Document:

RealSource Residential, Inc. 10-K

EXHIBIT 10.6

 

PURCHASE AND SALE AGREEMENT

 

THIS PURCHASE AND SALE
AGREEMENT (this “Agreement”) is made as of the 12th day of March, 2014 (the “Effective Date”),
by and between RS Cambridge Apartments, LLC, a Delaware limited liability company (“Seller”), whose address for the
purposes hereof is 2089 East Fort Union Boulevard, Salt Lake City, Utah 84121, and RealSource Residential, Inc., a Nevada corporation
(“Buyer”). In consideration of the mutual promises and covenants contained herein, the parties hereto agree as follows:

 

1.            Property to be Sold. Seller
agrees to sell to Buyer, and Buyer agrees to purchase from Seller, all of Seller’s right, title and interest in and to the
following (collectively, the “Premises”):

 

(a)           Real
Estate - The land generally known as the Cambridge Apartments, located at 10900 East Taylor Road, Gulfport, MS 39503, with
all the buildings and other improvements thereon (the “Improvements”), as specifically described in the final title
commitment obtained by Buyer with the initial description attached hereto as Exhibit A (the “Real Estate”);

 

(b)           Fixtures
- All the fixtures attached or appurtenant to or used in connection with the Real Estate which are owned by Seller, including
without limitation, if any, all venetian blinds, window shades, screens, screen doors, storm windows and doors, awnings, shutters,
furnaces, heaters, heating equipment, oil and gas burners, hot water heaters, and fixtures appurtenant thereto (except related
computers, if any), plumbing and bathroom fixtures, electric and other lighting fixtures, wall-to-wall carpeting, mantels, outside
television antennas, fences, gates, trees, shrubs, plants, air conditioning equipment and ventilators, if any (collectively, the
“Fixtures”);

 

(c)           Personal
Property - All appliances owned by Seller and presently located within the tenants’ apartments (collectively, the “Personal
Property”). All other personal property, except the Fixtures, is excluded, including, but not limited to, all model furnishings,
computers, office equipment, hot water and/or boiler computers, and all laundry equipment and other personal property stored at
the Real Estate;

 

(d)           Tenant
Leases - Seller’s interest in all leases, oral or written, tenancies, rental agreements with tenants now or hereafter
occupying space in the Improvements or otherwise having rights of occupancy or use of all or a portion of the Real Estate;

 

(e)           Service
Contracts - Seller’s interest in the contracts and agreements assigned by Seller and assumed by Buyer at the Closing;
and

 

(f)           Intangibles
- All of Seller’s right, title and interest in and to (i) all warranties or guarantees relating to the Real Estate and
the Personal Property described above, if any, and (ii) all permits, if any, related to the operation and management of the Real
Estate, in each case, to the extent assignable without the consent of any other person.

 

    	 

    	 

    

 

2.            Purchase Price, Deposits.

 

(a)           Buyer
agrees to pay the fair market value of the Premises as determined using either an appraisal, a broker opinion of value, a fairness
opinion from an independent third party or some combination of these inputs mutually agreed on by Buyer and Seller (the “Purchase
Price”) for the Premises, however, the minimum purchase price will be $11,037,637.37. Buyer and Seller are parties to that
certain Right of First Refusal and Option, dated as of December 9, 2013, with respect to the Property (the “ROFR”).
Under the ROFR, Buyer was granted the right to purchase the Property for an amount equal to the fair market value of the Property
as negotiated between Buyer and Seller (taking into account assumed debt and other obligations relating to the Property) minus
the Option Fee. The “Option Fee” under the ROFR is (i) the amount (the “Advanced Amount”) that
Buyer paid (including reasonable and verifiable expenses) to obtain and terminate (through conversion hereunder of the B Note
into the Option Fee) that certain Bifurcated Note B (the “B Note”), in favor of Capmark Bank (the “Original
Lender”), dated March 1, 2010 in the original principal amount of $2,851,500.00 and subsequently acquired by German American
Capital Corporation that encumbered the Property prior to the date of the ROFR, plus (ii) 12% simple interest per annum on the
Advanced Amount from the date of the ROFR through the date of the sale of the Property. The Option Fee is hereby converted into
the “Deposit”, which is $1,537,637.37 on the date hereof, and which shall continue to accrue interest until the Closing
as provided in Section 2(a)(ii).

 

(b)           The Purchase Price, less the
Deposit, as adjusted pursuant to Section 4, shall be paid at the Closing (as hereinafter defined) by immediately available funds
wired to Seller’s account pursuant to wiring instructions provided by Seller prior to the Closing, or through other consideration
agreed upon by Buyer and Seller. At the Closing, Buyer shall deposit the balance of the Purchase Price, subject to adjustment
as provided herein, with the Escrow Agent. The Deed (as hereinafter defined) shall not be released or recorded until after
the Escrow Agent has received the entire balance of the Purchase Price, and the Escrow Agent shall be authorized to release the
Deed simultaneously receipt of the balance of the Purchase Price and the Deposit to Seller. The Escrow Agent shall provide a “Closing
Protection Letter” for the benefit of Seller. Seller shall provide an escrow instruction letter to the Escrow Agent prior
to the Closing, with escrow instructions consistent with the terms of this Agreement.

 

3.            Title.
The Real Estate and Fixtures are to be conveyed by a Special Warranty Deed or the equivalent thereof containing no covenants by
Seller whatsoever except a covenant against Seller’s acts during such time as Seller held title to the Premises (the “Deed”),
and the Personal Property is to be conveyed by a bill of sale (the “Bill of Sale”) without warranties or representations.
The Deed shall convey fee simple title to the Real Estate and Fixtures, free from all encumbrances and encroachments from or on
the Premises, except:

 

(a)           Applicable laws, codes and regulations
of any governmental authority in effect on the date hereof or hereafter, including, but not limited to those pertaining to building,
health, safety and zoning;

 

(b)           Any lien for taxes and water
and sewer charges for the then current fiscal tax year or billing period, as the case may be, that are not due and payable on
the date of the delivery of the Deed;

 

(c)           Any liens for municipal or governmental
betterments assessed after the date of this Agreement and any other municipal or governmental liens that are not due and payable
on the date of the delivery of the Deed;

 

(d)           Leases and tenancies as specified
in Section 12 in effect on the date of the delivery of the Deed and parties having possessory rights under agreements and contracts
assumed by Buyer;

 

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(e)           Title to and rights of the public
and others entitled thereto in and to those portions of the Premises, if any, lying within the bounds of adjacent streets and
right-of-ways;

 

(f)           All easements, encumbrances
and other matters of record and all matters existing or arising prior to the date of acquisition of title to the Premises by Seller,
whether or not of record (other than any matters timely objected to as provided in Section 7 and which Seller has agreed in writing
to cure and any other matters which Seller is otherwise obligated to cure under this Agreement); and

 

(g)           Any state of facts that might
be disclosed by a current accurate survey or a personal inspection of the Premises (other than any matters timely objected to
as provided in Section 7 and which Seller has agreed in writing to cure and any other matters which Seller is otherwise obligated
to cure under this Agreement).

 

4.            Adjustments.

 

(a)           Collected rents (including prepaid
rents), uncollected rents for the month of Closing, fuel oil, if applicable, electric, if applicable, water and sewer use charges,
payments for service contracts for the Premises, if any, any escrows or reserves pertaining to the Premises held by a third party
which Seller elects to assign to Buyer at the Closing, and taxes for the then current fiscal tax period shall be apportioned as
of the Closing. Uncollected rents for any other prior month shall be collected by Buyer but Buyer may first allocate such collections
to any then current rents owed by such tenant and then to Seller. Buyer agrees to use reasonable efforts to collect such rents
for such prior months due to Seller, but shall not be obligated to bring legal proceedings to collect the same. Seller reserves
the right, however, to collect its own uncollected rents at any time after the Closing by written notice to Buyer who will in
turn provide the Seller all the necessary records pertaining to uncollected rents. Buyer shall pay all conveyance, transfer and/or
recording taxes notwithstanding the practice, custom or requirements in the location where the Premises are located. Seller shall
deliver to Buyer, to the extent the same is in Seller’s possession, the most recent survey of the Real Estate. Buyer is
responsible, at its expense, for title examination, title insurance and survey (and any update thereof), if required by Buyer.
All adjustments shall be made as of midnight on the date of Closing. If the funds to be paid to Seller at the Closing are not
actually received by Seller on the date of the Closing and in sufficient time for Seller’s bank to invest such funds on
that day, then Buyer and Seller shall readjust as if the Closing occurred on the date of the receipt by Seller and Seller’s
bank of such funds. The provisions of this Subsection (a) shall survive the Closing.

 

(b)           If the current real estate tax
assessment cannot be determined at Closing, then the real estate taxes shall be apportioned on the basis of the taxes assessed
for the preceding year. In the event that an application for real estate tax abatement or reduction is not filed prior to the
Closing, but if such subsequent filing will benefit Seller in whole or in part, then Buyer agrees that Seller at its request shall
have the exclusive right to file and prosecute such application, and if necessary in the name of Buyer. If such application has
been filed prior to the Closing, Seller shall also have the exclusive right to continue the prosecution of said application. Buyer
agrees to fully cooperate with Seller with respect to any such application, and further authorizes Seller to endorse and cash
any tax abatement or reduction check which Buyer receives or which is issued to Seller and for such purposes Buyer grants to Seller
an irrevocable power of attorney coupled with an interest. Any such tax abatement or reduction eventually received, after adjustment
for Seller’s legal fees and other related costs incurred for the same, shall be proportionately adjusted between the parties.
If any tax abatement or reduction obtained by Seller shall benefit Buyer after the Closing, Buyer agrees to pay a fair and equitable
portion of Seller’s legal fees incurred with respect to obtaining such abatement or reduction. The provisions of this Subsection
(b) shall survive the Closing.

 

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(c)           Security deposits and advance
rents, if any, and all interest which is required by law, if any, to be paid to the tenants, shall be accounted for by Seller
and paid to Buyer at the Closing by adjustment. Seller shall render an accounting thereof to Buyer at the Closing.

 

5.            Possession and Condition of Premises.
Possession of the Premises shall be delivered to Buyer at the Closing, from which time all benefits and burdens of ownership shall
be transferred to Buyer. At Closing, the Real Property and Improvements shall be in substantially the same condition as at the
end of the Inspection Period, reasonable use and wear thereof excepted, and excepting damage by fire or other casualty as provided
in Section 10.

 

6.            Representations and Warranties
of Seller; Premises Sold “AS IS”.

 

(a)           Except as specifically provided
in this Agreement, Buyer acknowledges and agrees that Seller has not made, does not make and specifically negates and disclaims
any representations, warranties, promises, covenants, agreements or guaranties of any kind or character whatsoever, whether express
or implied, oral or written, past, present or future, of, as to, concerning or with respect to (i) the value, nature, quality
or condition of the Premises, including, without limitation, the structure, water, soil and geology, and the presence or absence
of hazardous waste or oil substances, (ii) the income to be derived from the Premises or the expenses to be incurred, (iii) the
suitability of the Premises for any and all activities and uses which Buyer may conduct thereon, (iv) the compliance or non-compliance
of or by the Premises or its operation with any laws, rules, ordinances or regulations of any applicable governmental authority
or body, including, without limitation, all zoning and environmental matters, (v) THE HABITABILITY, MERCHANTABILITY, MARKETABILITY,
PROFITABILITY, OR FITNESS FOR A PARTICULAR PURPOSE OF THE PREMISES, INCLUDING ALL REAL AND PERSONAL PROPERTY SOLD HEREIN, (vi)
the manner or quality of the construction of materials, if any, incorporated into the Premises, (vii) the manner, quality, state
of repair or lack of repair of the Premises, or (viii) any other matter with respect to the Premises. Buyer further acknowledges
and agrees that it has already investigated and examined the Premises and is afforded the further opportunity to do so pursuant
to Section 7; is relying solely on its own investigation of the Premises and not on any information provided or to be provided
by Seller; that any information provided or to be provided with respect to the Premises was obtained from a variety of sources
and that Seller has not made any independent investigation or verification of such information and makes no representations as
to the accuracy or completeness of such information. Seller is not liable or bound in any manner by any verbal or written statement,
representations or information pertaining to the Premises, or the operation thereof, furnished by a real estate broker, agent,
employee, servant or other person. Buyer further acknowledges and agrees that, to the maximum extent permitted by law, the sale
of the Premises as provided for herein is made on an “AS IS” condition and basis with all faults and defects, whether
known or unknown, and that Seller would not agree to sell the Premises to Buyer for the purchase price without the disclaimers,
agreements and other statements set forth in this Subsection (a).

 

(b)           It is understood and agreed that
all oral or written statements, representations or promises, if any, and all prior negotiations are superseded by this Agreement
and are merged into this Agreement, which alone fully and completely expresses the parties’ agreement, neither party relying
upon any statement or representation not embodied in this Agreement, made by the other.

 

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7.            Inspections and Financing Contingency.

 

(a)           Inspection
Period. Buyer (at its sole expense) shall have until 5:00 p.m. Mountain time of the day which is 30 days prior to the Closing
Date (the period from the Effective Date to and including such date being referred to herein as the “Inspection Period”),
to investigate the title to the Real Estate and to conduct any and all necessary non-intrusive inspections and investigations
of the Premises, including but not limited to examination of the title records, survey and examination for encroachments and other
defects, if any, verification of compliance of the Premises with applicable zoning, building, health and safety laws, regulations
and codes, inspection for hazardous waste, environmental testing (including, without limitation, a risk assessment or inspection
for the presence of lead-based paint and/or lead-based paint hazards) and any other inspections or investigations of the Premises.
Notwithstanding anything in this Section 7 to the contrary, Buyer shall not conduct or allow any physically intrusive testing
of, on or under the Premises without first obtaining Seller’s written consent as to the timing and scope of the testing
to be performed.

 

(b)           Buyer and Buyer’s agents
shall be allowed access to the Premises during the Inspection Period and thereafter for the purpose of inspecting the same, provided
that Seller receives reasonable advance notice (three (3) calendar days’ oral notice being agreed to be sufficient) from
Buyer and Buyer is accompanied by a representative of Seller at all times. Seller agrees to cooperate in making a representative
available for such purposes during normal business hours. After the Inspection Period, however, such access shall be restricted
solely to the portions of the Premises not occupied by tenants. Buyer agrees that, in conducting any inspections, investigations
or testing Buyer or Buyer’s agents will carry not less than One Million Dollars ($1,000,000.00) comprehensive general liability
insurance with contractual liability endorsement which insures Buyer’s indemnity obligations hereunder, and upon request
of Seller will provide written evidence of such insurance, will not interfere unreasonably with the activity of tenants or any
persons occupying or providing service at the Premises, will not reveal to any third party not approved by Seller the results
of its inspections, investigations or tests, and will promptly restore any physical damage caused by such inspections, investigations
or tests. Buyer agrees to promptly provide Seller with a copy of all inspection, investigation and test reports upon Seller’s
written request. Buyer agrees to be responsible for the conduct of its employees and agents and shall indemnify, defend and hold
the Seller harmless from any losses, injuries, damages, claims or expenses, including reasonable attorney’s fees and costs,
due to the conduct of Buyer or its employees or agents or which are due to any such inspections, investigations or testing. Buyer’s
obligations under this Subsection 7(b) shall survive the Closing, or if the Closing does not occur, the termination of this Agreement.

 

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(c)           At any time during the Inspection
Period, Buyer may elect, by written notice received by the Seller before the expiration of the Inspection Period, to (A) terminate
this Agreement which termination may be made regardless of reason or (B) notify Seller of any title or other defects in the Premises
(“Defects”) that Buyer requests Seller to cure. If Buyer timely notifies Seller of any such Defects as provided above,
including its reasons in detail and copies of any reports with respect to such Defects, Seller shall have five (5) business days
after receipt of such notice to give written notice to Buyer of the actions, if any, that Seller proposes to take with respect
to such Defects. In the event that Buyer shall not be satisfied with Seller’s proposed actions or in the event that Seller
does not elect to take any proposed actions, Buyer shall have the right, on or prior to the date which is five (5) business days
after receipt of such notice from Seller, to give Seller notice of Buyer’s intention not to proceed with the consummation
of the transaction contemplated by this Agreement (if Buyer shall fail to deliver such notice of Buyer’s intention not to
proceed, then Buyer shall be deemed to have accepted Seller’s proposals with respect to the Defects and this Agreement shall
remain in full force and effect). Upon receipt by Seller of such notice or the notice of termination referred to in (A) of this
Subsection (c), and provided such notice is timely given, this Agreement shall terminate, in which event the Deposit shall be
refunded to Buyer, and the parties shall have no further liability or responsibility to each other, except for the hold harmless
obligations of Buyer pursuant to Section 7(b). In the event that Buyer does not timely object to any Defects or in the event that
notice to terminate is not timely given as provided above, Buyer shall be conclusively deemed to have approved the title to and
condition of the Premises, including, without limitation, the matters described in Section 3, liens, encumbrances and other title
matters, any state of facts that would be disclosed by a current accurate survey or personal inspection of the Premises, zoning,
building, environmental, health, safety and other statutory, regulatory and code compliance, and all other matters pertaining
to the Premises, waived its right to terminate and obtain a refund of the Deposit pursuant to this Subsection (c) and agreed to
purchase the Premises subject to any and all Defects (other than mortgages created or assumed by Seller, which Seller shall cause
to be discharged at the Closing or through escrow as provided in Section 9(f), whether or not objected to by Buyer and other than
encumbrances and other material adverse title matters affecting the Premises first arising or first appearing on the public records
after such date and not cured by Seller by the Closing Date or any extension thereof, as the case may be), except to the extent
that Seller has expressly agreed, in its written notice given to Buyer as provided above, to resolve or cure such Defects. If
Seller does not give such notice on or prior to the fifth (5th) business day after receipt of Buyer’s written
objection to Defects, then, unless Buyer shall waive all such objections, this Agreement shall terminate on such fifth (5th)
business day, in which event the Deposit shall be refunded to Buyer and the parties shall have no further liability or responsibility
to each other, except for the hold harmless obligations of Buyer pursuant to Section 7(b). In the event of any termination of
this Agreement, Seller shall be entitled to copies of all of Buyer’s reports as provided above as a condition to the release
of the Deposit to Buyer.

 

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(d)           The provisions of Section 9
below shall apply to any and all Defects that Seller has agreed to cure as provided above. All Defects that Seller does not agree
to cure as provided above shall be deemed waived by Buyer if Buyer does not elect to terminate the Agreement as provided above.
Buyer shall not be entitled to terminate this Agreement or obtain a return of the Deposit or any part thereof as provided in Section
9 because of any Defects not timely objected to before expiration of the Inspection Period (other than any mortgages created or
assumed by Seller as provided above, which Seller shall cause to be discharged at the Closing or through escrow as provided above).

 

(e)           All inspections, investigations
and testing, including but not limited to title, survey and the issuance of any title insurance shall be solely at Buyer’s
expense.

 

8.            Closing.

 

(a)           The consummation of the purchase
and sale of the Premises (the “Closing”) shall take place on a date agreed upon by Buyer and Seller (the “Closing
Date”) provided, however, that the Closing Date shall not be prior to August 1, 2014. The Closing is subject to receipt
of all consents required for the transfer of the Property, including, without limitation, the consent of any lienholder on the
Property, any required consent of directors or shareholders of Buyer, and any required consent of members and managers of Seller.
The Closing shall be conducted through an escrow with an escrow agent agreed upon by Buyer and Seller (the “Escrow Agent”),
with the reasonable escrow fees to be split between the parties.

 

(b)           At the Closing, Seller shall
provide to Buyer the following:

 

(1)           The Deed and the Bill of Sale.

 

(2)           An assignment (without warranty)
of the leases and tenancies in effect at the time of the Closing, pursuant to which Buyer shall assume all of Seller’s obligations
therefor arising after the Closing, including all of Seller’s obligations with respect to all security deposits, advance
rents and interest thereon, if any, for which Buyer receives an adjustment or payment at the Closing.  Also, an assignment
(without warranty) of all agreements and contracts listed on Exhibit B as referred to in Section 13 as well as all subsequent
agreements and contracts referred to in Section 13, pursuant to which Buyer shall assume all of Seller’s obligations therefor
arising after the Closing.

 

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(3)           A letter to all tenants notifying
them of the change of ownership of the Premises and directing such tenants to pay all future rentals to Buyer or Buyer’s
designee and further advising tenants that specific security deposits, advance rents and interest thereon, if any, have been transferred
to Buyer.

 

(4)           To the extent the same are
in Seller’s possession, originals or copies of all operating manuals, warranties, and guarantees, if any, relating to the
Premises, all of which shall be left at the Premises.

 

(5)           An affidavit to the Escrow Agent
restricted to mechanic’s liens and tenants in possession and a FIRPTA affidavit.

 

(6)           At
the request of the Escrow Agent, Seller shall provide a copy of its certificate of formation and limited liability company agreement.

 

(7)           A signed copy of a closing statement
prepared by Seller or the Escrow Agent and agreed upon by Seller and Buyer (the “Closing Statement”).

 

(c)           At the Closing, Buyer shall also
provide to Seller the following:

 

(1)           The assumptions required in Subsection
(b)(2) above.

 

(2)           The Purchase Price in full as required
in this Agreement.

 

(3)           A signed copy of the Closing Statement.

 

(d)           Seller shall have ten (10) business
days after the Closing to remove from the Premises its personal property not sold hereunder, and Seller shall have reasonable
access to the Premises for such purpose.

 

9.            Clearing Title, Etc. If Buyer
has not terminated this Agreement before the expiration of the Inspection Period as provided in Section 7, then -

 

(a)           If, on the Closing, Seller shall
be unable to give title, make conveyance or deliver possession of the Premises as provided in this Agreement, including the failure
of Seller to cure any Defect that Seller agreed to cure as provided in Section 7, or if any material condition to Closing or other
material provision of this Agreement is not complied with by Seller as herein provided, then, and in any of said events, Buyer,
subject to Subsection 9(b), shall have the option, to be promptly exercised by the scheduled Closing Date, to (i) terminate this
Agreement by written notice to Seller, in which event the Deposit shall be refunded to Buyer, this Agreement shall be terminated,
and the parties shall have no further liability or responsibility to each other, except for the hold harmless obligations of Buyer
pursuant to Section 7(b); or (ii) consummate the sale without reduction of the Purchase Price upon all of the terms and conditions
of this Agreement, except those relating to the matter with which Seller is unable to comply or has not complied. Notwithstanding
the foregoing, in the event that the provisions of this Section shall be made applicable as the result of Seller’s failure
to cure any Defect that Seller had agreed to cure as provided above, Buyer shall have the right to specific performance as provided
in Subsection 9(e). Seller’s obligations hereunder shall be subject to Seller’s receipt of a release of the existing
mortgage encumbering the Premises from the existing lender.

 

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(b)           If, however, Seller is unable
to comply with this Agreement as described in Subsection 9(a), Seller shall also have the right to extend the Closing for up to
an additional thirty (30) days if it desires to attempt to cure its inability to comply with this Agreement. Seller may exercise
this option by written notice to the Buyer on or before the scheduled Closing Date. If, after the expiration of the extended period,
Seller shall be unable to cure such inability or elects not to do so, for whatever reason, then, as Buyer’s exclusive remedies,
Buyer shall have the same options provided in Subsection 9(a).

 

(c)           Notwithstanding the aforesaid
Subsections of this Section 9 to the contrary, Buyer shall not have the right to terminate this Agreement if the matter
which causes Subsections 9(a) or 9(b) to apply was deemed approved by Buyer pursuant to the provisions of Section 7.

 

(d)           In all events, Buyer shall have
the option to accept such title as Seller can deliver and to waive any condition or provision of this Agreement not complied with,
without reduction of the Purchase Price.

 

(e)           Buyer shall have no other recourse
to or rights against Seller, except as provided herein. In the event that Seller shall knowingly and intentionally default in
its obligation to convey the Premises to Buyer pursuant to this Agreement or in its obligation to cure any Defects that Seller
has agreed to cure as provided above, Buyer may, as its sole and exclusive remedy, either (i) enforce specific performance of
that obligation against Seller, so long as Buyer brings an action for specific performance against Seller within thirty (30) days
after the date of Seller’s default, or (ii) terminate this Agreement by written notice to Seller and the Escrow Agent, in
which event the Deposit shall be returned to Buyer and the parties shall have no further obligations to each other, except for
the hold harmless obligations of Buyer pursuant to Section 7(b). In no event shall Seller’s default be considered knowing
and intentional if such default is the result of a good faith dispute or the result of the Seller’s inability to deliver
title due to a lien or defect which was not voluntarily created or placed on the Premises by Seller, except to the extent that
the same is a Defect that Seller agreed to cure. In no event shall Seller be liable to Buyer for any actual, punitive, speculative,
consequential or other damages. 

 

(f)           To enable Seller to make conveyance
as provided in this Agreement, Seller may use the purchase money or any portion thereof to clear title of any encumbrance(s) or
defect(s), provided that all instruments so clearing title are recorded simultaneously with the Deed or appropriate escrows or
other mutually satisfactory arrangements have been established for delivery and recording of the appropriate instruments subsequent
to the Closing in order to clear title.

 

10.          Casualty, Eminent Domain, Fire
Insurance. If Buyer has not terminated this Agreement before the expiration of the Inspection Period as provided in Section
7, then -

 

(a)           In the event of any material
damage (as defined below) to the Premises, then, at Buyer’s option, by written notice to Seller within five (5) days after
Buyer receives notice or becomes aware of the same, Buyer shall either (i) terminate this Agreement, in which event the Deposit
shall be refunded to Buyer, this Agreement shall be terminated, and the parties shall have no further obligations to each other
except for the hold harmless obligations of Buyer pursuant to Section 7(b), or (ii) elect to consummate the sale without reduction
of the Purchase Price on account of the same. If Buyer shall fail to deliver the foregoing notice, then Buyer shall be deemed
to have elected to consummate the sale as provided in subpart (ii) above. Buyer shall, however, be obligated to close hereunder
if such damage shall not exceed two million and 00/100 Dollars ($2,000,000.00) and is fully covered by insurance (except for deductibles)
(“material damage”). In either case, whether Buyer elects or is obligated to close, Seller shall assign to Buyer all
claims and rights, if any, on account of or arising out of any of the foregoing damage, to the extent such damage is not repaired
by Seller by the Closing (or Seller has agreed in writing reasonably acceptable to Buyer to pay for repair of such portion of
the damage as is not paid by the insurer and has escrowed purchase proceeds sufficient therefor). To the extent not covered within
the preceding sentence, Buyer will receive a credit at Closing for any deductible applicable to such damage under Seller’s
insurance coverage.

 

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(b)           If, prior to the Closing, all
or any material portion of the Premises shall be taken for any public use (other than minor takings for street widening) or access
to or from the Premises shall be permanently taken or materially impaired, or any change(s) to public way(s) or the grade(s) thereof
shall be made which materially and adversely affects or is likely to materially and adversely affect the commercial value of the
Premises, or notice of any of the foregoing shall be made public or otherwise come to Buyer’s attention (unless such action
is terminated by the Closing), then, and in any of said events, by written notice to Seller within five (5) days after Buyer receives
notice or becomes aware of the same, Buyer shall either (i) terminate this Agreement, in which event this Agreement shall terminate,
the Deposit shall be refunded to Buyer, and the parties shall have no further liability or responsibility to each other except
for the hold harmless obligations of the Buyer pursuant to Section 7(b), or (ii) elect to consummate the sale without reduction
of the Purchase Price on account of same, in which event Seller shall assign to Buyer all claims and rights, if any, on account
of or arising out of any of the foregoing.

 

(c)           Until the Closing, Seller shall
maintain insurance on the Premises against fire and hazards covered by standard extended coverage endorsement as presently insured.

 

11.          Seller’s Management.
Except as otherwise expressly provided herein, Seller shall continue to manage, maintain and repair, rent and operate the Premises
in its usual course of business until the Closing and in accordance with its past practices.

 

12.          Current Leases and Tenancies.
Within five (5) business days after the date hereof, Seller shall provide Buyer with a rent roll which shall list all present tenants
of the Premises, whether with or without written leases, and shall contain, as to each tenant, the name of the tenant, location
of the apartments rented, the monthly rent rate and the expiration date of each lease (the “Initial Rent Roll”). Seller
shall provide an updated rent roll with the same scope of data for the Closing (the “Closing Rent Roll”). Seller represents
that each of the Initial Rent Roll and the Closing Rent Roll will be substantially accurate as of the date set forth thereon. Buyer
shall be afforded the opportunity to inspect all the outstanding leases, tenant records and operating and expense statements with
respect to the Premises during the Inspection Period referred to in Section 7. Seller, however, makes no warranties or representations
with respect to such statements and records.

 

13.          Service or Other Non-Lease Agreements.
Seller represents that the Premises are not subject to any agreements or contracts as of the present date that will survive the
Closing, except for apartment leases, tenancies, recorded agreements or contracts, and except for those agreements and contracts,
if any, listed on Exhibit B attached hereto. Seller agrees that it shall not enter into any new agreements or contracts
which will pertain to the Premises, other than apartment leases and tenancies, unless such agreements or contracts are cancelable
by not more than thirty (30) days notice or are approved by Buyer, which approval shall not be unreasonably withheld or delayed.
Buyer agrees to assume all of the aforesaid agreements and contracts at the Closing.

 

    	10

    	 

    

 

14.          Representations, Warranties and
Additional Covenants by Buyer. As a material inducement to Seller to enter into this Agreement and consummate the transaction
contemplated hereby, Buyer represents and warrants to Seller and covenants and agrees with Seller as follows:

 

(a)           Buyer has full legal right,
power and authority to enter into this Agreement and to consummate the transaction contemplated herein, and this Agreement constitutes
a legal, valid and binding obligation of Buyer, enforceable in accordance with its terms.

 

(b)           If Buyer is not a natural person,
Buyer, upon request of Seller, at Closing shall deliver to Seller such documentation as Seller or its attorney may require to
evidence the matters set forth above, including, without limitation, certified copies of Buyer’s organizational documents
and appropriate resolutions or consents authorizing the transaction contemplated herein.

 

(c)           In addition to the actions recited
herein and contemplated to be performed, executed and delivered by Buyer, Buyer shall perform, execute and deliver or cause to
be performed, executed and delivered at the Closing or thereafter any and all further acts, deeds and assurances as Seller or
the Escrow Agent may reasonably require to consummate or evidence the consummation of the transaction contemplated herein.

 

(d)           Buyer hereby agrees to indemnify,
protect, defend, save and hold Seller harmless from and against any and all debts, duties, obligations, liabilities, suits, claims,
demands, causes of actions, damages, losses, costs and expenses (including, without limitation, reasonable legal expenses and
attorneys’ fees with respect to the same or to enforce this indemnity), in any way relating to, connected with or arising
out of the Premises or the ownership, leasing, use, operation, maintenance and management thereof from and after the Closing,
including, without limitation, any debts, duties, obligations, liabilities, suits, claims, demands, causes of action, damages,
losses, costs and expenses in any way relating to, connected with or arising under any of the leases, tenancies, or contracts
or agreements assumed by Buyer from and after the Closing. The indemnification contained in this Subsection shall survive the
Closing.

 

15.          Miscellaneous.

 

(a)           Notices.
All notices required or permitted hereunder shall be in writing and shall be deemed to have been given when mailed, postage prepaid,
by U.S. registered or certified mail (with return receipt requested), by telecopy (with proof of transmission) or by recognized
overnight air courier service (with proof of delivery); if intended for the Seller, addressed to the Seller c/o RealSource Equity
Services, LLC, 2089 East Fort Union Boulevard, Salt Lake City, Utah 84121, Attention: Michael S. Anderson (telephone no. (801)
601-2700, facsimile no. (801) 563-3937); and if intended for Buyer, addressed to Buyer at 2089 East Fort Union Boulevard, Salt
Lake City, Utah 84121, Attention: V. Kelly Randall (telephone no. (801) 601-2700, facsimile no. (801) 563-3937).

 

(b)           Construction.
The headings of the various Sections of this Agreement are for convenience of reference only and are not a part hereof. No modification,
alteration or amendment of this Agreement shall be binding unless in writing duly executed by both Buyer and Seller. Where the
context requires or admits, the plural shall include the singular, and vice versa, and words of one gender shall include all genders.
If Buyer shall consist of more than one individual and/or entity, liability of each shall be joint and several. This Agreement
shall be governed by and construed in accordance with the laws of the State of Utah, and, in the event of any legal dispute between
the parties which may result in litigation, such litigation may only be commenced within said jurisdiction, with service permitted
by U.S. registered or certified mail, return receipt requested, addressed as provided in Subsection (a) above. In the event of
any such litigation, the parties hereby waive their rights to trial by jury. This Agreement may be executed in multiple copies,
each of which shall be an original for all purposes. All of the terms and provisions of this Agreement have been negotiated by
Seller and Buyer with the assistance of their respective attorneys. Therefore, it is the intent of Seller and Buyer that this
Agreement not be construed for or against either of the parties hereto, and that neither of the parties hereto be deemed the drafter
of this Agreement.

 

    	11

    	 

    

 

(c)           Binding
Effect. This Agreement shall be binding upon and inure (subject to Subsection (d) below) to the benefit of the respective
heirs, executors, administrators, successors and assigns of each party hereto.

 

(d)           Buyer’s
Nominee. Buyer may transfer its rights under this Agreement. Buyer shall, however, remain jointly and severally liable with
such transferee for all of Buyer’s obligations under this Agreement, and such transferee shall be required to assume joint
and several liability for all such obligations. Buyer shall give Seller prompt written notice of any such transfer at least seven
(7) days before the scheduled Closing, which notice shall include sufficient information to identify the transferee entity or
nominee and certified copies of its organizational documents. No assignment shall be valid unless Seller has approved the agreement
pursuant to which the assignment is consummated.

 

(e)           Survival.
The express representations and warranties of Seller, if any, set forth in this Agreement all relate to the period of time prior
to Closing. Any claim of a breach of such representations or warranties may be made only after Buyer actually suffers a loss as
a result of such breach, Buyer delivers written notice of such breach to Seller within thirty (30) days thereafter, and such breach
remains uncured for a period of thirty (30) days after Seller has received such written notice, and further that Buyer files a
lawsuit for breach of such representation or warranty in a court of competent jurisdiction in Salt Lake County, Utah, within six
(6) months after the Closing. If such conditions precedent are not timely satisfied, then any action for breach of such representations
and warranties shall forever thereafter be barred. Seller shall not be deemed to have breached a representation and warranty hereunder
unless a false representation and warranty was knowingly made by Seller hereunder. In no event shall Seller be liable to Buyer
for punitive, speculative or consequential damages.

 

(f)            Confidentiality.
Buyer shall not disclose the terms, provisions and conditions of this Agreement to any person or entity, except to its proposed
lender or its advisors, without the written consent of Seller, and Buyer shall require its lender and advisors to agree to such
confidentiality. All information provided to or obtained by Buyer in connection with Buyer’s pre-closing due diligence,
inspections, investigations and the like shall be received and held by Buyer in confidence and solely for the purpose of enabling
Buyer to evaluate its purchase of the Premises under this Agreement and shall promptly be returned to Seller (or destroyed, at
Seller’s election), if this Agreement is terminated prior to Closing. Buyer’s obligations of confidentiality shall
survive the Closing or termination of this Agreement, as the case may be.

 

(g)           Zoning
Etc. Buyer shall not attempt to obtain any zoning change, modification or variance for the Premises or any part thereof at
anytime prior to the Closing without Seller’s prior written consent.

 

(h)           Third
Party Exchanges. Buyer and Seller agree to cooperate with each other in order for Seller and/or Buyer to accomplish a real
estate exchange pursuant to Section 1031 of the Internal Revenue Code, provided such exchanges do not cause Buyer or Seller to
incur any liability, do not require Buyer or Seller to take title to any other property, do not delay the Closing and do not cause
Buyer or Seller to incur any additional cost or expense, other than nominal expense for their attorneys to review any applicable
documents.

 

    	12

    	 

    

 

(i)           No
Recording. Buyer shall not cause or permit this Agreement, or any short form variation thereof or any notice of contract,
to be filed of record in any office or place of public record (unless filed by Seller). If Buyer shall breach this Subsection
it shall be deemed a material default hereunder, and, at Seller’s option, this Agreement shall terminate, and Seller shall
retain the Deposit as liquidated damages, and the parties shall have no further liability or responsibility to each other, except
for the hold harmless obligations of Buyer pursuant to Section 7(b).

 

(j)           Time
Of The Essence. Time is of the essence as to each and every provision of this Agreement requiring performance within a specified
time and particularly with respect to any termination rights herein afforded to Buyer and with respect to the Closing.

 

(k)           Non-Offer.
The submission of this Agreement for examination or for execution by Buyer, or the negotiation of the transaction described herein
does not constitute an offer to sell by Seller, and this Agreement confers no rights upon Buyer nor imposes any obligations on
Seller and shall not constitute a binding contract unless and until Buyer and Seller shall have executed this Agreement and any
required consents to this Agreement have been obtained, including, without limitation, the consent of any lender to Seller.

 

(l)           Invalid
Provision. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws,
and if such provision is not essential to the effectuation of the basic purposes of this Agreement, such provision shall be fully
severable, this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never been
a part of this Agreement, and the remaining provisions of this Agreement shall remain in full force and effect.

 

(m)           No
Waiver. The waiver by either party of the performance of any covenant, condition or promise shall not invalidate this Agreement,
nor shall it be construed as a waiver of any other covenant, condition or promise herein. The waiver by either party of the time
for performing any act shall not constitute a waiver of the time for performing any other act or any incidental act required to
be performed at a later time. The delay or forbearance by either party in exercising any remedy or right, the time for the exercise
of which is not specifically and expressly limited or specified in this Agreement shall not be considered a waiver of or an estoppel
against the latter exercise of such remedy or right.

 

(n)           Specific
Waiver. Buyer hereby waives the applicability, protections and provisions of any applicable law governing deceptive or unfair
trade practices and the like, if any, only to the extent that such waiver is permitted under applicable law. Buyer represents
and warrants to Seller that (1) Buyer is not in a significantly disparate bargaining position in connection with the transaction
contemplated by this Agreement, (2) Buyer is represented by legal counsel in connection with this transaction and Agreement, and
(3) the transaction described in this Agreement is for business-commercial purposes and is not a consumer transaction.

 

(o)           Back-Up
Offers. Seller shall have the right to receive back-up offers and to enter into agreements for the purchase and sale of the
Premises, contingent upon the expiration or termination of this Agreement, until such time as the Inspection Period and all other
contingencies under this Agreement have expired.

 

    	13

    	 

    

 

(p)           Default
Provision. In the event that Buyer’s default consists of a breach of any of Buyer’s obligations which expressly
survive termination of this Agreement or the Closing, or in the event Buyer files a lis pendens or an action for specific
performance against Seller or otherwise clouds Seller’s title to the Premises or any part thereof, or if Buyer takes action
to prevent Seller from obtaining the Deposit when Seller is entitled thereto, and if, in any such case, Buyer fails to prevail
in a final, non-appealable judgment, Seller shall be entitled to any remedies available at law or in equity with respect thereto,
including, but not limited to, its damages, attorney’s fees and costs.

 

(q)           Limited
Recourse. Anything in this Agreement to the contrary notwithstanding, Buyer agrees that it shall look solely to the estate
and property of Seller in the Premises, and subject to prior rights of any mortgagee, for the collection of any judgment (or other
judicial process) requiring the payment of money by Seller in the event of any default or breach by Seller with respect to any
of the terms, covenants, and conditions of this Agreement to be observed and/or performed by Seller, and no other assets of Seller
or any of its members, managers, employees, attorneys, agents, affiliates, partners, shareholders, successors, or assigns shall
be subject to levy, execution, or other procedures for the satisfaction of Buyer’s remedies. This Subsection (q) shall survive
the Closing.

 

IN WITNESS WHEREOF,
the parties hereto have executed this Agreement as of the date first above mentioned.

 

	SELLER:	 	BUYER:
	 	 	 	 	 	 	 
	RS Cambridge Apartments, LLC	 	RealSource Residential, Inc.
	 	 	 	 	 	 	 
	By:	RS Cambridge Management, LLC,	 	 	 	 
	 	its manager	 	 	 	 
	 	 	 	 	 	 	 
	By:	/s/ V. Kelly Randall	 	By:	/s/ Nathan Hanks 
	Name:	V.
Kelly Randall	 	Name:	 Nathan
Hanks
	Title:	Vice
President of RS Cambridge 	 	Title:	President
	 	 	Management LLC,  Manager	 	 	 	 
	 	 	 	 	 	 	 

    	14

    	 

    

 

EXHIBIT A

 

Legal Description

 

Real property in the City of Gulfport, County
of Harrison, State of Mississippi, described as follows:

 

PARCEL 1:

 

Commence at the Southeast (SE) corner of the
Southwest Quarter of the Southeast Quarter (SW 1/4 of SE 1/4), of Section 19, Township 7 South, Range 10 West, City of Gulfport,
Harrison County, Mississippi, and run North 139.33 feet to the point of beginning: thence continue North for 1060.67 feet; thence
run South 89 degrees 53 minutes 18 seconds West for 629.91 feet; thence run South 00 degrees 00 minutes 20 seconds East for 1157.82
feet to the North right-of-way of East Taylor Road; thence run South 89 degrees 55 minutes 09 seconds East and along the North
right-of-way of East Taylor Road for 618.49 feet; thence run North 6 degrees 30 minutes 05 seconds East along the North right-of-way
of East Taylor Road for 99.89 feet back to the point of beginning.

 

The above described parcel lies entirely within
and is part of the Southwest Quarter (SW 1/4) of the Southeast Quarter (SE 1/4) of Section 19, Township 7 South, Range 10 West,
City of Gulfport, Mississippi, Harrison County, Mississippi.

 

The above described land being the same land
described in survey by Gary A. Durbin dated July 24, 2007, last revised September 19, 2007 as follows:

 

Commencing at the Southeast corner of the SW
1⁄4 of the SE 1⁄4 of Section 19, Township 7 South, Range 10 West, City of Gulfport, Harrison County, Mississippi , and
run North 140.33 feet to the Point of Beginning; thence continue North for 1060.67 feet; thence run S 89°56'22"
W for 630.35 feet; thence run S 00°01'38" E for 1158.38 feet to the North right of way of East Taylor Road; thence
run S 89°55'09" E, and along the North right of way of East Taylor Road for 618.49 feet; thence run N 06°30'05"
E along the North right of way of East Taylor Road for 99.89 feet back to the Point of Beginning.

 

The above described parcel lies entirely within
and is part of the SW 1⁄4 of the SE 1⁄4 of Section 19, T 7 S, R 10 W, City of Gulfport, Harrison County, Mississippi.

 

PARCEL 2:

 

Easement granted by Southern Pre-Engineered
Builders, Inc., a Mississippi corporation unto Cambridge, Inc., a Mississippi corporation and the terms and conditions thereof,
recorded September 28, 2007 as Instrument No. 2007 9751 D-J1 of Official Records.

 

    	15

    	 

    

 

EXHIBIT B

 

Contracts and Agreements

 

 

16ex-4.2

 CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
 OF 
 SERIES D 8% CONVERTIBLE PREFERRED STOCK 
 OF
 HEATWURX, INC.
 

 (As amended on November 20, 2013)
 

 Pursuant to Section 151 of the
 Delaware General Corporation Law
 

 HEATWURX, INC. (the “Company”), a corporation organized and existing under the laws of the State of Delaware, hereby certifies that pursuant to the provisions of Section 151 of the Delaware General Corporation Law, its Board of Directors adopted the following resolution, which resolution remains in full force and effect as of the date hereof:
 

 WHEREAS, the Board of Directors of the Company (the “Board of Directors”) is authorized, within the limitations and restrictions stated in the Certificate of Incorporation of the Company (the “Certificate of Incorporation”) , to fix by resolution or resolutions the designation of preferred stock and the powers, preferences and relative participating, optional or other special rights and qualifications, limitations or restrictions thereof, including, without limiting the generality of the foregoing, such provisions as may be desired concerning voting, redemption, dividends, dissolution or the distribution of assets, conversion or exchange, and such other subjects or matters as may be fixed by resolution or resolutions of the Board of Directors under the Delaware General Corporation Law; and
 

 WHEREAS, the Certificate of Incorporation of the Company authorizes 4,500,000 shares of preferred stock, $0.0001 par value per share (the “Preferred Stock”); and
 

 WHEREAS, it is the desire of the Board of Directors of the Company, pursuant to its authority as aforesaid, to authorize and fix the terms of a series of Preferred Stock to be designated the Series D Preferred Stock of the Company and the number of shares constituting such series of Preferred Stock;
 

 NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized the Series D Preferred Stock consisting of 2,500,000 shares of Preferred Stock (the “Series D Preferred Stock”) on the terms and with the provisions herein set forth below (with capitalized terms not otherwise defined herein having the meaning set forth in the Certificate of Incorporation):
 

 1.
 Dividends.  From and after the date of the issuance of any shares of Series D Preferred Stock, dividends shall be payable quarterly at the rate per annum of eight percent (8%) per share to the holders of Series D Preferred Stock on the last day of each fiscal quarter (the “Series D Dividend”).  The Corporation shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Corporation (other than the Series C Dividend and the Series D Dividend and dividends on shares of Common Stock payable in shares of Common Stock) unless (in addition to the obtaining of any consents required elsewhere in the Certificate of Incorporation) the holders of any series of Preferred Stock then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Preferred Stock in an amount at least equal to the greater of (i) the amount of the aggregate Accruing Dividends then accrued on such share of Preferred Stock and not previously paid and (ii) (A) in the case of a dividend on Common Stock or any class or series that is convertible into Common Stock, that dividend per share of Preferred Stock, as would equal the product of (1) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into Common Stock, and (2) the number of shares of Common Stock issuable upon 
 

 
 conversion of a share of Preferred Stock, in each case calculated on the record date for determination of holders entitled to receive such dividend or (B) in the case of a dividend on any class or series that is not convertible into Common Stock, at a rate per share of Preferred Stock determined by (1) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such class or series) and (2) multiplying such fraction by an amount equal to the original issue price of the outstanding Preferred Stock.  The Series D Dividend shall be payable in cash or shares of Common Stock at the Closing Sale Price (as defined in Section 6.1) on the last trading day immediately preceding the due date of the Series D Dividend, or any combination thereof, at the option of the Corporation. 
 2.
 The “Series D Original Issue Price” is $3.00, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series D Preferred Stock. 
 3.
 Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales.
 3.1
 Payments to Holders of Preferred Stock.  In the event of any liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, or Deemed Liquidation Event (as defined in Subsection 3.3 below), holders of each share of Series D Preferred Stock shall be entitled to be paid out of the assets of the Corporation available for distribution to holders of the Corporation’s capital stock, pari passu, whether such assets are capital, surplus or earnings, an amount per outstanding share equal to the Series D Original Issue Price plus any Series D Dividends accrued but unpaid thereon, together with any other dividends declared but unpaid thereon (the “Series D Liquidation Amount”), before any sums shall be paid or any assets distributed among the holders of shares of Common Stock or shares ranking junior on liquidation to the Series D Preferred Stock.  If the assets of the Corporation shall be insufficient to permit the payment in full to the holders of the Series D Preferred Stock of the amount thus distributable, then the entire assets of the Corporation available for such distribution shall be distributed among the holders of the Series D Preferred Stock on a pro rata basis.  
 3.2
 Payments to Holders of Common Stock.  In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, after the payment of all preferential amounts required to be paid to the holders of shares of Preferred Stock, the remaining assets of the Corporation available for distribution to its stockholders shall be distributed on a pro rata basis among the holders of shares of Common Stock and shares of Preferred Stock (determined on the basis of the number of whole shares of Common Stock into which the shares of Preferred Stock are convertible) based on the number of shares held by each such holder.
 3.3
 Deemed Liquidation Events.
 3.3.1
 Definition.  Each of the following events shall be considered a “Deemed Liquidation Event” unless the holders of at least a majority of the outstanding shares of Series D Preferred, voting as a separate class, elect otherwise by written notice sent to the Corporation at least fifteen (15) days prior to the effective date of any such event:
 a.
 a merger or consolidation in which 
 

 2
 

 

 
 
 i.
 the Corporation is a constituent party, or 
 ii.
 a subsidiary of the Corporation is a constituent party and the Corporation issues shares of its capital stock pursuant to such merger or consolidation, except any such merger or consolidation involving the Corporation or a subsidiary in which the shares of capital stock of the Corporation outstanding immediately prior to such merger or consolidation continue to represent, or are converted into or exchanged for shares of capital stock that represent, immediately following such merger or consolidation, at least a majority, by voting power, of the capital stock of (1) the surviving or resulting corporation, or (2) if the surviving or resulting corporation is a wholly owned subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation (provided that, for the purpose of this Subsection 3.3.1, all shares of Common Stock issuable upon exercise of Options (as defined below) outstanding immediately prior to such merger or consolidation or upon conversion of Convertible Securities (as defined below) outstanding immediately prior to such merger or consolidation shall be deemed to be outstanding immediately prior to such merger or consolidation and, if applicable, converted or exchanged in such merger or consolidation on the same terms as the actual outstanding shares of Common Stock are converted or exchanged); or
 b.
 the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole, or the sale or disposition (whether by merger or otherwise) of one or more subsidiaries of the Corporation if substantially all of the assets of the Corporation and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation.
 c.
 The Corporation shall not have the power to effect a Deemed Liquidation Event referred to in this Subsection 3.3.1 unless the agreement or plan of merger or consolidation for such transaction (the “Merger Agreement”) provides that the consideration payable to the stockholders of the Corporation shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 3.1 and 3.2.
 3.3.2
 Amount Deemed Paid or Distributed.  The amount deemed paid or distributed to the holders of capital stock of the Corporation upon any such merger, consolidation, sale, transfer, exclusive license or other disposition shall be the cash or the value of the property, rights or securities paid or distributed to such holders by the Corporation or the acquiring person, firm or other entity.  The value of such property, rights or securities shall be determined in good faith by the Board of Directors of the Corporation.
 4.
 Voting.  On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series D Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series D Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter.  Except as provided by law or by the other provisions of the Certificate of Incorporation, holders of Series D Preferred Stock shall vote together with the holders of Common Stock as a single class.
 

 3
 

 

 
 
 5.
 Optional Conversion.
 

 The holders of the Series D Preferred Stock shall have conversion rights as follows (the “Conversion Rights”):
 

 5.1
 Right to Convert.
 5.1.1
 Conversion Ratio.  Each share of Series D Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and non-assessable shares of Common Stock as is determined by dividing the Series D Original Issuance Price by the then applicable Conversion Price, defined and determined as hereinafter provided, in effect on the date the certificate is surrendered for conversion.  The initial conversion price per share for Series D Preferred Stock shall be the Series D Original Issue Price.  Such Conversion Price shall be adjusted as hereinafter provided.  As of the date hereof, each holder of Series D Preferred Stock will receive one share of Common Stock upon conversion of their shares of Series D Preferred Stock.
 5.1.2
 Termination of Conversion Rights.  In the event of a liquidation, dissolution or winding up of the Corporation or a Deemed Liquidation Event, the Conversion Rights shall terminate at the close of business on the last full day preceding the date fixed for the payment of such amounts distributable on such event to the holders of Series D Preferred Stock.
 5.2
 Fractional Shares.  No fractional shares of Common Stock shall be issued upon the conversion of any share or shares of Series D Preferred Stock.  In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of a share of Common Stock as determined in good faith by the Board of Directors of the Corporation.  Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of Series D Preferred Stock the holder is at the time converting into Common Stock and the aggregate number of shares of Common Stock issuable upon such conversion.
 5.3
 Mechanics of Conversion.
 5.3.1
 Notice of Conversion.  In order for a holder of Series D Preferred Stock to voluntarily convert shares of Series D Preferred Stock into shares of Common Stock, such holder shall surrender the certificate or certificates for such shares of Series D Preferred Stock (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate), at the office of the transfer agent for the Series D Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent), together with written notice that such holder elects to convert all or any number of the shares of the Series D Preferred Stock represented by such certificate or certificates and, if applicable, any event on which such conversion is contingent.  Such notice shall state such holder’s name or the names of the nominees in which such holder wishes the certificate or certificates for shares of Common Stock to be issued.  If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his, her or its attorney duly authorized in writing.  The close of business on the date of 
 

 4
 

 

 
 receipt by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) of such certificates (or lost certificate affidavit and agreement) and notice shall be the time of conversion (the “Conversion Time”), and the shares of Common Stock issuable upon conversion of the shares represented by such certificate shall be deemed to be outstanding of record as of such date.  The Corporation shall, as soon as practicable after the Conversion Time, (i) issue and deliver to such holder of Series D Preferred Stock or to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion in accordance with the provisions hereof and a certificate for the number (if any) of the shares of Series D Preferred Stock represented by the surrendered certificate that were not converted into Common Stock, (ii) pay in cash such amount as provided in Subsection 5.2 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and (iii) pay all declared but unpaid dividends on the shares of Series D Preferred Stock converted.
 5.3.2
 Reservation of Shares.  The Corporation shall at all times when the Series D Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued capital stock, for the purpose of effecting the conversion of the Series D Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Series D Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series D Preferred Stock, the Corporation shall take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to the Certificate of Incorporation.  Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value of the shares of Common Stock issuable upon conversion of the Series D Preferred Stock, the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and non-assessable shares of Common Stock at such adjusted Conversion Price.
 5.3.3
 Effect of Conversion.  All shares of Series D Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares shall immediately cease and terminate at the Conversion Time, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor, to receive payment in lieu of any fraction of a share otherwise issuable upon such conversion as provided in Subsection 5.2 and to receive payment of any dividends declared but unpaid thereon.  Any shares of Series D Preferred Stock so converted shall be returned to the authorized but unissued shares of Preferred Stock but may not be reissued as shares of Series D Preferred Stock, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Series D Preferred Stock accordingly.
 5.3.4
 No Further Adjustment.  Upon any such conversion, no adjustment to the Conversion Price shall be made for any declared but unpaid dividends on the Series D Preferred Stock surrendered for conversion or on the Common Stock delivered upon conversion.
 

 5
 

 

 
 
 5.3.5
 Taxes.  The Corporation shall pay any and all issue and other similar taxes that may be payable in respect of any issuance or delivery of shares of Common Stock upon conversion of shares of Series D Preferred Stock pursuant to this Section 5.  The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Common Stock in a name other than that in which the shares of Series D Preferred Stock so converted were registered, and no such issuance or delivery shall be made unless and until the person or entity requesting such issuance has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.
 5.4
 Adjustments to Conversion Price for Diluting Issues.
 5.4.1
 Special Definitions.  For purposes of this Certificate of Designations, the following definitions shall apply:
 a.
 “Option” shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.
 b.
 “Original Issue Date” shall mean the date on which the first share of the Series D Preferred Stock was issued.
 c.
 “Convertible Securities” shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock, but excluding Options.
 d.
 “Additional Shares of Common Stock” shall mean all shares of Common Stock issued (or, pursuant to Subsection 5.4.3 below, deemed to be issued) by the Corporation after the Original Issue Date, other than the following shares of Common Stock, and shares of Common Stock deemed issued pursuant to the following Options and Convertible Securities (collectively “Exempted Securities”):
 i.
 shares of Common Stock, Options or Convertible Securities issued as a dividend or distribution on Series D Preferred Stock;
 ii.
 shares of Common Stock issued upon conversion of the Series D Preferred Stock;
 iii.
 shares of Common Stock, Options or Convertible Securities issued by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock that is covered by Subsection 5.5, 5.6, 5.7 or 5.8; 
 iv.
 shares of Common Stock or Options issued to employees or directors of, or consultants or advisors to, the Corporation or any of its subsidiaries pursuant to a plan, agreement or arrangement approved by the Board of Directors of the Corporation;
 v.
 shares of Common Stock or Convertible Securities actually issued upon the exercise of Options or shares of Common Stock actually issued upon the conversion or exchange of Convertible Securities, in each case provided such issuance is pursuant to the terms of such Option or Convertible Security;
 

 6
 

 

 
 
 vi.
 shares of Common Stock, Options or Convertible Securities issued to banks, equipment lessors or other financial institutions, brokers, or to real property lessors, pursuant to a debt financing, equipment leasing, real property leasing transaction or similar transaction, the principal purpose of which is other than the raising of capital through the sale of equity securities of the Corporation and the terms of which are approved by the Board of Directors of the Corporation;
 vii.
 shares of Common Stock, Options or Convertible Securities issued pursuant to the acquisition of another corporation by the Corporation by merger, purchase of substantially all of the assets or other reorganization or to a joint venture agreement, provided, that such issuances are approved by the Board of Directors of the Corporation; or
 viii.
 shares of Common Stock, Options or Convertible Securities issued to third parties in conjunction with services rendered, asset acquisitions, licenses of technology or strategic partnerships, the principal purpose of which is other than the raising of capital through the sale of equity securities of the Corporation and the terms of which are approved by the affirmative vote of the Board of Directors of the Corporation.
 5.4.2
 No Adjustment of Conversion Price on Agreement of Preferred Stock Holders.  No adjustment in the Conversion Price shall be made as the result of the issuance or deemed issuance of Additional Shares of Common Stock if the Corporation receives written notice from the holders of a majority of the then outstanding shares of Series D Preferred Stock agreeing that no such adjustment shall be made as the result of the issuance or deemed issuance of such Additional Shares of Common Stock.  
 5.4.3
 Deemed Issue of Additional Shares of Common Stock.  
 a.
 If the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities (excluding Options or Convertible Securities which are themselves Exempted Securities) or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions to exercisability, convertibility or exchangeability but without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date.
 b.
 If the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to the Conversion Price pursuant to the terms of Subsection 5.4.4, are revised as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any such Option or Convertible 
 

 7
 

 

 
 Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion and/or exchange, then, effective upon such increase or decrease becoming effective, the Conversion Price computed upon the original issue of such Option or Convertible Security (or upon the occurrence of a record date with respect thereto) shall be readjusted to such Conversion Price as would have been obtained had such revised terms been in effect upon the original date of issuance of such Option or Convertible Security.  Notwithstanding the foregoing, no readjustment pursuant to this clause (b) shall have the effect of increasing the Conversion Price to an amount which exceeds the lower of (i) the Conversion Price in effect immediately prior to the original adjustment made as a result of the issuance of such Option or Convertible Security, or (ii) the Conversion Price that would have resulted from any issuances of Additional Shares of Common Stock (other than deemed issuances of Additional Shares of Common Stock as a result of the issuance of such Option or Convertible Security) between the original adjustment date and such readjustment date.
 c.
 If the terms of any Option or Convertible Security (excluding Options or Convertible Securities which are themselves Exempted Securities), the issuance of which did not result in an adjustment to the Conversion Price pursuant to the terms of Subsection 5.4.4 (either because the consideration per share (determined pursuant to Subsection 5.4.5) of the Additional Shares of Common Stock subject thereto was equal to or greater than the Conversion Price then in effect, or because such Option or Convertible Security was issued before the Original Issue Date), are revised after the Original Issue Date as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any such Option or Convertible Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended or adjusted, and the Additional Shares of Common Stock subject thereto (determined in the manner provided in Subsection 5.4.3(a)) shall be deemed to have been issued effective upon such increase or decrease becoming effective.
 d.
 Upon the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security (or portion thereof) which resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to the Conversion Price pursuant to the terms of Subsection 5.4.4, the Conversion Price shall be readjusted to such Conversion Price as would have been obtained had such Option or Convertible Security (or portion thereof) never been issued.  
 e.
 If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, is calculable at the time such Option or Convertible Security is issued or amended but is subject to adjustment based upon subsequent events, any adjustment to the Conversion Price provided for in this Subsection 5.4.3 shall be effected at the time of such issuance or amendment based on such number of shares or amount of consideration without regard to any provisions for subsequent adjustments (and any subsequent adjustments shall be treated as provided in clauses (b) and (c) of this Subsection 5.4.3).  If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, cannot be calculated at all at the time such Option or Convertible Security is issued or amended, any adjustment to the Conversion Price that 
 

 8
 

 

 
 would result under the terms of this Subsection 5.4.3 at the time of such issuance or amendment shall instead be effected at the time such number of shares and/or amount of consideration is first calculable (even if subject to subsequent adjustments), assuming for purposes of calculating such adjustment to the Conversion Price that such issuance or amendment took place at the time such calculation can first be made.  
 5.4.4
 Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock.  In the event the Corporation shall at any time after the Original Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Subsection 5.4.3), without consideration or for a consideration per share less than the Conversion Price in effect immediately prior to such issue, then the Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest one-hundredth of a cent) determined in accordance with the following formula:
 CP2 = CP1 * (A + B) ÷ (A + C).
 For purposes of the foregoing formula, the following definitions shall apply: 
 a.
 “CP2” shall mean the Conversion Price in effect immediately after such issue of Additional Shares of Common Stock;
 b.
 “CP1” shall mean the Conversion Price in effect immediately prior to such issue of Additional Shares of Common Stock; 
 c.
 “A” shall mean the number of shares of Common Stock outstanding immediately prior to such issue of Additional Shares of Common Stock (treating for this purpose as outstanding all shares of Common Stock issuable upon exercise of Options outstanding immediately prior to such issue or upon conversion or exchange of Convertible Securities (including the Preferred Stock) outstanding (assuming exercise of any outstanding Options therefor) immediately prior to such issue); 
 d.
 “B” shall mean the number of shares of Common Stock that would have been issued if such Additional Shares of Common Stock had been issued at a price per share equal to CP1 (determined by dividing the aggregate consideration received by the Corporation in respect of such issue by CP1); and
 e.
 “C” shall mean the number of such Additional Shares of Common Stock issued in such transaction. 
 5.4.5
 Determination of Consideration.  For purposes of this Subsection 5.4, the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows:
 a.
 Cash and Property:  Such consideration shall:
 i.
 insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation, excluding amounts paid or payable for accrued interest;
 

 9
 

 

 
 
 ii.
 insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors of the Corporation; and
 iii.
 in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (i) and (ii) above, as determined in good faith by the Board of Directors of the Corporation.
 b.
 Options and Convertible Securities.  The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Subsection 5.4.3, relating to Options and Convertible Securities, shall be determined by dividing
 i.
 the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by
 ii.
 the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities.
 5.4.6
 Multiple Closing Dates.  In the event the Corporation shall issue on more than one date Additional Shares of Common Stock that are a part of one transaction or a series of related transactions and that would result in an adjustment to the Conversion Price pursuant to the terms of Subsection 5.4.4, and such issuance dates occur within a period of no more than ninety (90) days from the first such issuance to the final such issuance, then, upon the final such issuance, the Conversion Price shall be readjusted to give effect to all such issuances as if they occurred on the date of the first such issuance (and without giving effect to any additional adjustments as a result of any such subsequent issuances within such period).
 5.5
 Adjustment for Stock Splits and Combinations.  If the Corporation shall at any time or from time to time after the Original Issue Date effect a subdivision of the outstanding Common Stock, the Conversion Price for the Series D Preferred Stock in effect immediately before that subdivision shall be proportionately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding.   If the Corporation shall at any time or from time to time after the Original Issue Date combine the outstanding shares of Common Stock, the Conversion Price for the Series D Preferred Stock in effect immediately before the combination shall be proportionately increased 
 

 10
 

 

 
 so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the aggregate number of shares of Common Stock outstanding.  Any adjustment under this subsection shall become effective at the close of business on the date the subdivision or combination becomes effective.
 5.6
 Adjustment for Certain Dividends and Distributions.  In the event the Corporation at any time or from time to time after the Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable on the Common Stock in additional shares of Common Stock, then and in each such event the Conversion Price in effect immediately before such event shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Conversion Price then in effect by a fraction:
 5.6.1
 the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and
 5.6.2
 the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.
 Notwithstanding the foregoing, (a) if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Conversion Price shall be adjusted pursuant to this Subsection as of the time of actual payment of such dividends or distributions; and (b) that no such adjustment shall be made if the holders of the Series D Preferred Stock simultaneously receive a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock as they would have received if all outstanding shares of Series D Preferred Stock had been converted into Common Stock on the date of such event.
 5.7
 Adjustments for Other Dividends and Distributions.  In the event the Corporation at any time or from time to time after the Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation (other than a distribution of shares of Common Stock in respect of outstanding shares of Common Stock) or in other property and the provisions of Section 1 do not apply to such dividend or distribution, then and in each such event the holders of Series D Preferred Stock shall receive, simultaneously with the distribution to the holders of Common Stock, a dividend or other distribution of such securities or other property in an amount equal to the amount of such securities or other property as they would have received if all outstanding shares of Series D Preferred Stock  had been converted into Common Stock on the date of such event.
 5.8
 Adjustment for Merger or Reorganization, etc.  Subject to the provisions of Subsection 3.3, if there shall occur any reorganization, recapitalization, reclassification, consolidation or merger involving the Corporation in which the Common Stock (but not the Series D Preferred Stock) is converted into or exchanged for securities, cash or other property (other than a transaction covered by Subsections 5.4, 5.6 or 5.7), then, following any such reorganization, recapitalization, reclassification, consolidation, or merger each share of Series D Preferred Stock shall thereafter be convertible in lieu of the Common Stock into which it was convertible prior to such event into the kind and amount of securities, cash or other property which a holder of the number of shares of Common Stock of the 
 

 11
 

 

 
 Corporation issuable upon conversion of one share of Series D Preferred Stock immediately prior to such reorganization, recapitalization, reclassification, consolidation, or merger would have been entitled to receive pursuant to such transaction; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors of the Corporation) shall be made in the application of the provisions in this Section 5 with respect to the rights and interests thereafter of the holders of the Preferred Stock, to the end that the provisions set forth in this Section 5 (including provisions with respect to changes in and other adjustments of the respective Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of the Series D Preferred Stock.
 5.9
 Written Notice as to Adjustments.  Upon the occurrence of each adjustment or readjustment of the Conversion Price for the outstanding shares of Series D Preferred Stock pursuant to this Section 5, the Corporation at its expense shall, as promptly as reasonably practicable but in any event not later than ten (10) days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series D Preferred Stock a written notice setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into which the Series D Preferred Stock is convertible) and showing in detail the facts upon which such adjustment or readjustment is based.  The Corporation shall, as promptly as reasonably practicable after the written request at any time of any holder of Series D Preferred Stock (but in any event not later than ten (10) days thereafter), furnish or cause to be furnished to such holder a written notice setting forth (a) the respective Conversion Price then in effect, and (b) the number of shares of Common Stock and the amount, if any, of other securities, cash or property which then would be received upon the conversion of the Series D Preferred Stock.
 5.10
 Notice of Record Date.  In the event:
 5.10.1
 the Corporation shall take a record of the holders of its Common Stock (or other capital stock or securities at the time issuable upon conversion of the Series D Preferred Stock) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of capital stock of any class or any other securities, or to receive any other security; or
 5.10.2
 of any capital reorganization of the Corporation, any reclassification of the Common Stock of the Corporation, or any Deemed Liquidation Event; or
 5.10.3
 of the voluntary or involuntary dissolution, liquidation or winding-up of the Corporation,
 then, and in each such case, the Corporation will send or cause to be sent to the holders of the Series D Preferred Stock a notice specifying, as the case may be, (i) the record date for such dividend, distribution or right, and the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is proposed to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other capital stock or securities at the time issuable upon the conversion of the Series D Preferred Stock) shall be entitled to exchange their shares of Common Stock (or such other capital stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up, and the amount per share and character of such exchange applicable to the Series D Preferred Stock and the Common Stock.  Such notice shall be sent at least ten (10) days prior to the record date or effective date for the event specified in such notice.  
 

 12
 

 

 
 
 6.
 Mandatory Conversion.
 6.1
 Trigger Events.  Upon either (a) the giving of such notice to the holders of the Series D Preferred Stock following a Share Trigger Date, or (b) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of a majority of the then outstanding shares of Series D Preferred Stock, all outstanding shares of Series D Preferred Stock shall automatically be converted into shares of Common Stock, at the then effective Conversion Price and (ii) such shares may not be reissued by the Corporation upon the occurrence of (a) or (b) above.  As used herein, “Share Trigger Date” shall mean the date that the Closing Sale Price (as defined below) of the Common Stock equals or exceeds the greater of $4.50 or 1.5 times the then-applicable Conversion Price (as may be adjusted pursuant to Section 5) for a period of ten (10) consecutive trading days.  The term “Closing Sale Price” shall mean the last closing price of the Common Stock on the OTCQB or similar quotation service or other principal trading market on which the Common Stock is traded as reported by the quotation service or exchange.  If the Closing Sale Price cannot be calculated for the Common Stock on such date on any of the foregoing bases, the Closing Sale Price of such security on such date shall not be deemed to equal or exceed the price required for a Share Trigger Date to occur.  The time of such notice or the time of the event specified in such vote or written consent is referred to herein as the “Mandatory Conversion Time.”  
 6.2
 Procedural Requirements.  All holders of record of shares of Series D Preferred Stock shall be sent written notice of the Mandatory Conversion Time and the place designated for mandatory conversion of all such shares of Series D Preferred Stock pursuant to this Section 6.  Such notice need not be sent in advance of the occurrence of the Mandatory Conversion Time.  All rights with respect to the Series D Preferred Stock converted pursuant to Section 6.1, including the rights, if any, to receive notices and vote (other than as a holder of Common Stock), will terminate at the Mandatory Conversion Time, except only the rights of the holders thereof to receive the items provided for in the next sentence of this Subsection 6.2.  As soon as practicable after the Mandatory Conversion Time for Series D Preferred Stock, the Corporation shall issue and deliver to such holder, or to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof, together with cash as provided in Subsection 5.2 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion, and any Accruing Dividends accrued but unpaid on the shares of Series D Preferred Stock converted, whether or not declared, as well as any declared but unpaid dividends thereon, at the election of the Corporation, shall be paid in either cash or additional whole shares of Common Stock (with cash in lieu of fractional shares) valued at the Closing Sale Price, or any combination of the foregoing.  Such converted Series D Preferred Stock shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Series D Preferred Stock accordingly.
 7.
 Rank of Series D Preferred Stock.  The Series D Preferred Stock shall rank on a parity with the Series A Preferred Stock, the Series B Preferred Stock, and the Series C Preferred Stock and shall rank senior to the Common Stock, and to all other classes and series of equity securities of the Company that by their terms do not rank senior to or on parity with the Series D Preferred Stock.  The Series D Preferred Stock shall be subordinate to and rank junior to all indebtedness of the Company now or hereafter outstanding.
 8.
 Redemption.  The Series D Preferred Stock is not redeemable by the Corporation.
 

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 9.
 Acquired Shares.  Any shares of Series D that are acquired by the Corporation or any of its subsidiaries shall be automatically and immediately cancelled and retired and shall be returned to the authorized but unissued shares of Preferred Stock.  Neither the Corporation nor any of its subsidiaries may exercise any voting or other rights granted to the holders of Series D following acquisition.
 10.
 Waiver.  Any of the rights, powers, preferences and other terms specific to the Series D Preferred Stock set forth herein may be waived on behalf of all holders of Series D Preferred Stock by the affirmative written consent or vote of the holders of a majority of the shares of Series D Preferred Stock then outstanding, voting as a separate class.  All other rights, powers, preferences and other terms set forth herein may be waived on behalf of all holders of Series D Preferred Stock by the affirmative written consent or vote of the holders of a majority of the shares of Common Stock represented by the outstanding shares of Preferred Stock as if all shares of such class or series had been converted into Common Stock.
 11.
 Notices.  Any notice required or permitted by the provisions of this Certificate of Designations to be given to a holder of shares of Series D Preferred Stock shall be mailed, postage prepaid, to the post office address last shown on the records of the Corporation, or given by electronic communication in compliance with the provisions of the General Corporation Law of the State of Delaware, and shall be deemed sent upon such mailing or electronic transmission.    
 12.
 Specific Shall Not Limit General; Construction.  No specific provision contained in this Certificate of Designation shall limit or modify any more general provision contained herein.  This Certificate of Designation shall be deemed to be jointly drafted by the Company and all initial purchasers of the Series D Preferred Stock and shall not be construed against any person as the drafter hereof.
 

 

 

 

 

 

 

 

 

 

 

 

 

 14
 

 

 
 

 

 EXHIBIT I
 HEATWURX, INC.
CONVERSION NOTICE
 Reference is made to the Certificate of Designations, Preferences and Rights of Series D 8% Convertible Preferred Stock of Heatwurx, Inc. (the “Certificate of Designation”).  In accordance with and pursuant to the Certificate of Designation, the undersigned hereby elects to convert the number of shares of Series D Preferred Stock, par value $.0001 per share (the “Preferred Stock”), of Heatwurx, Inc., a Delaware corporation (the “Company”), indicated below into shares of Common Stock, par value $.0001 per share (the “Common Stock”), of the Company, by tendering the stock certificate(s) representing the share(s) of Preferred Stock specified below as of the date specified below.
 Date of Conversion:  _______________________________________________________
 Number of shares of Preferred Stock to be converted:
   _____________________________
 Stock certificate no(s). of Preferred Stock to be converted: __________________________
 The shares of Common Stock issuable upon such conversion have been sold pursuant to the Registration Statement:   YES ____  NO____
 Please confirm the following information:
 Conversion Price:  _________________________________________________________
 Number of shares of Common Stock to be issued:  _____________________________________
 Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on the Date of Conversion:  __________________________________________________________
 Please issue the Common Stock into which the shares of Preferred Stock are being converted and, if applicable, any check drawn on an account of the Company, in the following name and to the following address:
 Issue to:
 ____________________________________
 ____________________________________
 Email Address or Facsimile Number:
 ____________________________________
 Authorization:
 ____________________________________
 By:  _________________________________
 Title:  _______________________________
 Dated:

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