Document:

Document

Exhibit 10.2

[Certain identified information has been omitted from this document because it is not material and would be competitively harmful if publicly disclosed; such omissions have been marked with “[***]”.]

FIFTH AMENDMENT TO RETAILER PROGRAM AGREEMENT
(Sleep Number)

THIS FIFTH AMENDMENT TO RETAILER PROGRAM AGREEMENT (this “Amendment”) is
entered into as of July 15, 2022, and amends that certain Retailer Program Agreement, made as of January 1, 2014 (as amended, modified and supplemented from time to time, the “Agreement”), by and between Synchrony Bank (“Bank”) Sleep Number Corporation, formerly known as Select Comfort Corporation (“Sleep Number”), and Select Comfort Retail Corporation (“SCRC” and collectively with Sleep Number, “Retailer”). Capitalized terms used herein and not otherwise defined have the meanings given them in the Agreement.

WHEREAS, Bank and Retailer entered into that certain First Amendment to Retailer Program Agreement dated as of September 29, 2014 (the “First Amendment”), that certain Second Amendment to Retailer Program Agreement dated as of November 4, 2015 (the “Second Amendment”), that certain Third Amendment to Retailer Program Agreement dated as of June 26, 2018 (the “Third Amendment”),  that certain Fourth Amendment to Retailer Program Agreement dated as of December 20, 2019 (the “Fourth Amendment”), and that certain letter agreement related to an Underwriting Pilot date October 21, 2021 (the “Letter Agreement,” and together with the First Amendment, the Second Amendment, the Third Amendment, and the Fourth Amendment, the “Prior Amendments”).

WHEREAS, Bank and Retailer desire to amend the Agreement to extend the Term, adjust exclusivity, adjust certain economic provisions, and consolidate the Prior Amendments, subject to the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual promises and subject to the terms and conditions hereinafter set forth, the parties hereby agree as follows:

I.    AMENDMENTS TO THE AGREEMENT

1.1    Consolidation of the Prior Amendments.  The Prior Amendments are hereby replaced and restated by this Fifth Amendment.  As of August 1, 2022, the Agreement will be deemed amended by this Fifth Amendment only. 

1.2    Discount Refund.  As stated in the Second Amendment, the parties agree to delete Section 6(h) of the Agreement in its entirety and replace it with the following:

(h)     Discount Refund.  Provided that no event has occurred which would allow Bank to terminate this Agreement under Section 19(b), Bank will pay to Retailer a refund of a portion of the Retailer Fees paid (such amount, the “Discount Refund”) in accordance with Schedule 6(h).

1.3    Amendment to Appendix A.  As stated in the Second Amendment, the reference to “Volume Discount” in Appendix A is replaced with a reference to “Discount Refund.”

1.4    Elimination of Credit Review Point.  As stated in the Third Amendment, the parties agree to delete the concept of the Credit Review Point from the Agreement.  Accordingly, Section 5(b) and Section 19(b)(iii), both dealing with the Credit Review Point, are deleted in their entirety, and each marked as “Intentionally Omitted.”

1.5    Addition of New Section 2(f).  The following Section 2(f) is hereby added to the Agreement:

(f)    Use commercially reasonable efforts to continue to strengthen Bank’s information technology infrastructure.  

Exhibit 10.2

1.6    Amendment to Section 5(d).  Section 5(d) added in the Third Amendment is hereby deleted in its entirety and replaced with the following: 

(d)      Expanded Underwriting.  Bank will use commercially reasonable efforts to increase approval rates above and beyond the underwriting criteria Bank has used historically for the Program (as updated from time to time to reflect improved forecasted and changing economic conditions) by [***]; provided that this commitment is conditioned on opened Accounts in any calendar quarter having a distribution of [***] (as measured on a credit line basis) having an applicant Vantage credit score (or Vantage equivalent score) of [***].  Retailer acknowledges that Bank may need to adjust underwriting based on economic conditions or Applicable Law, but, subject to the preceding sentence, Bank will use commercially reasonable efforts to continue to target an approval rate that is [***] than the strategy Bank would otherwise apply to the Program except in extreme circumstances where Bank reasonably forecasts excessive loss rates and is applying similar credit action(s) to similarly situated furniture programs on Bank’s Home and Auto platform.

1.7    Amendment to Section 6(a).  Effective as of August 1, 2022, Section 6(a) is hereby deleted in its entirety and replaced with the following:

(a)    Bank initially will make available under the Program those credit-based promotions and corresponding Retailer Fee Percentages described on the attached Schedule 6(a).  The version of this Section 6(a) that was in effect through July 31, 2022 contained special pricing with a repayment obligation if Retailer exceeded [***] using the specials in any calendar year.  Bank agrees that it will waive its right to collect up to [***] for amounts owed under the prior version of Section 6(a) because Retailer’s use of specials exceeded [***] for the period [***].

1.8    Amendment to Section 6(c).  Section 6(c) is hereby deleted in its entirety and replaced with the following:

(c)    At the end of each calendar year, Bank and Retailer will review and evaluate the effectiveness of the Program generally (including the credit-based promotion sales mix, the overall level of sales charged to Accounts, and Account fraud and credit losses during such period), as well as the performance of each credit-based promotion during such period.  Based on such review, Bank may, after consultation with and notice to Retailer, [***].  In addition, Retailer acknowledges that Bank may modify, terminate, or replace one or more credit-based promotions due to changes in applicable law (including Regulation Z) or regulatory guidance.  

1.9    Amendment to Section 6(e).  Effective as of December 30, 2022, Section 6(e) and all other references are hereby amended by replacing references to “Twelve Month LIBOR” and “Base Twelve Month LIBOR” with “Cost of Funds Index” and “Base Cost of Funds Index,” respectively.

1.10    Amendments to Section 6(i).  The following amendments to Section 6(i) are effective as of December 30, 2022.

(a)    The definition of “Base Twelve Month LIBOR” in Appendix A is hereby deleted and replaced with the following definition for “Base Cost of Funds Index”:
“Base Cost of Funds Index” means [***].
(b)    The definition of “Twelve Month LIBOR” in Appendix A is hereby deleted and replaced with the following definition for “Cost of Funds Index”:
“Cost of Funds Index” means, for any date, the U.S. Treasury Securities at 1-Year Constant Maturity (“1-Year Treasuries”) that are in effect as of the date, as published by the Board of Governors of the Federal Reserve System (US) at:  https://www.federalreserve.gov/releases/h15/ (or if the Board of Governors of the Federal Reserve System (US) ceases to publish the rates on its website in a reliable manner, at another website or publication as Bank may reasonably designate).  If during the Term the 1-Year Treasuries (or any replacement Cost of Funds Index) ceases to be reported, or Bank reasonably determines that the 1-Year Treasuries (or any replacement Cost of Funds Index) is no longer, or will no longer be, a reliable benchmark, then Bank, in its reasonable discretion, may designate an industry-accepted replacement rate (and the medium for the publishing of the replacement rate) and an appropriate base to replace the Base Cost of Funds Index, each as adjusted as necessary to align the replacement index and base to the greatest degree practicable with the index and base being replaced, in each case as reasonably acceptable to Retailer.

1.11    Addition of New Section 6(j).  Effective January 1, 2023, the following new Section 6(j) is hereby added to the Agreement:

(j)    Marketing Fund.  Within 30 days after the beginning of each calendar year, Bank will allocate to the Marketing Fund an amount equal to [***] of the immediately prior calendar year’s Net Program Sales.  

    “Marketing Fund” means a record maintained by Bank that is used to fund the mutually agreed upon costs and expenses of implementing the mutually agreed upon marketing plans for the Program, including agreed upon costs incurred by Bank and Retailer.  Except for the right to require Bank to make payments from such fund from time to time in accordance with this Agreement, Retailer shall have no right, title or interest in or to the Marketing Fund or in or to any amounts which have been allocated thereto. Any amounts previously allocated to the Marketing Fund but not used as of (x) [***], or (y) the date of any notice of termination or non-renewal of the Agreement, may be withdrawn and retained by Bank for its own account without obligation to account therefor to Retailer.  

1.12    Addition of New Section 6(k).  Effective July 1, 2022, the following new Section 6(k) is hereby added to the Agreement:

(j)    Innovation Fund.  Beginning on January 1, 2022, within 30 days after the beginning of each calendar year, Bank will allocate to the Innovation Fund an amount equal to [***].  For clarity, for calendar year 2022, Bank will allocate [***] within 30 days after the Fifth Amendment is fully executed and Retailer will have twelve months from that date to use the funds. 

    “Innovation Fund” means a record maintained by Bank that is used to fund the mutually agreed upon costs and expenses of implementing the mutually agreed upon innovation plans (such as funding dedicated resources and enhancements to the Retailer Website, mobile applications and technology platforms used in connection with the promotion of the Program) for the Program, including agreed upon costs incurred by Bank and Retailer.  Except for the right to require Bank to make payments from such fund from time to time in accordance with this Agreement, Retailer shall have no right, title or interest in or to the Innovation Fund or in or to any amounts which have been allocated thereto. Any amounts previously allocated to the Innovation Fund but not used as of (x) [***], or (y) the date of any notice of termination or non-renewal of the Agreement, may be withdrawn and retained by Bank for its own account without obligation to account therefor to Retailer.     

1.13    Amendment to Section 12(b).  Section 12(b) is hereby deleted in its entirety and replaced with the following:

(b)     Retailer will not finance on Accounts gift certificates, cash cards or stored value cards without the prior written approval of Bank. With respect to any of the foregoing, if Retailer seeks Bank’s consent to finance such products under the Program, Retailer agrees to review with Bank its offering of and procedures concerning the sale and fulfillment of such products.  Retailer will not finance on Accounts any extended warranties or services contracts unless (i) Retailer notifies Bank in advance of its intent to finance any of those products, and (ii) the performance of the extended warranty or service contract, as applicable, is insured by a third-party insurance carrier with an A.M. Best rating of B+ or higher or Bank otherwise consents to the financing of the products. Even where approved by Bank, Retailer shall be responsible for ensuring that any extended warranties, service contracts, gift certificates, cash cards or stored value cards fully comply with all applicable laws. Nothing in this Section shall restrict Retailer from selling products subject to normal manufacturer’s warranties included in the standard purchase price. 

1.14    Amendment to Section 19(a).  Section 19(a) is hereby deleted in its entirety and replaced with the following:

(a)     This Agreement shall continue until the end of the day on December 31, 2028 (the “Term”).  

1.15    Amendment to Section 19(b)(xiii).  Section 19(b)(xiii) is hereby amended by deleting the first sentence and replacing it with the following: “Beginning on [***] and thereafter, if the Cost of Funds Index equals or exceeds [***], Retailer shall have the right to notify Bank that Retailer wishes to review the competitiveness of the Program.”        

1.16    Addition of New Section 23(d).  The following new Section 23(d) is hereby added to the Agreement immediately following Section 23(c):

(d)    Other Financing Products.  Notwithstanding anything to the contrary in this Section 23, [***].

1.17    Amendment to Schedule 6(a).  Effective as of August 1, 2022, Schedule 6(a) is deleted in its entirety and replaced with the new Schedule 6(a) attached as Exhibit 1 to this Amendment.  Effective February 1, 2023, Schedule 6(a) is deleted in its entirety (ie, the Schedule 6(a) attached as Exhibit 1) and replaced with the new Schedule 6(a) attached as Exhibit 2 to the Amendment.

1.18    Amendment to Schedule 6(h).  Effective July 1, 2022, Schedule 6(h) is deleted in its entirety and replaced with the new Schedule 6(h) attached as Exhibit 3 to this Amendment.  For clarity, the Quarterly Growth Discount payable for the quarter ending June 30, 2022 will be governed by the version of Schedule 6(h) that was included in the Third Amendment.  

1.19    Amendment to Appendix B. As stated in the Fourth Amendment, and as amended and restated in this Fifth Amendment, Appendix B is hereby deleted in its entirety and replaced with a new Appendix B attached as Exhibit 4 to this Amendment.

II.    GENERAL

2.1    Authority for Amendment. Retailer represents and warrants to Bank that the execution, delivery and performance of this Amendment has been duly authorized by all requisite corporate action on the part of Retailer and upon execution by all parties, will constitute a legal, binding obligation of Retailer.

2.2    Effect of Amendment. Except as specifically amended hereby, the Agreement, and all terms contained therein, remains in full force and effect. The Agreement, as amended by this Amendment, constitutes the entire understanding of the parties with respect to the subject matter hereof.

2.3    Binding Effect; Severability. Each reference herein to a party hereto shall be deemed to include its successors and assigns, all of whom shall be bound by this Amendment and in whose favor the provisions of this Amendment shall inure. In case any one or more of the provisions contained in this Amendment shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby.

2.4    Further Assurances. The parties hereto agree to execute such other documents and instruments and to do such other and further things as may be necessary or desirable for the execution and implementation of this Amendment and the consummation of the transactions contemplated hereby and thereby.

2.5    Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of Utah, without regard to principles of conflicts of laws.

2.6    Counterparts. This Amendment may be executed in counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one agreement.

IN WITNESS WHEREOF, the parties have caused this Fifth Amendment to be executed by their respective duly authorized officers to be effective as provided herein. The parties expressly consent and agree that this Amendment may be electronically signed. The parties agree that electronic signatures appearing on this Amendment shall be treated, for purposes of validity, enforceability and admissibility, the same as hand-written signatures.

						
	SYNCHRONY BANK

By: \s\ Curtis L. Howse
Its: EVP, CEO Home & Auto
	SLEEP NUMBER CORPORATION
SELECT COMFORT RETAIL CORPORATION

By: \s\ David R. Callen
Its: CFO

    
Exhibit 1

SCHEDULE 6(a)
to
Retailer Program Agreement

Initial Approved Credit-Based Promotions

A.    Non-Promotional Credit Offer: Retailer Fee Percentage: [***]

B.    Credit-Based Promotions:

Standard Retailer Fee Percentages at [***]

												
	Promotion Term in Months	Retailer Fee Percentage
		With Pay/Deferred Interest	0% APR Equal Payments	5.99% APR Fixed Payments
	6 Months	[***]	N/A	N/A
	12 Months	[***]	N/A	N/A
	18 Months	[***]	[***]	N/A
	24 Months	[***]	[***]	N/A
	36 Months	N/A	[***]	[***]
	48 Months	N/A	[***]	[***]
	60 Months	N/A	[***]	[***]
	72 Months	N/A	[***]	[***]

    Retailer Fee Percentages for promotions of durations that are not listed in the table above (e.g, a 30 month promotion) will be interpolated (using Bank’s standard interpolation algorithm) from the value above.

The Retailer Fee Percentages set forth above are subject to revision as set forth in Sections 6(c) and 6(e).  The actual rates that will be charged on August 1, 2022 will be based on the Twelve Month LIBOR value as of June 30, 2022.  These rates above will be adjusted as set forth in Section 6(e); provided that the rates charged will be based on a reduction of [***] (where each “click” is defined as a 25 basis point increase or decrease in the Twelve Month LIBOR).  So if the [***] as of June 30, 2022, the rates above will be reduced assuming a [***].  Retailer acknowledges that this waiver will only apply to the cost of funds adjustments that occur [***].  The rates that will be effective on February 1, 2023 will be subject to a different cost of funds index and base rates that are included in a replacement Schedule 6(a) that is attached as Exhibit 2 to the Fifth Amendment.

C.    Sample Calculations.  Below is a chart that shows sample rates depending on the Twelve Month LIBOR and number of “clicks” reduced.  On June 30, 2022, the Twelve Month LIBOR was 3.62%.  So the column [***].

[***]

Exhibit 2

SCHEDULE 6(a)
to
Retailer Program Agreement

Initial Approved Credit-Based Promotions

A.    Non-Promotional Credit Offer: Retailer Fee Percentage: [***]

B.    Credit-Based Promotions:

Standard Retailer Fee Percentages at Base Cost of Funds Index of [***]

												
	Promotion Term in Months	Retailer Fee Percentage
		With Pay/Deferred Interest	0% APR Equal Payments	5.99% APR Fixed Payments
	6 Months	[***]	N/A	N/A
	12 Months	[***]	N/A	N/A
	18 Months	[***]	[***]	N/A
	24 Months	[***]	[***]	N/A
	36 Months	N/A	[***]	[***]
	48 Months	N/A	[***]	[***]
	60 Months	N/A	[***]	[***]
	72 Months	N/A	[***]	[***]

•Retailer Fee Percentages for promotions of durations that are not listed in the table above (e.g, a 30 month promotion) will be interpolated (using Bank’s standard interpolation algorithm) from the value above.

The Retailer Fee Percentages set forth above are subject to revision as set forth in Sections 6(c) and 6(e).  The actual rates that will be charged on February 1, 2023 will be based on the Cost of Funds Index value as of December 30, 2022.  These rates above will be adjusted as set forth in Section 6(e).

C.    Sample Calculations.  Below is a table that shows sample rates depending on the Base Cost of Funds Index (12 Month U.S. Treasuries).  On June 30, 2022, the Cost of Funds Index (12 Month U.S. Treasuries) was 2.80%.  Assuming that the Base Cost of Funds Index remains the same on December 30, 2022, the pricing that would apply on February 1, 2023 would be the pricing [***].  

[***]

Exhibit 3

SCHEDULE 6(h)
to
Retailer Program Agreement

Discount Refund

1.    Annual Discount Refund.  Beginning with Net Program Sales for 2022, within thirty (30) days after the end of each calendar year, Bank will pay to Retailer a refund of a portion of the Retailer Fees paid (such amount, the “Annual Discount Refund”) in the immediately preceding calendar year according to the following schedule:

						
	If Net Program Sales (rounded to the nearest dollar) are:	Annual Discount Refund (discount from Retailer Fee Percentage) per each calendar year is:
	[***]	[***]
	[***]	[***]
	[***]	[***]
	[***]	[***]
	[***]	[***]
	[***]	[***]
	[***]	[***]
	[***]	[***]
	[***]	[***]
	[***]	[***]
	[***]	[***]
	[***]	[***]
	[***]	[***]
	[***]	[***]
	[***]	[***]
	[***]	[***]
	[***]	[***]
	[***]	[***]

2.    Quarterly Growth Discount Refund.  Beginning with the calendar quarter that starts on July 1, 2022, within thirty (30) days after the end of each calendar quarter, Bank will pay to Retailer a refund of a portion of the Retailer Fees paid (“Quarterly Growth Discount Refund”) based on year over year same quarter growth of Net Program Sales expressed as a percentage rounded to the nearest basis point (“Quarterly Program Growth”) according to the following schedule:

						
	If Quarterly Program Growth is:	Quarterly Growth Discount Refund (discount from Retailer Fee Percentage) during such calendar quarter is:
	[***]	[***]
	[***]	[***]
	[***]	[***]
	[***]	[***]
	[***]	[***]
	[***]	[***]

3.    For purposes of this Schedule, Net Program Sales shall have the same meaning set forth in Section 6(i) of the Agreement.  Notwithstanding anything to the contrary, in no event will the net Retailer Fee Percentages, taking into account the Annual Discount Refund and Quarterly Growth Discount Refund, be less than 0.00%.  For example, if the Retailer Fee Percentage for the 6 Month WPDI credit-based promotion is [***].

    Exhibit 4

APPENDIX B FINANCIAL COVENANTS

I.    FINANCIAL COVENANTS

Net Leverage Ratio. Retailer shall not permit the Net Leverage Ratio, as of the end of any quarterly reporting period, to exceed 4.50 to 1.00.

Interest Coverage Ratio. Retailer shall not permit, as of the end of any quarterly reporting period, the Interest Coverage Ratio to be less than 3.00 to 1.00.

II.    REPORTING

In order to establish compliance with the Financial Covenants set forth above, Retailer will use commercially reasonable efforts to deliver to Bank (i) within forty-five (45) days after the end of each of the first three (3) fiscal quarters of each fiscal year of the Retailer, a certificate, signed by the Chief Financial Officer of Retailer or Retailer’s chief accounting officer or such other officer of the Retailer as Retailer shall designate and in a form satisfactory to Bank, establishing Retailer’s compliance or non- compliance with the Financial Covenants for such fiscal quarter, and (ii) within ninety (90) days after the end of the fourth fiscal quarter of each fiscal year of the Retailer, a certificate, signed by the Chief Financial Officer of Retailer or Retailer’s chief accounting officer or such other officer of the Retailer as Retailer shall designate and in a form satisfactory to Bank, establishing Retailer’s compliance or noncompliance with the Financial Covenants for such fiscal quarter. Each certificate will include a detailed calculation illustrating the Net Leverage Ratio and Interest Coverage Ratio as of the end of the applicable period. Unless otherwise specifically set forth to the contrary, all financial calculations contemplated herein shall be performed in accordance with GAAP.

III.    DEFINITIONS

"Net Leverage Ratio" shall (a) have the same meaning as is ascribed to the term “Net Leverage Ratio” in that certain Amended and Restated Credit and Security Agreement dated as of February 14, 2018, as amended from time to time, with Sleep Number Corporation as the Borrower and U.S. Bank National Association as the Administrative Agent (the “Credit Agreement”) and (b) be determined in same the way as the Net Leverage Ratio is determined under the Credit Agreement. If the definition of Net Leverage Ratio, or any underlying defined terms that make up the definition, are changed in the Credit Agreement, Retailer will inform Bank of any proposed changes and if Bank agrees to the proposed changes in writing, the definition of Net Leverage Ratio for purposes of this Agreement will change also. Bank will not unreasonably withhold its consent to any proposed changes in the definition of Net Leverage Ratio. 

“GAAP” means generally accepted accounting principles applicable in the United States, consistently applied; provided that, notwithstanding any other provision contained herein, (a) all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made without giving effect to (i) any election under Accounting Standards Codification Section 825-10-25 (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any indebtedness or other liabilities of Retailer or any of its subsidiaries at “fair value”, as defined therein, or (ii) any treatment of indebtedness in respect of convertible debt instruments under Financial Accounting Standards Codification Subtopic 470-20 (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any such indebtedness in a reduced or bifurcated manner as described therein, and such indebtedness shall at all times be valued at the full stated principal amount thereof and (b) the definitions set forth in this Agreement and any financial calculations required hereunder shall be computed to exclude any change to lease accounting rules from those in effect pursuant to Financial Accounting Standards Board Accounting Standards Codification 840 (Leases) and other related lease accounting guidance as in effect on the date hereof, and provided further that, if any change to GAAP after the date hereof shall materially affect computations determining compliance with the financial ratios and covenants set forth herein or otherwise in the Agreement, if either Bank or Retailer shall so request, the Bank and Retailer shall negotiate in good faith to amend such ratios or covenants to preserve the original intent thereof in light of such change in GAAP; and until so amended, (a) such ratio or restriction shall continue to be computed in accordance with GAAP prior to such change therein (subject to the foregoing first proviso) and (b) Retailer shall provide to the Bank financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratios or restrictions made before and after giving effect to such change.

"Interest Coverage Ratio" shall (a) have the same meaning as is ascribed to the term “Interest Coverage Ratio” in the Credit Agreement and (b) be determined in the same way as the Interest Coverage Ratio is determined under 

the Credit Agreement. If the definition of Interest Coverage Ratio, or any underlying defined terms that make up the definition, are changed in the Credit Agreement, Retailer will inform Bank of any proposed changes and if Bank agrees to the proposed changes in writing, the definition of Interest Coverage Ratio for purposes of this Agreement will change also. Bank will not unreasonably withhold its consent to any proposed changes in the definition of Interest Coverage Ratio.Exhibit 10.1

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE LAW, AND NO INTEREST OR PARTICIPATION HEREIN MAY BE SOLD, DISTRIBUTED,
ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS COVERING ANY SUCH TRANSACTION OR AN EXEMPTION THEREFROM.

 

AMENDED AND RESTATED

SECURED LINE OF CREDIT PROMISSORY NOTE

 

	$3,500,000.00	August 4, 2022
	 	Portland, Oregon

 

PREMISES:

 

	A.	The Company and the Holder identified below executed a Secured Line of Credit Promissory Note dated March
21, 2022 (the “Note”). The Company’s obligations thereunder were guaranteed by the Company’s subsidiary,
Craft Canning + Bottling LLC in a Secured Guaranty dated March 31, 2022.
	 	 
	B.	The Holder has advanced a total of $3,000,000 to the Company pursuant to the Note, and the principal balance
of the Note as of the date of this Amended and Restated Secured Line of Credit Promissory Note (the Á&R Note”)
is $3,000,000.
	 	 
	C.	The parties wish to amend the Note to increase the line of credit to $3,500,000 and further wish to provide
for an additional advance of $500,000 from Holder to Company, which will increase the principal balance to $3,500,000.
	 	 
	D.	To effectuate the aforesaid amendment, the parties are entering into this A&R Note.

 

*     *      *      *      *

 

FOR VALUE RECEIVED, EASTSIDE DISTILLING,
INC., a Nevada corporation (the “Company”), hereby promises to pay to the order of TQLA, LLC, a California limited
liability company (“Holder”), the aggregate principal amount up to Three Million Five Hundred Thousand Dollars ($3,500,000.00),
together with the Commitment Fee described herein, together with interest on the aggregate principal balance (which shall not include
the Commitment Fee), all as set forth in this Amended and Restated Secured Promissory Note (this “A&R Note”).

 

1. Payments and Advances.

 

(a) Interest Rate.
The unpaid principal balance of this A&R Note will bear interest at 9.25% per annum. Interest shall commence with the date of
the Note (i.e. March 31, 2022, the”Loan Date”) and shall continue on the outstanding principal amount of this A&R
Note until this A&R Note is paid or otherwise satisfied in full. Interest will be computed on the basis of a 365-day year and
the actual days elapsed and will be compounded annually. If any Event of Default, as defined in Section 2, occurs, then during the
continuance of the Event of Default, all principal under this A&R Note shall bear interest on each day outstanding at the lesser
of (i) eighteen percent (18%) per annum compounded quarterly or (ii) the highest lawful rate in effect on such day (i) and (ii)
apply the “Default Rate.”

 

    	 

    	 

    

 

(b) Commitment
Fee. In consideration of undertakings by Holder herein, Company will pay to Holder a fee in a variable amount (the “Commitment Fee”).
If paid in full by Company on or before June 30, 2022, the Commitment Fee shall be Seventy-Five Thousand Dollars ($75,000). If paid in
full by Company during the period from July 1, 2022 through September 30, 2022, the Commitment Fee shall be Ninety-Seven Thousand Five
Hundred Dollars ($97,500). If paid by Company during the period from October 1, 2022 through December 31, 2022, the Commitment Fee shall
be One Hundred Twenty Thousand Dollars ($120,000). If paid by Company during the period from January 1, 2023 through the Maturity Date,
the Commitment Fee shall be One Hundred Forty-Two Thousand Five Hundred Dollars ($142,000).

 

(c) Repayment
of Principal and Interest.

 

(i) All
payments of interest and principal on the A&R Note and the Commitment Fee shall be in lawful money of the United States of America
by wire transfer of immediately available funds to the Holder’s account at a bank specified by Holder in writing to the Payor from
time to time. All payments on this A&R Note under this Section 1(c) will be applied to accrued and unpaid interest that is due and
payable, then to the Commitment Fee, then to accrued and unpaid interest not yet payable, and thereafter to outstanding principal. Whenever
any payment hereunder shall be stated to be due on a day other than a business day, such payment will be made on the next succeeding business
day, and such extension of time will in such case be included in the computation of payment of interest.

 

(ii) Company
covenants to use its best efforts during the ninety days following the execution of this A&R Note (the “Supplement Period”)
to sell barrels and/or equipment and other assets for the purpose of repaying the Supplement Advance (defined in Section 1(e)) prior to
the conclusion of the Supplement Period. Until the amount of the Supplement Advance and all interest accrued thereon has been paid to
Holder, all proceeds received by the Company from the sale of assets outside the ordinary course of business during and after the Supplement
Period will be promptly forwarded to Holder in payment of Company’s obligation hereunder.

 

(iii) All
unpaid principal, together with any then unpaid and accrued interest, and the Commitment Fee will be due and payable in cash on one year
from the Loan Date (the “Maturity Date”). Accrued interest will be paid in arrears in cash on the last business day
of every three calendar months from the Loan Date commencing on the first such date to occur after the Loan Date.

 

(iv) Company
may obtain a 6-month extension from the Maturity Date by paying an extension fee equal to one percent (1%) of the then principal balance.
However, Holder shall have no obligation to extend the Maturity Date if: (a) the Company is in default under the terms of this A&R
Note; (b) the Company has applied funds provided pursuant to this A&R Note for purposes other than those set forth in a borrowing
request approved by Holder in accordance with Section 5; (c) the outstanding principal totals Three Million and No Dollars ($3,000,000)
or more; (d) the Company has not paid the Commitment Fee in full, or (e) Holder in good faith believes itself insecure.

 

(d) Prepayment.
The Company may prepay this A&R Note at any time in whole or in part, without the consent of Holder and without premium or penalty.

 

(e) Advances.
This A&R Note evidences a revolving line of credit. Holder has advanced $3,000,000 pursuant to the Note and Holder will advance an
additional $500,000 (the “Supplemental Advance”) immediately after the execution of this A&R Note. The advances
made pursuant to the Note and pursuant to the A&R Note shall be deemed principal under this A&R Note. It is unnecessary for the
Company to execute any further notes to evidence the obligation of the Company to pay the amount of the advances together with interest
thereon as provided in this A&R Note.

 

    	 

    	 

    

 

2. Default.

 

(a) Event
of Default. The occurrence of any of the following will constitute an “Event of Default” under this A&R Note:

 

(i) The
Company fails to pay timely amounts when due under this A&R Note, and such failure continues for ten (10) days following written notice
of non-payment; provided that notice of non-payment shall not be required as a condition to an Event of Default if the Company fails to
pay Holder the entire amount of outstanding principal, the Commitment Fee, and any remaining accrued interest in full on or prior to the
Maturity Date;

 

(ii) The
Company files any petition or action for relief under any bankruptcy, reorganization, insolvency or moratorium law or any other law for
the relief of, or relating to, debtors, now or hereafter in effect, or makes any assignment for the benefit of creditors;

 

(iii) An
involuntary petition is filed against the Company (unless such petition is dismissed or discharged within sixty (60) days under any bankruptcy
statute now or hereafter in effect), or a custodian, receiver, trustee, assignee for the benefit of creditors (or other similar official)
is appointed to take possession, custody or control of any property of the Company;

 

(iv) Company
breaches any representation or warranty in any material respect or otherwise fails to perform or observe any covenant or agreement in
any material respect set forth in this A&R Note and such failure continues for twenty (20) days following written notice from Holder;

 

(v) The
sale, transfer, pledge, hypothecation or liquidation of all or subsequently all of the assets or equity securities of Company;

 

(vi) The
merger of Company with another corporation or other legal entity if (a) the Company is not the surviving entity or (b) there is a the
transfer of 15% or more of Company’s outstanding shares to another owner or owners within a 6 month period of time or (c) there
is a change in 50% or more of the existing Board of Directors of Company within one year of the Loan Date; or

 

(vii) Company
is liquidated or winds up its affairs.

 

(b) Rights
of Holder Upon Default. If there shall be any Event of Default under Section 2(a)(i), after the expiration of any required notice
or cure period, this A&R Note shall accelerate and all unpaid principal and interest, if any, shall become immediately due and payable
upon notice of acceleration from Holder to the Company. If there shall be any Event of Default under Sections 2(a)(ii), 2(a)(iii), or
(2(a)(v)-(vii) this A&R Note shall immediately accelerate and all unpaid principal, the Commitment Fee and interest, if any, shall
become immediately due and payable without any requirement of notice from Holder to the Company. Upon an Event of Default, Holder may
exercise any right, power or remedy permitted to it by law or this A&R Note, including foreclosure of the collateral secured by this
A&R Note. In addition, upon the Event of Default, that Common Stock Purchase Warrant dated as of the Loan Date issued by the Company
to Holder shall become effective and immediately exercisable with no further action on the part of Holder.

 

    	 

    	 

    

 

3. Security
Interests; Liens. In order to secure payment of the obligations evidenced by this A&R Note, the Company hereby grants to Holder
(a) a first priority security interest in all of the Company’s right, title and interest in and to its existing or hereafter acquired
or arising finished spirits inventory, including Azunia, at the Park Street facility or other locations, (b) a security interest in all
of the Company’s right, title and interest in and to all barreled spirits inventory, now existing or hereafter acquired or arising,
located at the Company’s Milwaukee facility or other locations; and (c) a security interest in all of the Company’s right,
title and interest in and to its membership interests in Craft Canning + Bottling, LLC, which membership interests shall be provided to
Holder in certificated form accompanied by a separate indorsement authorizing Holder to name the transferee. Holder shall have all of
the rights and remedies of a secured party under the Oregon Uniform Commercial Code and all other applicable law, all of which rights
and remedies shall be cumulative and nonexclusive to the extent permitted by law. The Company irrevocably authorizes Holder at any time
and from time to time to file in any filing office in any Uniform Commercial Code jurisdiction any initial financing statements and amendments
thereto which Holder deems necessary or appropriate to perfect the security interests hereby granted.

 

4. Intentionally Omitted.

 

5. Use
of Proceeds. The Company shall use the proceeds of the Note and of this A&R Note for the purchase of Azuñia inventory and
other general corporate purposes.

 

6. Restriction
on Further Indebtedness. The Company agrees that unless Holder shall otherwise consent in writing, it shall cause Craft Canning not
to create, incur, assume or in any manner become liable in respect of, or suffer to exist, any indebtedness other than (a) indebtedness
incurred or guaranteed by Craft Canning in effect as of the date hereof, (b) trade debt incurred in the ordinary course of business, (iii)
capital leases of digital can printers specifically described in the Secured Guaranty dated as of the Loan Date, and (iv) indebtedness
that is expressly subordinate and junior in right and priority of payment to the A&R Note that is reasonably satisfactory in form
and substance to Holder.

 

7. Other Provisions.

 

(a) Cancellation.
After all principal and interest and the Commitment Fee owed on this A&R Note have been paid in full, this A&R Note will automatically
be deemed canceled, will be surrendered to the Company for cancellation, and will not be re-issued.

 

(b) Waivers
and Amendments. This A&R Note may not be amended or modified, nor may any of its terms be waived, except by a written instrument
signed by the Company and Holder.

 

(c) Severability.
If any provision of this A&R Note is determined to be invalid, illegal or unenforceable, in whole or in part, the validity, legality
and enforceability of any of the remaining provisions or portions of this A&R Note will not in any way be affected or impaired thereby
and this A&R Note will nevertheless be binding between the Company and Holder.

 

(d) Governing
Law. This A&R Note will be governed by and interpreted in accordance with the internal laws of the State of California. In any
action brought or arising out of this A&R Note, the Company and Holder hereby consent to the jurisdiction of any federal or state
court having proper venue within the San Diego County, State of California and also consent to the service of process by any means authorized
by California law.

 

(e) Lender
Collateral. The Lender shall have the right to request an updated description of the Company’s collateral and the value of the
collateral securing this loan monthly upon seven (7) days’ Notice.

 

    	 

    	 

    

 

 (f) Attorney Fees.

 

(i) Company and all other
parties liable for the payment under this A&R Note agrees to pay Holder’s collection expenses, attorney fees and paralegal fees
which may be incurred in the collection of any amount due hereunder or enforcement or interpretation of any or all of Company’s
duties hereunder or any guaranty related to Company’s duties hereunder, or any part hereof or thereof, whether or not suit is instituted,
and if suit is instituted, to pay all such collection expenses, court costs, attorney fees and paralegal fees as may be determined by
the trial court or any appellate courts. Company further agrees to pay any attorney fees, paralegal fees or costs incurred by Holder with
respect to Company’s obligations hereunder in connection with any action or proceeding to enforce any creditor’s rights associated
with any collateral securing this A&R Note, or with respect to any bankruptcy, receivership or insolvency proceedings of Company or
any guarantor of Company’s obligations hereunder, whether judicial or otherwise, including but not limited to fees incurred in litigating
issues peculiar to federal bankruptcy law;

 

(ii) Company agrees to reimburse
Holder for all costs, reasonable attorney fees, and paralegal fees incurred by Holder in the research, review, negotiation, and drafting
of the Note, this A&R Note, the Secured Guaranty, the Common Stock Purchase Warrant, and any other documents or matters related to
this $3,500,000 loan transaction. Company shall reimburse Holder by payment in cash or certified check within seven (7) days of written
request, including via email.

 

(g) Jury
Trial Waiver. Holder and the Company each hereby waive any right to trial by jury of any claim (including cross-claims and counterclaims)
it may have against each other under, in connection with, or related to this A&R Note.

 

(h) Binding
Effect. This A&R Note will be binding upon, and will inure to the benefit of, the Company and Holder and their respective successors
and assigns.

 

(i) Notices.
Any notice required or desired to be served, given, or delivered hereunder must be in writing and in the form and manner specified below,
and must be addressed to the party to be notified as follows:

 

	 	If
to the Company:
	EASTSIDE
    DISTILLING, INC.

    2321
    NE Argyle Street, Unit D

    Portland,
    OR 97211

    Attention:
    Controller

    Email:
    TMilton@eastsidedistilling.com

	 	 	 
	 	With
    a copy to:	Robert
                                            Brantl, Esq.

        181
        Dante Ave.

        Tuckahoe
        , NY 10707

        Email:
        rbrantl21@gmail.com

	 	 	 
	 	If
to Holder:

    
	TQLA,
    LLC

    PO
    Box 1641

    Rancho
    Santa Fe, CA 92091

    Email:
pkilkenny@yahoo.com

	 	 	 
	 	With
    a copy to:	Russell R. Kilkenny

                                                         Scarborough, McNeese, Oelke & Kilkenny PC

                                                         5 Centerpointe Drive, Suite 240

                                                         Lake Oswego, OR 97035

                                                         Email: rrk@smoklaw.com

 

    	 

    	 

    

 

or to such other address
as each party designates to the other by notice in the manner herein prescribed. Any notice given under this A&R Note shall be in
writing and delivered in person, via email, or other form of electronic delivery, sent by documented overnight delivery service or mailed
by certified or registered mail, postage prepaid, to the appropriate party or parties at the addresses referenced above or the electronic
email address, or to such other address as the parties may hereinafter designate. Unless otherwise specified in this A&R Note, all
such notices and other written communications shall be effective (and considered received for purposes of this A&R Note) (a) if delivered
by hand, upon delivery, (b) if by email or other form of electronic delivery, on the next business day, or (c) if sent by documented overnight
delivery service, on the date delivered.

 

(j) Transfer
of A&R Note. This A&R Note has not been registered under the Act or applicable state law, and no interest or participation
herein may be sold, distributed, assigned, offered, pledged or otherwise transferred unless there is an effective registration statement
under the Act and applicable state securities laws covering any such transaction or an exemption therefrom and upon approval by the Company.
In the event this A&R Note is transferred in accordance with this Section 7(j), the new holder shall be deemed to be the “Holder”
with respect to the provisions of this A&R Note.

 

(k) Headings.
Section headings used in this A&R Note have been set forth herein for convenience of reference only and do not affect the interpretation
of this A&R Note.

 

(l) Counterparts.
This A&R Note may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument,
and any of the parties hereto may execute this A&R Note by signing any such counterpart.

 

8. Amendment of Common
Stock Purchase Warrant. Company and Holder entered into a Common Stock Purchase Warrant effective March 21, 2022. Company and
Holder hereby amend the definition of “Note” in the first paragraph of the Purchase Warrant to be the aggregate
principal amount ($3,500,000) loaned under this Amended and Restated Promissory Note.

 

[Remainder of
Page Left Intentionally Blank; Signature Page Follows]

 

    	 

    	 

    

 

IN WITNESS WHEREOF, the parties
hereto have caused this Amended and Restated Secured Line of Credit Promissory Note to be executed as of the day and year first written
above.

 

	HOLDER:
                                            TQLA, LLC

	 	COMPANY:
                                            EASTSIDE DISTILLING, INC.

	 	 	 	 	 
	By:	/s/
    Patrick J. Kilkenny	 	By:	/s/
    Geoffrey Gwin
	Name: 	Patrick
    J. Kilkenny	 	Name: 	Geoffrey
    Gwin
	Title:	Manager	 	Title:	Chief
    Executive Officer

 

ACKNOWLEDGEMENT OF GUARANTY

 

The undersigned Craft Canning + Bottling LLC (‘Guarantor”)
has executed a Secured Guaranty dated March 21, 2022 pursuant to which Guarantor has guaranteed payment and performance of certain Guaranteed
Obligations of Eastside Distilling, Inc. to TQLA, LLC. Guarantor hereby acknowledges that the Supplemental Advance of $500,000 referenced
in the A&R Note, when funded, and all interest accrued thereon are and will be included among the Guaranteed Obligations, and that
TQLA, LLC shall be entitled to the benefit of all undertakings by Guarantor in the Secured Guaranty with respect to said Supplemental
Advance and interest thereon. Guarantor covenants that it shall not sell, transfer, or otherwise dispose of its barreled spirits inventory
without the written consent of TQLA if the effect of such disposition is to reduce the value of the remaining barreled spirts inventory
below the then remaining principal amount and interest. Also, TQLA’s written consent shall be required for any additional capital
leases or loans secured by or related to its first digital can printer and accessories as discussed in the third full paragraph of page
2 of the Secured Guaranty.

 

CRAFT CANNING + BOTTLING, LLC

 

	By:	/s/ Geoffrey Gwin	 
	Name:	Geoffrey Gwin	 
	Title:	Manager

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