Document:

TERMINATION AGREEMENT AND MUTUAL RELEASE

This Termination Agreement and Mutual Release (this "Agreement") is entered into this ___ day of May, 2018, (the "Effective Date") by and between JM Family Enterprises, Inc., a Delaware corporation ("Landlord") and Capstone Industries, Inc., a Florida corporation ("Tenant").

WHEREAS, Tenant and Landlord are parties to that certain Lease Agreement dated January 17, 2014 (the "Original Lease") for the lease of real property located at 350 Jim Moran Blvd., Suite 120, Deerfield Beach, Florida 33442 (the "Premises");

WHEREAS, the Original Lease has been amended by a letter agreement dated October 18, 2016, (collectively, the Original Lease, as amended by the letter agreement, the "Lease"); and

WHEREAS, pursuant to its terms, the Lease is scheduled to expire on January 31, 2020 (the "Scheduled Expiration Date");

WHEREAS, Landlord has entered or will enter into that certain Lease Agreement ("Prime Lease") between 431 Fairway Associates, LLC, a Florida limited liability company ("Prime Landlord"), as landlord, and Landlord, as tenant, for the lease by Prime Landlord to Landlord of certain premises known as Suite 200 of the building located at 431 Fairway Drive, Deerfield Beach, Florida, as more particularly described in the Prime Lease (the "Relocation Premises"); and

WHEREAS, the Landlord and Tenant desire to terminate the Lease and all of the parties' respective rights, benefits and obligations thereunder prior to the Scheduled Expiration Date, subject to the terms and conditions set forth below.

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Agreement to Terminate Early; Sublease.  The parties hereby agree to terminate the Lease prior to the Scheduled Expiration Date, which termination will be effective as of the earlier to occur of (i) thirty (30) business days after Substantial Completion by Prime Landlord of the Landlord's Work (as each such capitalized term is defined in the Prime Lease) with respect to the Relocation Premises, or (ii) Tenant's occupancy of the Relocation Premises (the "Termination Date"), and all of the parties' respective rights, benefits and obligations under the Lease, subject to and in consideration of the mutual release and discharge of one another from any and all matters, causes of action, claims or disputes whatsoever arising out of, or in connection therewith, upon the terms and conditions set forth herein.

Landlord shall use its best efforts to cause the Prime Landlord to achieve Substantial Completion of the Landlord's Work for the Relocation Premises on or before July 1, 2018.  Landlord shall notify Tenant in writing ("Relocation Notice") upon Landlord's receipt of notice that the Landlord's Work for the Relocation Premises is substantially complete, and Tenant shall thereupon commence its relocation to the Relocation Premises, which relocation shall be completed no later than the Termination Date.  For the avoidance of doubt, as set forth in Section 1.3 of the Prime Lease, the failure of the Prime Landlord to install a glass entry way door, door between the "IT Room" and "Storage Room", or other lead time item, will not prevent Substantial Completion so long as such failure does not interfere with Tenant's use of the Premises for its business, and Tenant agrees to accept the Premises upon Substantial Completion notwithstanding the foregoing.

  

 

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Tenant and Landlord hereby agree that the effectiveness of this Agreement is expressly conditioned upon both parties' execution and delivery to the other of the Sublease Agreement attached hereto as Exhibit A and made a part hereof ("Sublease").  Tenant and Landlord shall each execute and deliver the Sublease to the other as of the Effective Date hereof.  Tenant shall have the right to access the Relocation Premises after the Relocation Notice and prior to the Termination Date, but only to the extent to which Landlord has a right under the Prime Lease to so access the Relocation Premises prior to Substantial Completion, and further provided that Tenant shall comply with all requirements applicable to Landlord under the Prime Lease with respect thereto (including without limitation maintenance of all insurance required thereunder).

2. Payment and Surrender of the Premises.  In consideration of the early termination of the Lease, Landlord shall pay Tenant the total amount of $150,000, 50% ($75,000) (the "First Installment") of which will be paid within three (3) business days after the Effective Date of this Agreement, and the remaining 50% ($75,000) (the "Second Installment") balance of which will be paid to Tenant within three (3) business days after Tenant vacates the Premises and takes possession of the Relocation Premises (both payments collectively, the "Termination Fee") so long as the Tenant vacates the Premises on or before the Termination Date leaving the Premises in the condition required pursuant to the Lease.  Upon Landlord's final inspection of the Premises in accordance with the Lease and applicable law, any unused portion of the Tenant's security deposit shall be returned to Tenant.

3. Termination of Lease.  Upon Tenant's surrender of the Premises to Landlord on or before the Termination Date, Landlord's and Tenant's execution and delivery of the Sublease, Landlord's payment of the Termination Fee to the Tenant, and the parties' execution, delivery and full performance of this Agreement, the Lease shall terminate, effective as of the Termination Date, and the parties shall have no further rights or obligations arising out of or in connection with the Lease or the matters contemplated thereunder (subject, however, to the terms and provisions of this Agreement, including Tenant's surrender of the Premises in the condition required pursuant to the Lease and the return of Tenant's security deposit, if, and to the extent, applicable).

4. Mutual Release.

	
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Landlord.  Upon the satisfaction of and in consideration of the early termination of the Lease, Tenant's surrender of the Premises, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, Landlord, for itself and its successors, assigns and affiliates and their respective officers, directors, managers, partners, employees, agents, shareholders and members or any party acting on its behalf (collectively, "Landlord Parties"), shall release and forever discharge Tenant Release Parties' (as defined hereinafter) and their successors, assigns, executors, heirs, beneficiaries and affiliates, and their respective officers, directors, managers, partners, employees, agents, shareholders and members or any party acting on its behalf of and from any and all manner of action, causes of action, suits, debts, sums of money, costs, expenses, compensation, covenants, contracts, agreements, promises, damages, claims, obligations and demands whatsoever, whether based on tort, contract, statutory or other forms of damage or relief, whether derivative or direct, whether at law or in equity, known or unknown, unasserted or whether asserted in any context, which any of the Landlord Parties ever had or now has or hereafter can, shall or may have for, upon or by reason of any matter, cause or thing whatsoever and in all capacities whatsoever, from the beginning of time until the Effective Date, including without limitation of any of the foregoing, relating to or arising out of the transactions evidenced by, and from any rights or benefits of Landlord under the Lease.

 

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4.2

	
Tenant Parties.  Upon the satisfaction of and in consideration of the early termination of the Lease, the payment by Landlord to Tenant of the Termination Fee and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, each of the Tenant Parties for itself and its successors, assigns, executors, heirs, beneficiaries and affiliates and their respective officers, directors, managers, partners, employees, agents, shareholders and members or any party acting on its behalf (collectively, "Tenant Release Parties"), shall release and forever discharge Landlord Parties of and from any and all manner of action, causes of action, suits, debts, sums of money, costs, expenses, compensation, covenants, contracts, agreements, promises, damages, claims, obligations and demands whatsoever, whether based on tort, contract, statutory or other forms of damage or relief, whether derivative or direct, whether at law or in equity, known or unknown, unasserted or whether asserted in any context, which any of the Tenant Release Parties ever had or now has or hereafter can, shall or may have for, upon or by reason of any matter, cause or thing whatsoever and in all capacities whatsoever, from the beginning of time until the Effective Date, including without limitation of any of the foregoing, relating to or arising out of the transactions evidenced by, and from any rights or benefits of Tenant Release Parties under the Lease.

5. -Default.  In the event Tenant fails to vacate the Premises and surrender the Premises to Landlord on or before the Termination Date, Tenant shall be in default of this Agreement ("Default").  In the event of Default, Tenant shall, without demand by Landlord, immediately return the First Installment plus all Abated Rent, together with interest accruing at the rate of five percent (5%) for each month outstanding from the Termination Date until paid in full, and Landlord may seek all additional remedies available under applicable law.  Further, in the event of Default, Landlord shall be relieved of its obligation to pay the Second Installment, and the Mutual Release set forth in Paragraph 4 of this Agreement shall be null and void.

6. Governing Law.  This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Florida, without reference to conflict of laws principles.  Jurisdiction and venue for any legal proceedings arising out of this Agreement shall exclusively lie in Broward County, Florida.

7. -Miscellaneous.  This Agreement shall be binding on, and inure to the benefit of, the parties hereto and their respective successors and assigns.  This Agreement may be signed in counterparts, each of which shall be an original and both of which taken together shall constitute one agreement.  Delivery of an executed counterpart by facsimile, portable document format (.pdf), or other electronic means will be deemed to be delivery of an original in all cases. All capitalized terms used but not defined herein shall have the meanings given to them in the Prime Lease.

8. Entire Agreement.  This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements, understandings and arrangements, both oral and written, between the parties hereto (including without limitation the parties' respective parent and affiliate entities) with respect to such subject matter.  This Agreement may not be modified in any way unless by a written instrument signed by each of the parties hereto.  This Agreement is intended to amend and modify the Lease, and to the extent that any of the terms of the Lease conflict with the terms hereof, the terms of this Agreement shall control.

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IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the first date set forth above. 

Witnesses: LANDLORD:

JM Family Enterprises, Inc., a Delaware

corporation

Printed Name: 

By:  

Printed Name: Name:

Title: 

STATE OF FLORIDA :

: ss

COUNTY OF :

BEFORE ME, the undersigned authority, personally appeared __________________________ as the ______________________________ of JM Family Enterprises, Inc., a Delaware corporation, and on behalf of the corporation, who is personally known to me or who has produced __________________________________ as identification and who first, being duly sworn on oath, acknowledged before me that he executed the above and foregoing instrument for the intent and purposes therein expressed.

WITNESS MY HAND AND OFFICIAL SEAL in the County and State last aforesaid on , 2018.

________________________________

Notary Public, State of Florida

Name of Notary:__________________

[Signatures continued on following page]

 

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Witnesses: TENANT:

Capstone Industries, Inc., a Florida corporation

Printed Name: 

By:  

Printed Name: Name:

Title: 

STATE OF FLORIDA :

: ss

COUNTY OF :

BEFORE ME, the undersigned authority, personally appeared __________________________ as the ______________________________ of Capstone Industries, Inc., a Florida corporation, and on behalf of the corporation, who is personally known to me or who has produced __________________________________ as identification and who first, being duly sworn on oath, acknowledged before me that he executed the above and foregoing instrument for the intent and purposes therein expressed.

WITNESS MY HAND AND OFFICIAL SEAL in the County and State last aforesaid on , 2018.

________________________________

Notary Public, State of Florida

Name of Notary:__________________

 

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EXHIBIT A

SUBLEASE

See attached.

 

 

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SUBLEASE AGREEMENT

 

THIS SUBLEASE AGREEMENT dated as of the ____ day of May, 2018 ("Sublease") by and between Capstone Industries, Inc., a Florida corporation ("Subtenant") and JM Family Enterprises, Inc., a Delaware corporation ("Sublandlord").

W I T N E S S E T H:

WHEREAS, Sublandlord has entered into a certain Lease Agreement with 431 Fairway Associates, LLC, a Florida limited liability company (the "Prime Landlord"), as landlord, dated as of May 8th, 2018, (as the same may be amended, restated, renewed, supplemented or other modified from time to time, collectively, the "Prime Lease"), for the lease of those certain premises known as Suite 200 and containing approximately 4,694 square feet being part of the second (2nd) floor of the building (together with a first floor parking garage attached thereto) located at 431 Fairway Drive, Deerfield Beach, Florida 33441 (the "Building"), as such premises are more particularly described in the Prime Lease ("Premises"); and

WHEREAS, Subtenant desires to sublet the Premises from Sublandlord and Sublandlord desires to sublease the Premises to Subtenant.

NOW, THEREFORE, in consideration of One Dollar ($1.00) and other good and valuable consideration the receipt and legal sufficiency of which are hereby acknowledged, and the mutual covenants contained herein, and intending to be legally bound hereby, Sublandlord and Subtenant agree with each other as follows:

1. Premises.   Sublandlord hereby subleases and sublets to Subtenant, and Subtenant hereby takes and hires from Sublandlord, upon and subject to the terms, conditions, covenants and provisions hereof, the Premises.

2. Term.   The term of this Sublease ("Term") shall commence on the earlier to occur of (i) thirty (30) business days after Substantial Completion by Prime Landlord of the Landlord's Work (as each such capitalized term is defined in the Prime Lease), or (ii) Tenant's occupancy of the Premises ("Term Commencement Date") and shall terminate on January 31, 2020 (or any earlier termination of the Prime Lease) (the "Termination Date"). Subtenant shall have all rights of access to the Premises during the Term, and prior to the Term, but only to the extent that Sublandlord has such rights under the Prime Lease, and provided that Subtenant complies with all requirements of the Prime Lease in connection therewith (including without limitation maintenance of all insurance required thereunder).  For the avoidance of doubt, as set forth in Section 1.3 of the Prime Lease, the failure of the Prime Landlord to install a glass entry way door, door between the "IT Room" and "Storage Room", or other lead time item, will not prevent Substantial Completion so long as such failure does not interfere with Tenant's use of the Premises for its business, and Tenant agrees to accept the Premises upon Substantial Completion notwithstanding the foregoing.

3. Use of the Premises.   The Premises are to be used only for the purposes set forth in Section 5.1 of the Prime Lease captioned "Use of Premises", which is incorporated herein by reference.

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4. Incorporation of Prime Lease Provisions; Exceptions.  A true and complete copy of the Prime Lease has been delivered to Subtenant.  By execution of this Sublease, Subtenant acknowledges that Subtenant has had the opportunity to read the Prime Lease and that this Sublease is in all respects subject and subordinate to the Prime Lease.  All provisions of the Prime Lease are incorporated herein by reference and shall constitute the terms, covenants, conditions and provisions of this Sublease and any other terms and conditions of this Sublease are in addition to, and not in limitation of, the foregoing.  The Subtenant hereby agrees to observe and perform the terms, covenants, conditions and provisions of the "Tenant" under the Prime Lease, including but without limitation, all Rules and Regulations (as defined in the Prime Lease).  For purposes of this Sublease, all references to "Landlord" and "Tenant" in the Prime Lease shall mean Sublandlord and Subtenant herein, respectively, except with respect to any consent or approval to be required to be obtained from the "Landlord" thereunder, which shall continue to mean Prime Landlord, and, notwithstanding the foregoing, Sublandlord shall have no responsibility for or be liable to Subtenant for any default, failure or delay on the part of Prime Landlord on the part of Prime Landlord in the performance or observance by Prime Landlord of any of its obligations under the Prime Lease, nor shall such default by Prime Landlord affect this Sublease or waive or defer the performance of any of Subtenant's obligations hereunder except to the extent that such default by Prime Landlord excuses performance by Sublandlord under the Prime Lease.  Sublandlord hereby grants to Subtenant the right to receive all of the services and benefits with respect to the Premises which are to be provided by Prime Landlord under the Prime Lease, provided that Sublandlord shall have no duty or liability for failure to perform any of the obligations of the Prime Landlord.

Notwithstanding the foregoing:

A.  Base Rent.  Subtenant shall pay only the following base rent to Sublandlord in lieu of the Base Rent due under the Prime Lease: Commencing on the date that is two (2) months after the Term Commencement Date ("Rent Commencement Date"), Subtenant shall pay to Sublandlord (i) $4,389.55 per month for the period extending from the Rent Commencement Date through January 31, 2019, and (ii) $4,522.43 per month for the period extending from February 1, 2019 to the Termination Date (in each case, together with applicable sales tax due thereon). Base rent shall be paid in advance on the first (1st) day of each calendar month (or prior to the Rent Commencement Date, if the same does not fall on the first (1st) day of a calendar month).  Any payment of Rent due for a partial month shall be prorated based on the number of days therein.  For the avoidance of doubt, Subtenant shall not be responsible for the payment of base rent hereunder until the Term Commencement Date.  All Rent shall be payable by Subtenant as directed by Sublandlord.

B.  Common Area Costs.  Beginning on the Term Commencement Date, Subtenant shall be responsible for payment of Tenant's Share of the Common Area Costs and Tenant's Share of Taxes, as provided in Sections 3.1 and 3.2 of the Prime Lease, and all other costs, charges and fees due under the Prime Lease, except as expressly set forth in Section 4(A) hereof.  Notwithstanding the foregoing, Subtenant shall not be required to pay any Common Area Charge in excess of $2,992.09 per month.

Except for the specific matters set forth in subsections 4(A) and 4(B) hereof, Subtenant shall fully perform all other obligations of "Tenant" under the Prime Lease, and shall be responsible for the payment of any and all sums due from "Tenant" under the Prime Lease.

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5. Rent.  If during the Term, Subtenant shall fail to pay any installment of Rent, additional rent or any other charge which is to be paid hereunder within five (5) days after receipt of written notice from Sublandlord that such installment was not paid when the same was due and payable, then Subtenant shall pay a late charge equal to ten percent (10%) of the amount of the past-due installment, and such late charge shall be paid to Sublandlord as additional rent at the time of and together with payment of the delinquent sum to cover the extra expense involved in handling such delinquency.

6. Utility Expenses.  Subtenant hereby acknowledges the responsibility of the "Tenant" to pay for consumption of utility services, as set forth in Section 8.5 of the Prime Lease.  Accordingly, Subtenant agrees to, during the Term, to the extent required in the Prime Lease, pay all separately metered charges for water, gas, heat, electricity, light, telecommunication, sewer, sprinkler, power, internet, and all other utilities furnished to the Premises, together with any taxes, penalties, surcharges or the like pertaining thereto and any installation or maintenance charges for utilities (collectively, "Utility Charges"), and for all separately metered utilities, to pay all such Utility Charges directly to the service provider within the time period required in such bill.  If any utilities are not separately metered, Subtenant shall pay to Sublandlord the proportionate cost thereof attributable to the Premises, as set forth in Section 8.5 of the Prime Lease.  Sublandlord shall in no event be liable for any damages directly or indirectly resulting from or arising out of the interruption or failure of utility services on the Premises.  Subtenant shall have no right to terminate this Sublease, nor shall Subtenant be entitled to any abatement in Rent as a result of, any such interruption or failure of utility services.  No such interruption or failure of utility services shall be deemed to constitute a constructive eviction of Subtenant.

7. Improvements, Repairs, Alterations.

A. Subtenant agrees the Premises shall be delivered to Subtenant in "turn-key" condition with Landlord's Work Substantially Complete in accordance with a mutually agreed-upon floor plan and scope of work, including new light fixtures, new carpet, engineered wood flooring, new paint, glass door frontage, and signage, all as described in the Prime Lease.  Notwithstanding the foregoing, Sublandlord does not make, has not made, and hereby disclaims all, warranties with respect to the Premises, either express or implied, including without limitation any warranties that the Premises is suitable for the conduct of Tenant's business therein or with respect to the condition of the Premises or any part thereof.

B. Subtenant shall, at all times during the term of this Sublease, at its own cost and expense, satisfy the Sublandlord's obligations to repair and maintain the Premises as set forth in the Prime Lease, including without limitation Article 8 thereof.

C. Notwithstanding anything to the contrary contained in the Prime Lease or elsewhere in this Sublease, Subtenant shall not have the right to make any alterations, additions or improvements in or to the Premises without the Prime Landlord's and the Sublandlord's prior written consent, which consent may not be unreasonably withheld, conditioned or delayed.  Subtenant's request for approval shall be accompanied by detailed plans and specifications for the proposed work.

8. Compliance with Laws.  Subtenant shall comply with all federal, state and local governmental laws, ordinances, rules, regulations or requirements applicable to the Premises and Subtenant's use and occupancy thereof.

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9. Covenant against Liens.  If, because of any act or omission of Subtenant, any mechanic's lien or other lien, charge or order for the payment of money shall be filed against Sublandlord, Prime Landlord or any portion of the Building or the Property containing the Premises, during the term hereof Subtenant shall, at its own cost and expense, cause the same to be discharged of record or bonded within the cure period provided in Section 11.2 of the Prime Lease; and Subtenant shall indemnify and save harmless Prime Landlord and Sublandlord against and from all costs, liabilities, suits, penalties, claims and demands, including reasonable counsel fees, resulting therefrom.

10. Assignment and Subletting.  Notwithstanding anything to the contrary contained in the Prime Lease or elsewhere in this Sublease, Subtenant may not assign, sublet, pledge, or otherwise encumber this Sublease or the Premises (in whole or in part or parts).  Subtenant shall not allow any other persons except Subtenant's customers and employees to occupy the Premises or any part thereof.

11. Subordination.  Subtenant accepts this Sublease, subject and subordinate at all times to any deed of trust, mortgage, or ground lease which may now or hereafter affect the Premises.  The terms of Article 20 of the Prime Lease shall control.

12. Signs.  Subtenant shall have the right to install suite and directory signage in accordance with, and provided that Subtenant complies with, the terms of Article 22 of the Prime Lease.

13. Indemnity.

A. Subtenant shall indemnify and save harmless Sublandlord, its respective agents, servants, employees and contractors from and against any and all liability, damage, penalties, judgments, arising from injury to person or property sustained by anyone in and about the Premises resulting from or in connection with (i) any act or acts or omission or omissions of Subtenant or Subtenant's officers, agents, servants, employees, contractors, customers, invitees or sublessees, (ii) any act, omission or negligence, or breach, violation or nonperformance by Subtenant or Subtenant's officers, agents, servants, employees, contractors, customers, or invitees, in connection with the Premises or this Sublease, and (iii) any claim, charge, loss, demand, liability, cost or expense for which Sublandlord is required to indemnify Prime Landlord under the Prime Lease.  Subtenant shall, at its own cost and expense, defend any and all suits or actions (just or unjust) which may be brought against Prime Landlord, Sublandlord or its and their respective agents, servants, employees and contractors or in which Prime Landlord, Sublandlord and/or its or their respective agents, servants, employees and contractors may be impleaded with others upon any such abovementioned matter, claim or claims.

B. Sublandlord shall indemnify and save harmless Subtenant and its respective agents, servants, employees and contractors from and against any and all liability, damage, penalties, judgments, arising from or in connection with (i) injury to person or property sustained by anyone in and about the Premises resulting from any act or acts or omission or omissions of Sublandlord or Sublandlord's officers, agents, servants, employees, contractors, customers, or invitees, and (ii) any act, omission or negligence, or breach, violation or nonperformance by Sublandlord or Sublandlord's officers, agents, servants, employees, contractors, customers, or invitees, in connection with the Premises or the Prime Lease.  Sublandlord shall, at its own cost and expense, defend any and all suits or actions (just or unjust) which may be brought against Subtenant or its respective agents, servants, employees and contractors or in which Subtenant and/or its respective agents, servants, employees and contractors may be impleaded with others upon any such abovementioned matter, claim or claims.

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C. Except as expressly set forth herein and except for its omissions, affirmative acts or negligence or the omissions, affirmative acts or negligence or of its officers, agents, servants, employees or contractors, neither Prime Landlord nor Sublandlord shall be responsible or liable for any damage or injury to any property, fixtures, buildings, or other improvements or to any person or persons, at any time on the Premises, including any damage or injury to Subtenant or to any of Subtenant's officers, agents, servants, employees, contractors, customers, invitees or sublessees.

14. Insurance.Subtenant shall provide at its expense, and keep in force during the term of this Sublease, such policies of insurance as will satisfy the obligation of Sublandlord as Tenant, including without limitations the insurance requirements set forth in Section 10.1 of the Prime Lease captioned "Tenant's Insurance".

15. Waiver of Subrogation.  Each party hereto hereby waives on behalf of the insurers of such party's property any and all claim or right of subrogation of any such insurer against the other party, and each party hereby agrees to maintain insurance upon its property, it being understood, however, (a) that such waiver shall be ineffective as to any insurer whose policy of insurance does not authorize such waiver, (b) that it shall be the obligation of each party seeking the benefit of the foregoing waiver to request the other party (i) to submit copies of its insurance, and (ii) in case such waiver is not so authorized by any such policy, to procure an express waiver from the insurer thereunder, any additional charge for such waiver to be paid by the party requesting the benefit of said waiver; and (c) that no party shall be liable to the other under clause (b) hereof except for willful failure to comply with any request pursuant to said clause (b).

16. Inspection Rights.  Sublandlord reserves the right, on reasonable prior notice, to inspect the Premises.

17. Destruction.  In the event that, at any time during the term of the Sublease, the Building a the Premises shall be destroyed or damaged in whole or in part by fire or other cause then the provisions of Section 10.4 of the Prime Lease captioned "Casualty Damage" shall govern and control.

18. Eminent Domain.In the event of a condemnation or purchase in lieu thereof, the provisions of Article 18 of the Prime Lease captioned "Eminent Domain" shall govern and control.

19. Quiet Enjoyment.   Sublandlord covenants and warrants that upon performance by Subtenant of its obligations hereunder, Sublandlord will keep and maintain Subtenant in exclusive, quiet, peaceable and undisturbed and uninterrupted possession of the Premises during the term of this Sublease, subject to the terms and provisions of the Prime Lease, any ground lease, any mortgage or deed of trust encumbering the Premises, and all matters of record.

20. Defaults.

A. Subtenant shall be in default in the event any one or more of the following events shall have occurred and shall not have been remedied as hereinafter provided:

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(1) Subtenant's failure to pay any installment of Rent required hereunder or any other payment to be made by Subtenant hereunder when the same shall be due and payable and the continuance of such failure for a period of five (5) days after Subtenant receives written notice from Sublandlord that such payment was not made when due.

(2) the occurrence of an Event of Default as defined in Section 16.1 of the Prime Lease (except for any Event of Default due to Sublandlord's failure to pay Base Rent to Prime Landlord, unless such failure was due to Subtenant's failure to timely pay the base rent required hereunder to Sublandlord).

21. Remedies on Default.   Upon any one or more Events of Default, Sublandlord may, at its option, at any time thereafter, exercise any of the rights and remedies available at law or in equity, including without limitation any of the rights and remedies afforded Prime Landlord under the Prime Lease (including without limitation those remedies set forth in Section 16.3 of the Prime Lease captioned "Remedies").

22. Surrender and Holding Over.  Upon the expiration or earlier termination of the Term, Subtenant shall quit and peacefully surrender and deliver to Sublandlord the possession and use of the Premises, without delay, free and clear of all liens, encumbrances and charges to the extent such liens, encumbrances and charges are solely due to the acts or omissions of Subtenant, and all rights of Subtenant under this Sublease shall terminate.  Notwithstanding the termination of this Sublease, Subtenant shall remain liable to Sublandlord for any loss or damage suffered by the Sublandlord because of any default of Subtenant, including without limitation the holdover rent set forth in Article 17 of the Prime Lease captioned "Notice of Surrender/Holdover".

Subtenant shall immediately remove all personal property of Subtenant remaining upon the Premises at the expiration or earlier termination of this Sublease.  Any personal property of Subtenant remaining upon the Premises after the expiration or earlier termination of this Sublease may, at the option of the Sublandlord, be deemed to have been abandoned by Subtenant and may be retained by Sublandlord as its property, or be disposed of, without accountability by Sublandlord in such manner as it deems appropriate.  Subtenant shall be responsible to Sublandlord for any cost or expense incurred by Sublandlord in disposing of Subtenant's personal property remaining on the Premises after the expiration or earlier termination of this Sublease.

If Subtenant holds over at the Premises after the expiration or earlier termination of the Prime Lease, the provisions of Article 17 of the Prime Lease shall control.

If Subtenant holds over at the Premises after the expiration or earlier termination of this Sublease, then, in addition to the rights and remedies set forth above, Subtenant shall pay to Sublandlord 150% of the base rent that was due from Subtenant under this Sublease immediately prior to the expiration or termination of the Sublease.

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23. Reimbursement and Setoff.  If Subtenant shall fail to perform any of its obligations under this Sublease, Sublandlord may, at its option, after ten (10) days written notice to Subtenant, or without notice in case of any emergency, perform any of such obligations.  Any moneys paid and all costs and expenses incurred by Sublandlord or due as a result of any such failure by Subtenant, including reasonable attorney's fees, to enforce or perform Subtenant's obligations under this Sublease, shall be additional rent and shall be paid by Subtenant to Sublandlord on demand.  Sublandlord's exercise of its rights under the Section shall not constitute a waiver of any other rights or remedies Sublandlord may have because of Subtenant's default.

If Sublandlord shall fail to perform any of its obligations under the Prime Lease, Subtenant may, at its option, after ten (10) days written notice to Sublandlord, or without notice in the case of any emergency, perform any such obligations, subject to the terms and conditions of the Prime Lease.  Any moneys paid and all costs and expenses incurred by Subtenant, including reasonable attorney's fees, to enforce or perform Sublandlord's obligations under the Prime Lease shall be paid to Subtenant upon demand, and to the extent any such amounts are not paid within ten (10) days of demand therefor, Subtenant may, in addition to any other rights of enforcement at law or in equity, set off all such amounts against any payments of rent hereunder until paid in full.

24. Parking.  Subtenant shall have the right to parking as described in Article 6 of the Prime Lease, captioned "Parking".

25. Waiver.  Failure of either party to complain of any act or omission on the part of the other party no matter how long the same may continue, shall not be deemed to be a waiver by said party of any of its rights hereunder.  No waiver by either party at any time, express or implied, of any breach of any provision of the Sublease shall be deemed a waiver of a breach of any other provision of this Sublease or a consent to any subsequent breach of the same or any other provision.

26. Limitation of Sublandlord's and Prime Landlord's Liability.  If Prime Landlord or Sublandlord or any successor in interest shall be a corporation, limited liability company, individual, joint venture, tenancy in common, firm or partnership, general or limited, it is specifically understood and agreed that there shall be absolutely no personal liability on the part of such corporation, limited liability company, individual or on the part of the shareholders, officers, directors, members or partners of such corporation, limited liability company, firm, partnership or joint venture with respect to any of the terms, covenants and conditions of this Sublease, and in the event of any breach by Prime Landlord or Sublandlord or by such successor in interest in the Premises, Subtenant shall look solely to the equity of Prime Landlord or Sublandlord or such successor in interest in the Premises for the satisfaction of each and every remedy of Subtenant, such exculpation of personal liability to be absolute and without any exception whatsoever.

27. Force Majeure.  In the event that either party shall be delayed, hindered in or prevented from the performance of any act required hereunder by reason of strikes, lockouts, labor troubles, inability to procure materials, failure of power, restrictive governmental laws or regulations, riots, insurrection, the act, failure to act, or default of the other party, war or other reason beyond their control, the performance of such act, except for the payment of any sums required to be paid hereunder, shall be excused for the period of the delay and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay.

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28. Notices.  Any notice, statement, certificate, request or demand required or permitted to be given in this Sublease, shall be in writing and unless personally served, shall be sent by overnight mail, addressed, as the case may be, to Sublandlord or Subtenant at the addresses listed below, or to such other addresses as Sublandlord or Subtenant shall designate in the manner herein provided.  Such notice, statement, certificates, request or demand shall be deemed to have been given two days after the date mailed as aforesaid in any post office or branch post office regularly maintained by the United States Government, except for notice of change of address or revocation of a prior notice, which shall only be effective upon receipt.

If to Sublandlord: JM Family Enterprises, Inc.

100 Jim Moran Boulevard

Deerfield Beach, Florida 33442

Attn:  Mike Tiufekchiev

With a copy to:

JM Family Enterprises, Inc.

100 Jim Moran Boulevard

Deerfield Beach, Florida 33442

Attn:  Sharaine Sibblies

If to Subtenant: Capstone Industries, Inc.

431 Fairway Drive

Suite 200

Deerfield Beach, Florida 33441

Copies of any notice hereunder (as an accommodation and not as a condition to its effectiveness) shall likewise be sent by the same means to the Prime Landlord: 431 Fairway Associates, LLC, 431 Fairway Drive, Suite 200B, Deerfield Beach, Florida 33441, Attn: Legal Department (or to such other address as Sublandlord may notify Subtenant in writing).

29. Certificates.  Either party shall, at any time and from time to time hereafter, at the cost and expense of the party requesting same, within ten (10) days after written request of the other, certify by written instrument duly executed and acknowledged to any mortgagee or purchaser, or proposed mortgagee or proposed purchaser, or any other person, firm or corporation specified in such request:  (a) whether this Sublease is in full force and effect and whether it has been supplemented or amended, and if so, the date, substance and manner of such supplement or amendment;  (b) the existence of any default hereunder; (c) the existence of any offsets, counterclaims or defenses thereto on the part of such other party; (d) the commencement and expiration dates of the term of this Sublease; (e) the dates to which (and the amount of)  Rent and additional rent, if any, have been paid hereunder; and (f) as to any other matters as may reasonably be so requested.

Any such certificate may be relied upon by the party requesting it and any other person, firm or corporation to whom the same may be exhibited or delivered, and the contents of such certificate shall be binding on the party executing same and its successors and assigns.

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30. Governing Law.  This Sublease and the performance hereof shall be governed, interpreted, construed and regulated by the laws of the State of Florida.

31. Interpretation.  The section headings used herein and the table of contents preceding this Sublease are for reference and convenience only, and shall not enter into the interpretation hereof.  The term "Prime Landlord" and "Sublandlord" whenever used herein shall mean only the owner at the time in question of Prime Landlord's or Sublandlord's interest herein, and upon any sale or assignment of such interest, or the expiration or termination of this Sublease, Prime Landlord and Sublandlord herein named (and in the case of any subsequent transfers, the then grantor) including each of its respective partners, shareholders, beneficiaries, managers, members, or principals (as the case may be), shall be automatically freed and relieved, from and after the date of such transfer and conveyance, of all liability as respects the performance of any covenants and agreements on the part of Prime Landlord or Sublandlord, as the case may be.

32. Entire Agreement.  No oral statement or prior written matter shall have any force or effect following the execution of this Sublease.  Subtenant agrees that this Sublease constitutes the full and complete agreement of the parties and their respective parent and affiliate entities with respect to the Premises and that Subtenant is not relying on any representations or agreements other than those contained in this Sublease.  No alteration, amendment, extension or addition to this Sublease shall be binding upon Sublandlord or Subtenant or their respective successors or permitted assigns unless reduced to writing, signed by them and mutually delivered between them.

33. Parties.  Except as herein otherwise expressly provided, the covenants, conditions and agreements contained in this Sublease shall be binding upon and inure to the benefit of Sublandlord and Subtenant and their respective heirs, successors, administrators and permitted assigns.

34. Relationship of the Parties.  Nothing contained herein shall be deemed or construed by the parties hereto or by any third party as creating the relationship of principal and agent or of partnership or of joint venture between the parties hereto, it being understood and agreed that neither the method of computation of rent nor any other provision herein contained, nor any acts of the parties hereto shall construe the parties as other than Sublandlord and Subtenant.  There are no intended third party beneficiaries of this Sublease.

35. Accord and Satisfaction.  Sublandlord is entitled to accept, receive and cash or deposit any payment made by Subtenant for any reason or purpose or in any amount whatsoever, and apply the same at Sublandlord's option to any obligations of Subtenant and the same shall not constitute payment of any amount owed except that to which Sublandlord has applied the same.  No endorsement or statement on any check or letter of Tenant shall be deemed an accord and satisfaction or otherwise recognized for any purpose whatsoever.  The acceptance of any such check or payment shall be without prejudice to Sublandlord's right to recover any and all amounts owed by Subtenant hereunder and Sublandlord's right to pursue any other available remedy.

36. Broker.  Each party represents and warrants that it has not dealt with any real estate broker in connection with this transaction.  Each party hereby agrees to indemnify and hold the other harmless from and against the claim of any real estate broker for a commission relating to this Sublease transaction arising out of the acts of the indemnifying party.

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37. Notice to Prime Landlord.  Subtenant hereby authorizes Sublandlord to deliver a fully-executed copy of this Sublease to Prime Landlord, as required in Section 12.1 of the Prime Lease, and acknowledges that the effectiveness of this Sublease is contingent thereon.

38. Definitions.  Capitalized terms not defined herein shall have the meanings given to such terms in the Prime Lease.

39. Counterparts.  This Sublease may be executed in one or more counterparts which, when taken together, shall constitute one fully executed and binding original document.

40. Prevailing Parties.  In the event that it shall become necessary for either Sublandlord or Subtenant to employ the services of attorneys to enforce any of their respective right sunder this Sublease or to collect any sums due to them under this sublease or to remedy the breach of any covenant of this Sublease on the part of the other to be kept or performed, the non-prevailing party shall party to the prevailing party such reasonable fees as shall be charged by the prevailing party's attorneys for such services at all trial and appellate levels and post-judgment proceedings, and all other costs and expenses of such suit and any appeal thereof or with respect to any post-judgment proceedings.

41. Waiver of Trial By Jury.  Sublandlord and Subtenant hereby waive trial by jury in any action, proceeding or counterclaim brought by either against the other, upon any matters whatsoever arising out of or in any way connected with this Sublease, Subtenant's use or occupancy of the Premises, and/or any claim of injury or damage.

42. Authority.  Landlord and Tenant each represent to the other that it (i) is a duly formed entity validly existing in its state of incorporation, (ii) it has obtained all required corporate and governmental consents required in connection with this Sublease, and that this Sublease constitutes a binding obligation, (iii) the person signing below on its behalf has the appropriate authority to do so, and (iv) its execution of this Sublease will not conflict with any of its organizational documents or other agreements or contracts to which it is a party or by which it is otherwise bound.

43. Radon Gas.  Subtenant is hereby advised that radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time.  Levels of radon that exceed federal and state guidelines have been found in buildings in Florida.  Additional information regarding radon and radon testing may be obtained from your county public health unit.  The foregoing disclosure is provided to comply with state law and is for informational purposes only.  Neither Sublandlord nor Prime Landlord have conducted radon testing with respect to the Building and Sublandlord specifically disclaims any and all representations and warranties as to the absence of radon gas or radon producing conditions in connection with the Building and the Premises.

44. No Recordation.  This Sublease shall not be recorded in the Public Records.  Any attempted recordation shall render this Sublease null and void and entitle Sublandlord to the remedies provided for Subtenant's default.

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45. Assignment of Prime Lease.  As set forth in, and subject to the terms and provisions of Section 12.1 of the Prime Lease, Subtenant shall have the right to take assignment of the Sublandlord's interest as "Tenant" under the Prime Lease on January 1, 2020.  It shall be a condition to any such assignment that (i) Subtenant notifies Sublandlord in writing of its intention to assume the Prime Lease during the Term hereof, but no later than the date that is 180 days prior to the expiration of the Term hereof; (ii) the assignment is evidenced by a written assignment and assumption agreement acceptable to Sublandlord in form and substance; (iii) Subtenant is not in default under this Sublease at the time of assignment of the Prime Lease or at the time Subtenant notifies Sublandlord that it desires to exercise its rights to take assignment of the Prime Lease, (iv) Subtenant meets all requirements for assignment of the Prime Lease as set forth in the Prime Lease, including without limitation Section 12.1 thereof; and (v) any and all third-party costs incurred in connection with the assignment shall be at Subtenant's sole cost and expense.  Notwithstanding anything to the contrary, however, neither the Subtenant's right to assume the Lease as set forth in the previous sentence, nor any other right of Subtenant set forth herein or in the Prime Lease, shall be deemed to provide a right in favor of Subtenant to extend the Term of this Sublease.

NO FURTHER TEXT ON THIS PAGE, SIGNATURE PAGE FOLLOWS

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IN WITNESS WHEREOF, the parties hereto have executed this Sublease effective as of the date first written above.

SUBLANDLORD:

JM Family Enterprises, Inc., a Delaware corporation,

a Delaware limited liability company

By: 

Name: 

Title: 

WITNESSES AS TO SUBLANDLORD:

By: 

Name: 

By: 

Name: 

SUBTENANT:

Capstone Industries, Inc., a Florida corporation

By: ____________________________________

Name: 

Title: 

WITNESSES AS TO SUBTENANT:

By: 

Name: 

By: 

Name: 

 

18Exhibit 4.1

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

	
Original Issue Date: May 15, 2018

	
Principal Amount: $6,000,000

	 	
Purchase Price: $6,000,000

SENIOR SECURED

CONVERTIBLE PROMISSORY NOTE

DUE NOVEMBER 15, 2018

THIS SENIOR SECURED CONVERTIBLE PROMISSORY NOTE is one of a series of duly authorized and validly issued Senior Secured Convertible Promissory Notes of DPW Holdings, Inc., a Delaware corporation (the “Company”), having its principal place of business at 201 Shipyard Way, Newport Beach, CA 92663, designated as its Senior Secured Convertible Promissory Note due November 15, 2018 (this “Note”, or collectively with the other Notes of such series, the “Notes”).

FOR VALUE RECEIVED, the Company promises to pay to Dominion Capital LLC or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of $6,000,000 on November 15, 2018 (the “Maturity Date”) or such earlier date as this Note is required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Note in accordance with the provisions hereof.  This Note is subject to the following additional provisions:

Section 1.          Definitions.  For the purposes hereof, in addition to the terms defined elsewhere in this Note, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement (as defined below) and (b) the following terms shall have the following meanings:

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

 

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“Alternate Consideration” shall have the meaning set forth in Section 5(e).

“Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X for purposes of this definition) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within sixty (60) days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within sixty (60)  calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(d).

“Buy-In” shall have the meaning set forth in Section 4(b)(v).

“Commission” means the United States Securities and Exchange Commission.

 

“Common Stock” means the Class A common stock of the Company, par value $0.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.

 

“Common Stock Equivalents” means any securities of the Company or any subsidiary which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant, unit, or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

“Conversion” shall have the meaning ascribed to such term in Section 4.

“Conversion Date” shall have the meaning set forth in Section 4(a).

 

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“Conversion Schedule” means the Conversion Schedule in the form of Schedule 1 attached hereto.

“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Note in accordance with the terms hereof, including without limitation, shares of Common Stock issued upon conversion, redemption, or amortization of this Note, and shares of Common Stock issued and issuable in lieu of the cash payment of interest on this Note in accordance with the terms of this Note.

“DTC” means the Depository Trust Company.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“Event of Default” shall have the meaning set forth in Section 6(a).

“Fixed Conversion Price” shall have the meaning set forth in Section 4(b).

“Fundamental Transaction” shall have the meaning set forth in Section 5(e).

“Late Fees” shall have the meaning set forth in Section 2(c).

“Make-Whole Amount” means the fee payable by the Company to the Holder equal to 5% of the original principal amount of the Note.

“Mandatory Default Amount” means the payment of one hundred twenty-five percent (125%) of the outstanding principal amount of this Note and accrued and unpaid interest hereon, in addition to the payment of all other amounts, costs, expenses and liquidated damages due in respect of this Note.

“New York Courts” shall have the meaning set forth in Section 7(d).

“Note Register” shall have the meaning set forth in Section 2(b).

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

“Original Issue Date” means the date of the first issuance of this Note, regardless of any transfers of any Note and regardless of the number of instruments which may be issued to evidence such Note.

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

“Purchase Agreement” means that certain Securities Purchase Agreement, dated May 15, 2018 between the Company and the Holder.

“Registration Rights Agreement” means that certain Registration Rights Agreement between the Company and the Holder, dated May 15, 2018.

 

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“Required Minimum” means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable in the future pursuant to this Note, including any Conversion Shares issuable upon conversion in full of this Note (including Conversion Shares issuable as payment of interest on this Note), ignoring any conversion limits set forth therein, and assuming that the conversion price is at all times on and after the date of determination 100% of the then conversion price on the Trading Day immediately prior to the date of determination.

“Sales Agreement” means the At Market Issuance Sales Agreement, dated February 27, 2018, between the Company and H.C. Wainwright & Co., LLC, pursuant to which the Company may sell up to $50,000,000 in shares of Common Stock  in an at-the-market offering.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Share Delivery Date” shall have the meaning set forth in Section 4(c)(ii).

“Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1 of the Purchase Agreement and shall, where applicable, also include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.

 

“Successor Entity” shall have the meaning set forth in Section 5(e).

“Trading Day” means a day on which the principal Trading Market is open for trading.

 

“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American; the Nasdaq Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market; the New York Stock Exchange; any level of the OTC Markets operated by OTC Markets Group, Inc. or the OTC Bulletin Board (or any successors to any of the foregoing).

Section 2.          Interest and Amortization.

a)          Payment of Interest in Cash. The Company shall pay interest to the Holder on the aggregate principal amount of this Note at the rate of ten percent (10%) per annum, which annual interest shall be guaranteed. The Company agrees to pay the Holder 50% of such guaranteed annual interest in cash on the Closing Date and 50% of such guaranteed annual interest as Amortization Payments (as defined below) in accordance with Section 2(f) hereof. Following the Closing Date, all interest payments hereunder shall be payable in cash.  Accrued and unpaid interest shall be due and payable on each Conversion Date, each Amortization Payment Date, on the Maturity Date, or as otherwise set forth herein.

 

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b)          Interest Calculations. Interest shall be calculated on the basis of a 360-day year, consisting of twelve (12) thirty (30) calendar day periods, and shall accrue daily commencing on the Original Issue Date until payment in full of the outstanding principal, together with all accrued and unpaid interest, liquidated damages and other amounts which may become due hereunder, has been made.  Interest hereunder will be paid to the Person in whose name this Note is registered on the records of the Company regarding registration and transfers of this Note (the “Note Register”).

c)          Late Fee.  All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at an interest rate equal to the lesser of eighteen percent (18%) per annum or the maximum rate permitted by applicable law (the “Late Fees”) which shall accrue daily from the date such interest is due hereunder through and including the date of actual payment in full.

d)          Voluntary Prepayment.  So long as no Event of Default (as defined in Section 6(a)) hereof exists, at any time upon ten (10) days written notice to the Holder, but subject to the Holder’s conversion rights set forth herein, the Company may prepay any portion of the principal amount of this Note, any accrued and unpaid interest, and any other amounts due under this Note.  If the Company exercises its right to prepay the Note, the Company shall make payment to the Holder of an amount in cash equal to the sum of the then outstanding principal amount of this Note, any accrued and unpaid interest, the Make-Whole Amount and any other amounts due under this Note multiplied by one hundred percent (100%). The Holder may continue to convert the Note from the date notice of the prepayment is given until the date of the prepayment.

e)          Mandatory Prepayment.  Except for any transaction set forth on Schedule 2(e), during the term of the Note, in the event that the Company consummates any single public or private offering or other financing or capital-raising transaction of any kind (each a “Subsequent Offering”) in which the Company receives gross proceeds of at least $5,000,000, at any time upon ten (10) days written notice to the Holder, but subject to the Holder’s conversion rights set forth herein, the Company shall make payment to the Holder of an amount in cash equal to the then outstanding principal amount of this Note multiplied by twenty percent (20%).  The Holder may continue to convert the Note from the date notice of the prepayment is given until the date of the prepayment.

f)          Amortization.  Commencing on the last Trading Day of the second week following the Closing Date and continuing every two (2) weeks thereafter for a period of 26 weeks (each, an “Amortization Payment Date”), the Company shall redeem one-thirteenth (1/13th) of each of the original principal amount of this Note, accrued but unpaid interest and the Make-Whole Amount in accordance with the Amortization Payment Schedule set forth on Schedule 2(f) (each, an “Amortization Payment”).   Each Amortization Payment shall be made in cash in the amounts set forth on Schedule 2(f) hereto. Any outstanding unpaid principal and accrued interest on this Note as of the Maturity Date will be due and payable on the Maturity Date in cash.

 

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Section 3.          Registration of Transfers and Exchanges.

a)          Different Denominations. This Note is exchangeable for an equal aggregate principal amount of Note of different authorized denominations, as requested by the Holder surrendering the same.  No service charge will be payable for such registration of transfer or exchange.

b)          Investment Representations. This Note has been issued subject to certain investment representations of the original Holder and may be transferred or exchanged only in compliance with applicable federal and state securities laws and regulations.

c)          Reliance on Note Register. Prior to due presentment for transfer to the Company of this Note, the Company and any agent of the Company may treat the Person in whose name this Note is duly registered on the Note Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Note is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

Section 4.          Conversion.

a)          Voluntary Conversion. At any time after the Original Issue Date until this Note is no longer outstanding, in the event of the occurrence of an Event of Default that has not been cured in accordance with Section 6 hereof, this Note shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(d) hereof).  The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of this Note to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”).  If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder.  No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required.  To effect conversions hereunder, the Holder shall not be required to physically surrender this Note to the Company unless the entire principal amount of this Note, plus all accrued and unpaid interest thereon, has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Note in an amount equal to the applicable conversion.  The Holder and the Company shall maintain a Conversion Schedule showing the principal amount(s) converted and the date of such conversion(s).  The Company may deliver an objection to any Notice of Conversion within one (1) Business Day of delivery of such Notice of Conversion.  In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note may be less than the amount stated on the face hereof.

 

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b)          Conversion Price.  The conversion price in effect on any Conversion Date shall be equal to $0.75 (the “Fixed Conversion Price”). All such foregoing determinations will be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction that proportionately decreases or increases the Common Stock during such measuring period.  Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 6 hereof and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.  The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

c)          Mechanics of Conversion.

i.          Conversion Shares Issuable Upon Conversion of Principal Amount.  The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Note to be converted and any accrued and unpaid interest, including interest, to be converted by (y) the Fixed Conversion Price.

ii.         Delivery of Certificate Upon Conversion. Not later than two (2) Trading Days after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder a certificate or certificates representing the Conversion Shares which, on or after the date on which such Conversion Shares are eligible to be sold under Rule 144 without the need for current public information and the Company has received an opinion of counsel to such effect, which such opinion must be acceptable to the Holder in its sole and absolute discretion (which opinion the Company shall be responsible for obtaining at its sole cost and expense) shall be free of restrictive legends and trading restrictions, representing the number of Conversion Shares being acquired upon the conversion of this Note. All certificate or certificates required to be delivered by the Company under this Section 4(c) shall be delivered electronically through the DTC or another established clearing corporation performing similar functions. If the Conversion Date is prior to the date on which such Conversion Shares are eligible to be sold under Rule 144 without the need for current public information, or there is no registration statement in effect covering the Conversion Shares, the Conversion Shares shall bear a restrictive legend in the following form, as appropriate:

“THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

 

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Notwithstanding the foregoing, commencing on such date that the Conversion Shares are eligible for sale under Rule 144 subject to current public information requirements, the Company, upon request and at the sole cost and expense of the Company, shall obtain a legal opinion that is acceptable to the Holder in its sole and absolute discretion, to allow for such sales under Rule 144.

iii.        Failure to Deliver Certificates.  If, in the case of any Notice of Conversion, such certificate or certificates are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Note delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates issued to such Holder pursuant to the rescinded Conversion Notice.

iv.        Obligation Absolute; Partial Liquidated Damages.  The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Note in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder.  In the event the Holder of this Note shall elect to convert any or all of the outstanding principal or interest amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any 

 

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other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Note shall have been sought.  If the injunction is not granted, the Company shall promptly comply with all conversion obligations herein.  If the injunction is obtained, the Company must post a surety bond for the benefit of the Holder in the amount of one hundred fifty percent (150%) of the outstanding principal amount of this Note, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment.  In the absence of seeking such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion.  If the Company fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(c)(ii) by the Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, $1,000 per Trading Day for each Trading Day after such Share Delivery Date until such certificates are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 6 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.  The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

v.        Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Note in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(c)(ii).  For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Note with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000.  The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss.  Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Note as required pursuant to the terms hereof.

 

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vi.       Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock a number of shares of Common Stock at least equal to four hundred percent (400%) of the Required Minimum (the “Reserve Amount”) for the sole purpose of issuance upon conversion of this Note and payment of interest on this Note, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Notes).  The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable.

vii.      Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Note.  As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Fixed Conversion Price or round up to the next whole share.

viii.     Transfer Taxes and Expenses.  The issuance of certificates for shares of the Common Stock on conversion of this Note shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that, the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Note so converted and the Company shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.  The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion.

 

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d)          Holder’s Conversion Limitations.  The Company shall not effect any conversion of principal and/or interest of this Note, and a Holder shall not have the right to convert any principal and/or interest of this Note, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any Persons acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted principal amount of this Note beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Notes) beneficially owned by the Holder or any of its Affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.  To the extent that the limitation contained in this Section 4(d) applies, the determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Note is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Note may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Note is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination.  In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.  For purposes of this Section 4(d), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Company, or (iii) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within two (2) Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Note held by the Holder.  The Holder, upon not less than sixty-one (61) days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Note held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(d) shall continue to apply.  Any such increase or decrease will not be effective until the sixty-first (61st) day after such notice is delivered to the Company.  The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Note.

 

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Section 5.          Certain Adjustments.

a)          Stock Dividends and Stock Splits.  If the Company, at any time while this Note is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of interest on, this Note), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Fixed Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event.  Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re‐classification.

b)          [Reserved]

 

c)          [Reserved]

 

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d)          Subsequent Rights Offerings.  In addition to any adjustments pursuant to Section 5(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

e)          Pro Rata Distributions. While this Note is outstanding, the Company shall not declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”).  In the event that the Note is repaid at the time of such Distribution, the Holder shall not be entitled to participate in such Distribution.  If the Holder and the Company mutually agree, and the Note is not repaid at the time of such Distribution, then the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Note (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

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f)          Fundamental Transaction. If, at any time while this Note is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of fifty percent (50%) or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than fifty percent (50%) of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent conversion of this Note, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 4(e) on the conversion of this Note), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Note is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Note).  For purposes of any such conversion, the determination of the Fixed Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Fixed Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Note following such Fundamental Transaction.  The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Note and any document ancillary hereto, in accordance with the provisions of this Section 5(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Note, deliver to the Holder in exchange for this Note a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Note which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Note (without regard to any limitations on the conversion of this Note) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Note immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Note and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Note and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

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g)          Calculations.  All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.  For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

h)          Notice to the Holder.

i.          Adjustment to Fixed Conversion Price.  Whenever the Fixed Conversion Price is adjusted pursuant to any provision of Section 5(a), the Company shall promptly deliver to each Holder a notice setting forth the Fixed Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

ii.         Notice to Allow Conversion by Holder.  If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Note, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Note Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice.  To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.  The Holder shall remain entitled to convert this Note during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

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i)          Subsequent Equity Sales; Variable Rate Transactions; Other.

		i.	
So long as this Note remains outstanding, the Company shall not, directly or indirectly, amend, modify, waiver or alter any terms of conditions of any Common Stock Equivalents outstanding as of the date hereof to decrease the exercise, conversion and/or exchange price, as applicable, thereunder or otherwise increase the aggregate number of shares of Common Stock issuable in connection therewith (other than pursuant to anti-dilution terms and conditions applicable to such Common Stock Equivalents in effect as of the date hereof and disclosed in filings of the Company with the Commission prior to the date hereof).

		ii.	
So long as this Note remains outstanding, the Company shall be prohibited from effecting or entering into an agreement to effect any issuance by the Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents (or a combination of units thereof) involving a Variable Rate Transaction. “Variable Rate Transaction” means a transaction in which the Company issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional Common  Stock either (i) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the Common  Stock  at any time after the initial issuance of such debt or equity securities or (ii) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock (other than pursuant to terms and conditions applicable to such Common Stock Equivalents in effect as of the date hereof and disclosed in filings of the Company with the Commission prior to the date hereof), provided that the sale of Common Stock pursuant to the Sales Agreement or a similar agreement with H. C. Wainwright, LLC shall not constitute a Variable Rate Transaction.

 

16

 

		iii.	
So long as this Note remains outstanding, the Company shall, in the absence of the Holder’s prior written consent, be prohibited from effecting or entering into an agreement to effect any issuance by the Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents (or a combination of units thereof) involving an equity line of credit, at-the-market offering (as defined in SEC Rule 415) or similarly structured transaction, whereby the Company may issue securities at a future determined price, other than the sale of Common Stock pursuant to the Sales Agreement or a similar agreement with H. C. Wainwright, LLC.

		iv.	
So long as this Note is outstanding, the Company shall not enter into any transaction or arrangement structured in accordance with, based upon, or related or pursuant to Section 3(a)(l0) of the Securities Act.

		v.	
The Holder shall be entitled to obtain injunctive relief against the Company to preclude any such issuance in this Section 5(i) (without the need for the posting of any bond or similar item, which the Company hereby expressly and irrevocably waives the requirement for), which remedy shall be in addition to any right to collect damages.

j)          Most Favored Nation Status.  From the date hereof through the date that no Notes are outstanding, in the event that the Company issues or sells any notes, if the Purchaser then holding Notes reasonably believes that the terms and conditions appurtenant to such issuance or sale provide anti-dilution or other full-ratchet protective provisions to such investors that were not granted to the Purchaser hereunder, upon notice to the Company by such Purchaser within five (5) Trading Days after the Company’s disclosure of such issuance or sale, the Company shall amend the terms of the Notes as to such Purchaser only, so as to give such Purchaser the benefit of such anti-dilution or other full-ratchet protective provisions.

Section 6.          Events of Default.

a)          “Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

i.          any default in the payment of (A) the principal amount of this Note or (B) interest, liquidated damages and other amounts owing to a Holder on this Note, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of an interest payment or other default under clause (B) above, is not cured within seven (7) Trading Days;

 

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ii.         the Company shall fail to observe or perform any other covenant, provision, or agreement contained in this Note (and other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breaches are addressed in clauses (x) and (xv) below, respectively) which failure is not cured, if possible to cure, within the earlier to occur of (A) seven (7) Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) ten (10) Trading Days after the Company has become or should have become aware of such failure;

iii.        a material default or material event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under any of the Transaction Documents;

iv.        any representation or warranty made in this Note, any other Transaction Documents, any written statement pursuant hereto or thereto, any other agreement, contract, lease, document or instrument to which the Company or any Subsidiary is obligated (including those covered by clause (vi) below), or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

v.         the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;

vi.        the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $50,000 whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

vii.       the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within seven (7) Trading Days;

viii.      the Company does not meet the current public information requirements under Rule 144, which failure is not cured, if possible to cure, within seven (7) Trading Days after the expiration of the applicable grace period permitted under Rule 12b-25 of the Exchange Act, further provided that the Company files a Form 12b-25 for the relevant report required to meet the current public information requirements under Rule 144;

 

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ix.        the Company shall fail for any reason to deliver certificates to a Holder prior to the seventh (7th) Trading Day after a Conversion Date pursuant to Section 4(c), or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversions of this Note in accordance with the terms hereof;

x.         the Company fails to file with the Commission any required reports under Section 13 or 15(d) of the Exchange Act such that it is not in compliance with Rule 144(c)(1) (or Rule 144(i)(2), if applicable), which failure is not cured, if possible to cure, within seven (7) Trading Days after the expiration of the applicable grace period permitted under Rule 12b-25 of the Exchange Act, further provided that the Company files a Form 12b-25 for such report;

xi.        the Company or any Subsidiary shall: (A) apply for or consent to the appointment of a receiver, trustee, custodian or liquidator of it or any of its properties; (B) admit in writing its inability to pay its debts as they mature; (C) make a general assignment for the benefit of creditors; (D) be adjudicated as bankrupt or insolvent or be the subject of an order for relief under Title 11 of the United States Code or any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute of any other jurisdiction or foreign country; or (E) file a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with creditors or to take advantage or any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of a petition filed against it in any proceeding under any such law, or (F) take or permit to be taken any action in furtherance of or for the purpose of effecting any of the foregoing;

xii.       if any order, judgment or decree shall be entered, without the application, approval or consent of the Company or any Subsidiary, by any court of competent jurisdiction, approving a petition seeking liquidation or reorganization of the Company or any Subsidiary, or appointing a receiver, trustee, custodian or liquidator of the Company or any Subsidiary, or of all or any substantial part of its assets, and such order, judgment or decree shall continue unstayed and in effect for any period of sixty (60) days;

xiii.      the occurrence of any levy upon or seizure or attachment of, or any uninsured loss of or damage to, any property of the Company or any Subsidiary having an aggregate fair value or repair cost (as the case may be) in excess of $250,000 individually or in the aggregate, and any such levy, seizure or attachment shall not be set aside, bonded or discharged within thirty (30) days after the date thereof;

 

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xiv.      the Company shall fail to maintain the Reserve Amount and such failure is not cured within seven (7) Trading Days;

xv.       any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $50,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of forty-five (45) calendar days;

xvi.      the Company shall fail to pay the Holder any Amortization Payment in accordance with Section 2(f) hereof (an “Amortization Default”), provided that any such failure is not cured within seven (7) Trading Days, and the then current price of the Common Stock is below the Fixed Conversion Price;

xvii.     the Company shall fail to respond to any comments from the principal Trading Market regarding approval of the sale and issuance of the Conversion Shares, the  Warrant Shares and the Commitment Shares within five (5) Trading Days of receipt of such comments;

xviii.    the Company shall fail to obtain all necessary approvals of the sale and issuance of the Conversion Shares, the Warrrant Shares and the Commitment Shares consistent with the rules and regulations of the principal Trading Market within twenty-five (25) days of the Closing Date;

xix.       the Company shall fail to file the Registration Statement (as defined in the Registration Rights Agreement) within twenty-one (21) days after the Closing Date; or

xx.        There shall exist an Amortization Default and the Company shall fail to register the Registrable Securities (as defined in the Registration Rights Agreement) within ninety (90) days of the Closing Date on a registration statement declared effective by the Commission in accordance with the terms of the Registration Rights Agreement.

b)          Remedies Upon Event of Default. Subject to the Beneficial Ownership Limitation as set forth in Section 4(d), if any Event of Default occurs, then the outstanding principal amount of this Note, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount.  After the occurrence of any Event of Default that results in the eventual acceleration of this Note, the interest rate on this Note shall accrue at an additional interest rate equal to the lesser of one and one-half percent (1.5%) per month (eighteen percent (18.0%) per annum) or the maximum rate permitted under applicable law.  Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Note to or as directed by the Company.  In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind (other than the Holder’s election to declare such acceleration), and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law.  Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Note until such time, if any, as the Holder receives full payment pursuant to this Section 6(b).  No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

 

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Section 7.          Miscellaneous.

a)          Notices.  Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by email or facsimile, or sent by a nationally recognized overnight courier service, addressed to the Company at 201 Shipyard Way, Newport Beach, CA 92663, or such other address, facsimile number, or email address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 7(a).  Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by email or facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the email address, facsimile number, or address of the Holder appearing on the books of the Company, or if no such email address, facsimile number, or address appears on the books of the Company, at the principal place of business of such Holder.  Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest (i) the date of transmission, if such notice or communication is delivered via facsimile or email at the facsimile number or email address set forth on the signature pages attached hereto prior to 12:00 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile or email at the facsimile number or email address set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 12:00 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.

b)          Absolute Obligation. Except as expressly provided herein, no provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this Note at the time, place, and rate, and in the coin or currency, herein prescribed.  This Note is a direct debt obligation of the Company.  

c)          Lost or Mutilated Note.  If this Note shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Note, and of the ownership hereof, reasonably satisfactory to the Company.

 

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d)          Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof.  Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”).  Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Note or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Note, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

e)          Waiver.  Any waiver by the Company or the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note.  The failure of the Company or the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note on any other occasion.  Any waiver by the Company or the Holder must be in writing.

f)          Amendments. The prior written consent of 50.1% in interest of the Holders, which shall be calculated based on the principal amount of all Notes outstanding at the time of such consent, shall be required for any change or amendment to the Notes.

 

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g)          Severability.  If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances.  If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Note, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

h)          Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief.  The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Note.  The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Note.

i)          Next Business Day.  Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

 

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j)          Payment of Collection, Enforcement and Other Costs. If (i) this Note is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this Note or to enforce the provisions of this Note or (ii) there occurs any bankruptcy, reorganization, receivership of the Company or other proceedings affecting Company creditors' rights and involving a claim under this Note, then the Company shall pay the reasonable and documented out-of-pocket costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, but not limited to, attorneys' fees and disbursements.

k)          Headings.  The headings contained herein are for convenience only, do not constitute a part of this Note and shall not be deemed to limit or affect any of the provisions hereof.

 

 

[Signature Pages Follow]

 

24

 

IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a duly authorized officer as of the date first above indicated.

	 	
DPW HOLDINGS, INC.

 

	 	
By:

	
/s/ Milton C. Ault I II

	 	 	
Name: Milton C. Ault III

	 	 	
Title:   Chief Executive Officer

	 	 	 
	 	
Facsimile No. for delivery of Notices:

 

25

 

ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the Senior Secured Convertible Promissory Note, due November 15, 2018 of DPW Holdings, Inc., a Delaware corporation (the “Company”), into shares of common stock of the Company (the “Common Stock”), according to the conditions hereof, as of the date written below.  If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith.  No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion, the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Note, as determined in accordance with Section 13(d) of the Exchange Act.

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

Conversion calculations:

	 	
Date to Effect Conversion:

	 	 
	 	
Principal Amount of Note to be Converted:

	 	 
	 	
Payment of Interest in Common Stock __ Yes __ No

	 	 
	 	
If Yes, $_____ of Interest Accrued on Account of 

 Conversion at Issue.

	 	 
	 	
Number of Shares of Common Stock to be Issued:

	 	 
	 	 
	 	
Signature:

	 	 
	 	
Name:

	 	 
	 	
Delivery Instructions:

 

26

 

Schedule 1

CONVERSION SCHEDULE

 This Senior Secured Convertible Promissory Note, due November 15, 2018, in the original principal amount of $6,000,000 is issued by DPW Holdings, Inc., a Delaware corporation.  This Conversion Schedule reflects conversions made under Section 4 of the above referenced Note.

Dated:

	
 

Date of Conversion

(or for first entry,

 Original Issue Date)

	
 

Amount of

 Conversion

	
 

Aggregate

Principal

Amount

Remaining

Subsequent to

 Conversion

(or original

Principal

 Amount)

	
 

Company Attest

	
 

 

 

	 	 	 
	
 

 

 

	 	 	 
	
 

 

 

	 	 	 
	
 

 

 

	 	 	 
	
 

 

 

	 	 	 
	
 

 

 

	 	 	 

 

27

 

Schedule 2(e)

 

Mandatory Prepayment

 

 

Schedule 2(f)

 

Amortization Payment Schedule

 

 

 

 

 

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