and payable and without
regard to the fair market value of the Series B Note or the Investor Note at such time, as applicable.


 






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3.
Netting.


 


(a)
Optional Netting. Upon the occurrence of (i)(A) a Minimum Price Failure, a Redemption Netting, an Investor Note Acceleration,
an Event of Default or a Change of Control (in each case, whether or not the Investor has effected an Acceleration) or (B) if
after February 19, 2020, an Equity Conditions Failure that is continuing (each, a “Default Netting Event”,
and all the principal of the Investor Note then outstanding, the “Default Optional Permitted Amount”) or (ii)
any date on or after the Eligible Optional Netting Date (whether or not a Default then exists or the Investor has effected an
Acceleration) (as applicable, each an “Eligible Optional Permitted Amount”, and together with any Default Optional
Permitted Amount, each a “Permitted Amount”), the Investor may, without further notice to the Company, Net
(each, an “Optional Netting”) any Permitted Amount of any Unpaid Amount owed by the Investor to the Company
under the Investor Note or any other Underlying Agreement against (across or within each or all of the Underlying Agreements)
(x) any Unpaid Amounts owed by the Company to the Investor under the Series B Notes or (y) any Unpaid Amounts owed by the Company
to the Investor under any other Underlying Agreement.


 


(b)
Automatic Netting. Upon the occurrence of an Acceleration either occurring in connection with (i) a Bankruptcy Event of
Default Netting, (ii) Maturity Netting or (iii) any Prohibited Transfer, in each case, with respect to any Unpaid Amounts then
owed by the Investor to the Company under the Investor Note and subject to such applicable Netting pursuant to the terms of the
Investor Note (such related aggregate amount of Restricted Principal (as defined in the Series B Note) of the Series B Note subject
to such applicable Netting, each an “Acceleration Amount”), the Company shall, without further notice to the
Investor, Net an Acceleration Amount of Restricted Principal owed by the Company to the Investor under the Series B Note against
an amount of Principal (as defined in the Investor Note) then outstanding under the Investor Note equal to such Acceleration Amount.


 


(c)
Miscellaneous.


 


(i)
If an Unpaid Amount is unascertainable, the Investor may, acting in a commercially reasonable manner, estimate the Unpaid Amount
thereof and Net in respect of the estimate, subject to accounting to the Company when the Unpaid Amount is ascertained. For the
avoidance of doubt, except with the written consent of the Investor to a different application of Netting against any Unpaid Amounts,
in the event of Optional Netting pursuant to paragraph (a) above, if Unpaid Amounts exist with respect to both the Series B Notes
and other Underlying Agreements, the Netting shall be applied first to obligations under such other Underlying Agreements (until
such obligations are satisfied in full) and thereafter to obligations under the Series B Notes.


 


(ii)
All Netting provisions of the Investor Note, including without limitation the provisions set forth in Section 7 of the Investor
Note, are hereby incorporated in this Agreement and made a part hereof as if such provisions were set forth herein.


 






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(iii)
The right of Netting provided for in this Section 3 is in addition to but without duplication of, and not in limitation of, any
other right or remedy available to the Parties, whether arising under this Agreement or any Underlying Agreement, the Guaranty
or other Security Document, or any other agreement, under applicable law, in equity, or otherwise. The Netting provided in this
Section 3 shall be permitted without regard to fair market value of the Series B Note or the Investor Note at any given time of
determination and without giving effect to equitable subordination or any other condition effecting the rank or priority of any
Obligations under any Underlying Agreement.


 


(iv)
The Netting Party shall give the Other Party notice of any Netting pursuant to this Section 3, as soon as practicable thereafter,
provided that failure to give such notice shall not affect the validity of the Netting.


 


4.
Representations and Warranties. As of the later of (x) the Closing Date (as defined in the Securities Purchase Agreement)
and (y) the Closing Date (as defined in the Note Purchase Agreement) (such later date, the “Effective Date”),
each Party represents and warrants to the other Party that (i) it is duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its incorporation, formation, or organization and any other jurisdictions where its activities
so require, has all necessary power and authority to execute and deliver this Agreement and to perform its obligations hereunder
and has taken all necessary actions to authorize such execution, delivery, and performance; (ii) the person signing this Agreement
on its behalf was duly authorized to do so on its behalf on the Effective Date; (iii) this Agreement and the Underlying Agreements
to which it is a party constitute its legal, valid, and binding obligations, enforceable against it in accordance with their terms,
subject to applicable bankruptcy, reorganization, insolvency, conservatorship, receivership, moratorium, or other similar laws
affecting creditors’ rights generally and subject, as to enforceability, to equitable principles of general application
(regardless of whether enforcement is sought in a proceeding in equity or at law); (iv) its execution and delivery of this Agreement
does not contravene, or constitute a default under, any provision of applicable law or regulation (including, without limitation,
any order, decree, judgment, injunction, or other judicial or governmental restriction applicable to such Party or any portion
of its assets) or of the organizational documents of such Party, or of any material agreement, judgment, injunction, order, decree
or other instrument binding upon such Party or result in the creation or imposition of any lien on any asset of such Party other
than as provided herein; and (v) the jurisdiction of the Company’s incorporation, formation, or organization and the location
of its chief executive office are correctly set forth in the Underlying Agreements.


 


5.
Interpretation. The Parties intend that (a) this Agreement constitute and be deemed to be a “master netting agreement”
(or any substantially similar term) and that the Parties be deemed to be “master netting agreement participants” (or
any substantially similar term) within the meaning of, and as such terms are used in, any law, rule, regulation, statute, or order
applicable to the Parties’ rights herein, whether now or hereafter enacted or made applicable, including, but not limited
to, the Bankruptcy Code at 11 U.S.C. §§ 101(25), 101(47), 101(53B), 741(7) and 761(4); and (b) all Netting effectuated
pursuant to this Agreement or any Underlying Agreement, be governed by the following Bankruptcy Code sections in the event of
the bankruptcy of either Party: (i) Sections 555, 556, 559 and 560; (ii) Section 362(b)(6), (7) and/or (17); (iii) Sections 546(e)-(g);
and (iv) Section 548(d)(2). The Parties also agree that such Netting contemplated hereunder or under any Underlying Agreement
arise under “securities contracts” and constitute “settlement payments” as set forth in Sections 101 and
741 of the Bankruptcy Code. The Parties further intend that the Underlying Agreements constitute “securities contracts”
as such term is defined in the Bankruptcy Code. Moreover, with respect to any Underlying Agreement, each Party thereto constitutes
a “stockbroker”, “financial institution” or “securities clearing agency” within the meaning
of, and as such terms are used in the Bankruptcy Code and/or any law, rule, regulation, statute, or order applicable to the Parties’
rights herein, whether now or hereafter enacted or made applicable.


 






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6.
Conflicts and Inconsistencies. In the event of any conflict or inconsistency between any provision of this Agreement and any
provision of any Underlying Agreement concerning the matters set forth in this Agreement, the provisions of this Agreement shall
govern.


 


7.
Miscellaneous.


 


(a)
Governing Law; Jurisdiction; Jury Trial. All questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law
or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application
of the laws of any jurisdictions other than the State of New York. Each party hereby irrevocably submits to the exclusive jurisdiction
of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any
such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served
in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this
Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION
WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.


 


(b)
Counterparts. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one
and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other
party. In the event that any signature is delivered by facsimile transmission or by an e-mail which contains a portable document
format (.pdf) file of an executed signature page, such signature page 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 signature page were an original
thereof.


 


(c)
Headings; Gender. The headings of this Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement. Unless the context clearly indicates otherwise, each pronoun herein shall be deemed to
include the masculine, feminine, neuter, singular and plural forms thereof. The terms “including,” “includes,”
“include” and words of like import shall be construed broadly as if followed by the words “without limitation.”
The terms “herein,” “hereunder,” “hereof” and words of like import refer to this entire Agreement
instead of just the provision in which they are found.


 






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(d)
Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity
or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or
the validity or enforceability of any provision of this Agreement in any other jurisdiction. The Parties intend that this Agreement
be construed to give full effect to the intent of the Parties with respect to the Netting provisions contained herein. If any
portion of the Netting contemplated herein shall be in any respect deemed or held to be invalid, illegal, or unenforceable, all
other provisions of this Agreement shall survive. 


 


(e)
Amendments. No provision of this Agreement may be amended or waived other than by an instrument in writing signed by the
Company and the Investor.


 


(f)
Notices. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this
Agreement shall be governed by the provisions of Section [9(f)] of the Securities Purchase Agreement.


 


(g)
Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective
successors and assigns. No party may assign this Agreement or any rights or obligations hereunder without the prior written consent
of the other party.


 


(h)
No Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.


 


(i)
Survival. The representations, warranties, agreements and covenants shall survive the Effective Date. The Investor shall
be responsible only for its own representations, warranties, agreements and covenants hereunder.


 


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


 


(k)
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.


 


(l)
No Waiver. A failure or delay in exercising any right, power, or privilege in respect of any Underlying Agreement or this
Agreement will not be presumed to operate as a waiver of that right, power, or privilege, and a single or partial exercise of
any right, power, or privilege will not be presumed to preclude any subsequent or further exercise of that right, power, or privilege,
or the exercise of any other right, power, or privilege.


 


(m)
Term. This Agreement shall continue in effect from the Effective Date until terminated by agreement of the Parties or,
if earlier, such time as no Investor Note remains outstanding.


 


[Signature
Page Follows]


 




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IN
WITNESS WHEREOF, the Investor and the Company have caused their respective signature page to this Master Netting Agreement
to be duly executed as of the date first written above.


 


	 	COMPANY:
	 	 
	 	TOUGHBUILT
    INDUSTRIES, INC.
	 	 	 
	 	By:	 
	 	Name:	              
	 	Title:	 


 




    	 



     


    

 


IN
WITNESS WHEREOF, the Investor and the Company have caused their respective signature page to this Master Netting Agreement
to be duly executed as of the date first written above.


 


	 	INVESTORS:
	 	 
	 	Alto
    Opportunity Master Fund, SPC - Segregated Master Portfolio B
	 	 	 
	 	By:	 
	 	Name:	              
	 	Title: