Document:

EX-10.27

 Exhibit 10.27 

THE MIDDLEFIELD BANKING COMPANY 

EXECUTIVE VARIABLE BENEFIT DEFERRED COMPENSATION
AGREEMENT 
 This EXECUTIVE VARIABLE BENEFIT DEFERRED
COMPENSATION AGREEMENT (this “Agreement”) is entered into as of this 9th day of July, 2018, by and between The Middlefield Banking Company, an Ohio-chartered bank (the “Bank”), and
Donald L. Stacy, Executive Vice President and Chief Financial Officer of the Bank (the “Executive”). 

WHEREAS, the Bank and the Executive entered into an Amended Executive Deferred Compensation Agreement
dated as of May 8, 2008, with contributions made solely by the Bank and benefits payable out of the Bank’s general assets, 

WHEREAS, the Amended Executive Deferred Compensation Agreement does not provide for employer
contributions to continue after age 65 because Section 2.1 of the Amended Executive Deferred Compensation Agreement states “The Annual Contribution shall not be made by the Bank for the Plan Year in which the Executive attains Normal
Retirement Age or for any year thereafter.” 
 WHEREAS, this Agreement does not supersede the
May 8, 2008 Amended Executive Deferred Compensation Agreement, 
 WHEREAS, none of the conditions
or events included in the definition of the term “golden parachute payment” that is set forth in section 18(k)(4)(A)(ii) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal Deposit Insurance Corporation Rule
359.1(f)(1)(ii) [12 CFR 359.1(f)(1)(ii)] exists or, to the best knowledge of the Bank, is contemplated insofar as the Bank is concerned, and 

WHEREAS, the parties hereto intend that this Agreement shall be considered an unfunded arrangement
maintained primarily to provide supplemental retirement benefits for the Executive (who is a key employee and member of a select group of management), and to be considered a top hat plan for purposes of the Employee Retirement Income Security Act of
1974, as amended (“ERISA”). The Executive is fully advised of the Bank’s financial status. 
 NOW
THEREFORE, in consideration of these premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Executive and the Bank hereby agree as follows. 

ARTICLE 1 

DEFINITIONS 

1.1    “Account Balance” means the Bank’s accounting of Annual Contributions made by the
Bank, plus accrued interest. 
 1.2    “Annual Contribution” means the amount credited to the
Account Balance after the end of each Plan Year for which the Performance Goals are achieved. The Annual Contribution will be conditional on achievement of the Performance Goals. The Annual Contribution amount in any Plan Year shall not be less than
5% or more than 15% of the Executive’s Base Annual Salary. The Annual Contribution amount shall be changed no more frequently than annually. 

  
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 1.3    “Base Annual Salary” means compensation of the
type required to be reported as salary according to Securities and Exchange Commission Rule 229.402(c) (17 CFR 229.402(c)), specifically column (c) of that rule’s Summary Compensation Table (or any successor provision), but excluding fees
or any other form of compensation payable on account of service as a director. Base Annual Salary shall be calculated before reduction for amounts voluntarily deferred or contributed by the Executive pursuant to qualified plans. 

1.4    “Beneficiary” means each designated person, or the estate of the deceased Executive,
entitled to benefits, if any, upon the death of the Executive, determined according to Article 5. 

1.5    “Beneficiary Designation Form” means the form established from time to time by the Plan
Administrator that the Executive completes, signs, and returns to the Plan Administrator to designate one or more Beneficiaries. 

1.6    “Change in Control” shall mean a change in control as defined in Internal Revenue Code
section 409A and rules, regulations, and guidance of general application thereunder issued by the Department of the Treasury, applying the percentage threshold specified in each of paragraphs (a) through (c) of this section 1.6 or the related
percentage threshold specified in section 409A and rules, regulations, and guidance of general application thereunder, whichever is greater – 

(a)    Change in ownership: a change in ownership of Middlefield Banc Corp. (“Banc Corp.”), an Ohio
corporation of which the Bank is a wholly owned subsidiary, occurs on the date any one person or group accumulates ownership of Banc Corp. stock constituting more than 50% of the total fair market value or total voting power of Banc Corp. stock,

 (b)    Change in effective control: (x) any one person or more than one person acting as a group
acquires within a 12-month period ownership of Banc Corp. stock possessing 30% or more of the total voting power of Banc Corp., or (y) a majority of Banc Corp.’s board of directors is replaced
during any 12-month period by directors whose appointment or election is not endorsed in advance by a majority of Banc Corp.’s board of directors, or 

(c)    Change in ownership of a substantial portion of assets: a change in ownership of a substantial portion of
Banc Corp.’s assets occurs if in a 12-month period any one person or more than one person acting as a group acquires from Banc Corp. assets having a total gross fair market value equal to or exceeding 40%
of the total gross fair market value of all of Banc Corp.’s assets immediately before the acquisition or acquisitions. For this purpose, gross fair market value means the value of Banc Corp.’s assets, or the value of the assets being
disposed of, determined without regard to any liabilities associated with the assets. 

1.7    “Code” means the Internal Revenue Code of 1986, as amended, and rules, regulations, and
guidance of general application issued thereunder by the Department of the Treasury. 
 1.8    “Effective
Date” means January 1, 2018. 

  
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 1.9    “Intentional” for purposes of this Agreement,
no act or failure to act on the Executive’s part will be considered intentional if it was due primarily to an error in judgment or negligence. An act or failure to act on the Executive’s part is intentional if it is not in good faith and
if it is without a reasonable belief that the action or failure to act is in the Bank’s best interests. Any act or failure to act based upon authority granted by resolutions duly adopted by the board of directors or based upon the advice of
counsel for the Bank is conclusively presumed to be in good faith and in the Bank’s best interests. 

1.10    “Performance Goals” means the performance criteria set forth in Schedule A attached to
this Agreement and incorporated herein by this reference, which criteria have been established by the Bank’s board of directors. The Performance Goals may be changed by the board of directors no more frequently than annually. If the performance
criteria are changed, a new Schedule A shall be substituted for and shall supersede the old Schedule A, and the new Schedule A shall be deemed to be incorporated by reference herein and to be a part of this Agreement. A change in Performance Goals
shall not become effective for the Plan Year in which the change is made unless the change is made on or before March 31 of the Plan Year. The Plan Administrator shall have sole authority to determine whether the Performance Goals have been
achieved for any Plan Year. The Plan Administrator’s determination that the Performance Goals for a Plan Year have or have not been achieved shall be conclusive and binding. 

1.11    “Plan Administrator” or “Administrator” means the plan administrator
described in Article 8. 
 1.12    “Plan Year” means the calendar year. The first Plan Year
shall begin on the Effective Date and end on December 31, 2018. 
 1.13    “Separation from
Service” means separation from service as defined in Treasury Regulation 1.409A-1(h), other than because of the Executive’s death. 

1.14    “Termination with Cause” and “Cause” shall have the same definition
specified in any effective severance or employment agreement existing on the date hereof or hereafter entered into between the Executive and the Bank or between the Executive and Banc Corp. If the Executive is not a party to a severance or
employment agreement containing a definition, Termination with Cause means the Bank terminates the Executive’s employment because of – 

(a)    the Executive’s gross negligence or gross neglect of duties or intentional and material failure to perform
stated duties after written notice thereof, or 
 (b)    disloyalty or dishonesty by the Executive in the performance of
duties or breach of the Executive’s fiduciary duties for personal profit, in any case whether in the Executive’s capacity as a director or officer, or 

(c)    intentional wrongful damage by the Executive to the business or property of the Bank or its affiliates, including
without limitation the reputation of the Bank, which in the judgement of the Bank causes material harm to the Bank or affiliates, or 

(d)    a willful violation by the Executive of any applicable law or significant policy of the Bank or an affiliate that,
in the Bank’s judgement, results in an adverse effect on the Bank or the affiliate, regardless of whether the violation leads to criminal prosecution or conviction. For purposes of this Agreement applicable laws include any statute, rule,
regulatory order, statement of policy, or final cease-and-desist order of any governmental agency or body having regulatory authority over the Bank, or 

  
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 (e)    the occurrence of any event that results in the Executive being
excluded from coverage, or having coverage limited for the Executive as compared to other executives of the Bank, under the Bank’s blanket bond or other fidelity or insurance policy covering its directors, officers, or employees, or 

(f)    the Executive is removed from office or permanently prohibited from participating in the Bank’s affairs by an
order issued under section 8(e)(4) or section 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. 1818(e)(4) or (g)(1), or 

(g)    conviction of the Executive for or plea of no contest to a felony or conviction of or plea of no contest to a
misdemeanor involving moral turpitude, or the actual incarceration of the Executive for 45 consecutive days or more. 

ARTICLE 2 

DEFERRAL ACCOUNT 

2.1    Annual Contribution. The Bank shall establish an Account Balance on its books. Within three months
after the end of each Plan Year the Bank shall credit the Annual Contribution to the Account Balance provided the Performance Goals were achieved for the Plan Year. Contributions to the Account Balance by the Executive are prohibited. Discretionary
contributions by the Bank are likewise prohibited.    However, if the Performance Goals are achieved for the Plan Year in which the Executive has a Separation from Service or dies, the Bank shall make a final contribution in an
amount equal to the Annual Contribution multiplied by a percentage. The percentage shall equal the number of days in the Plan Year before the Executive’s Separation from Service or death divided by 365. 

2.2    Interest. At the end of each Plan Year and until the first to occur of (x) the
Executive’s death, or (y) the Executive’s Separation from Service, interest is to be credited on the Account Balance at an annual rate of interest for that Plan Year, compounded monthly on the first day of the month, equal to
the prime interest rate as published in The Wall Street Journal. After the Executive’s Separation from Service, interest shall be credited on the Account Balance at an annual rate equal to the yield on a
10-year corporate bond rated Aa by Moody’s, rounded to the nearest  1⁄4%. 

2.3    Statement of Account. Within 120 days after the end of each Plan Year, the Bank shall provide to the
Executive a statement of the Account Balance at the end of the Plan Year. Each annual statement of the Account Balance shall supersede the previous year’s statement of the Account Balance. 

2.4    Accounting Device Only. The Account Balance is solely a device for measuring amounts to be paid under
this Agreement. The Account Balance is not a trust fund of any kind. The Executive is a general unsecured creditor of the Bank for the payment of benefits. The benefits represent the mere promise by the Bank to pay benefits. The Executive’s
rights are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by the Executive’s creditors. 

  
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 ARTICLE 3 

BENEFITS DURING LIFETIME 

3.1    Separation from Service. Unless the Executive dies or a Change in Control occurs before Separation
from Service, when the Executive has a Separation from Service the Bank shall pay to the Executive the Account Balance as of the end of the month in which the Executive has a Separation from Service. Beginning on the first day of the seventh month
after the Executive has a Separation from Service, the Account Balance shall be paid to the Executive in 120 substantially equal monthly installments with each subsequent payment to be made on the first day of each subsequent month. The Bank shall
credit interest according to the formula of section 2.2, compounded monthly, until the Account Balance is paid in full. If the Executive’s Separation from Service is a Termination with Cause, no benefits shall be paid under this Agreement and
this Agreement shall terminate. 
 3.2    Change in Control. If a Change in Control occurs before the
Executive’s Separation from Service, instead of any other benefit payable under this Agreement the Bank shall pay to the Executive the entire Account Balance in a single lump sum on the date of the Change in Control. Payment of the Change-in-Control benefit shall fully discharge the Bank from all obligations under this Agreement, except the legal fee reimbursement obligation under section 9.11. 

3.3    Payout of Separation from Service Benefit after a Change in Control. If when a Change in Control
occurs the Executive is receiving or is entitled to receive the benefit under section 3.1, the Bank shall pay the remaining benefits to the Executive in a single lump sum on the later of (x) the date of the Change in Control or
(y) the first day of the seventh month after the month in which the Executive’s Separation from Service occurs. The lump-sum payment due to the Executive as a result of a Change in Control
shall be an amount equal to the Account Balance remaining unpaid. 
 3.4    One Benefit Only. Despite
anything to the contrary in this Agreement, the Executive and Beneficiary are entitled to one benefit only under this Agreement, which shall be determined by the first event to occur that is dealt with by this Agreement. Except as provided in
section 3.3, later occurrence of events dealt with by this Agreement shall not entitle the Executive or Beneficiary to other or additional benefits under this Agreement. 

3.5    Savings Clause Relating to Compliance with Code Section 409A. Despite any contrary
provision of this Agreement, if when the Executive’s employment terminates the Executive is a specified employee, as defined in Code section 409A, and if any payments under Article 3 of this Agreement will result in additional tax or interest
to the Executive because of section 409A, the Executive shall not be entitled to the payments under Article 3 until the earliest of (x) the date that is at least six months after termination of the Executive’s employment for reasons
other than the Executive’s death, (y) the date of the Executive’s death, or (z) any earlier date that does not result in additional tax or interest to the Executive under section 409A. 

ARTICLE 4 

DEATH BENEFITS 

After the Executive’s death, the Bank shall pay to the Executive’s Beneficiary the Account Balance as of the date of the
Executive’s death. The Account Balance shall be paid to the Executive’s Beneficiary in a single lump sum, 90 days after the date of the Executive’s death. However, if the Executive dies after termination of this Agreement under
Article 6, the Executive’s Beneficiary shall be entitled to no benefits under this Agreement. 

  
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 ARTICLE 5 

BENEFICIARIES 

5.1    Beneficiary Designations. The Executive shall have the right to designate at any time a Beneficiary
to receive any benefits payable under this Agreement after the Executive’s death. The Beneficiary designated under this Agreement may be the same as or different from the beneficiary designation under any other benefit plan of the Bank in which
the Executive participates. 
 5.2    Beneficiary Designation Change. The Executive shall designate a
Beneficiary by completing and signing the Beneficiary Designation Form and delivering it to the Plan Administrator or its designated agent. The Executive’s Beneficiary designation shall be deemed automatically revoked if the Beneficiary
predeceases the Executive or if the Executive names a spouse as Beneficiary and the marriage is subsequently dissolved. The Executive shall have the right to change a Beneficiary by completing, signing, and otherwise complying with the terms of the
Beneficiary Designation Form and the Plan Administrator’s rules and procedures, as in effect from time to time. Upon the acceptance by the Plan Administrator of a new Beneficiary Designation Form, all Beneficiary designations previously filed
shall be cancelled. The Plan Administrator shall be entitled to rely on the last Beneficiary Designation Form filed by the Executive and accepted by the Plan Administrator before the Executive’s death. 

5.3    Acknowledgment. No designation or change in designation of a Beneficiary shall be effective until
received, accepted, and acknowledged in writing by the Plan Administrator or its designated agent. 

5.4    No Beneficiary Designation. If the Executive dies without a valid beneficiary designation or if all
designated Beneficiaries predecease the Executive, the Executive’s spouse shall be the designated Beneficiary. If the Executive has no surviving spouse, the benefits shall be paid to the Executive’s estate. 

5.5    Facility of Payment. If a benefit is payable to a minor, to a person declared incapacitated, or to a
person incapable of handling the disposition of his or her property, the Bank may pay the benefit to the guardian, legal representative, or person having the care or custody of the minor, incapacitated person, or incapable person. The Bank may
require proof of incapacity, minority, or guardianship as it may deem appropriate before distribution of the benefit. Distribution shall completely discharge the Bank from all liability for the benefit. 

ARTICLE 6 

GENERAL LIMITATIONS 

6.1    Termination with Cause. Despite any contrary provision of this Agreement, the Bank shall not pay any
benefit under this Agreement and this Agreement shall terminate if Separation from Service is a Termination with Cause. 

6.2     Removal. Despite any contrary provision of this Agreement, if the Executive is removed from office
or permanently prohibited from participating in the Bank’s affairs by an order issued under section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. 1818(e)(4) or (g)(1), all obligations of the Bank under this Agreement shall
terminate as of the effective date of the order. 

  
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 6.3    Default. Despite any contrary provision of this
Agreement, if the Bank is in “default” or “in danger of default”, as those terms are defined in section 3(x) of the Federal Deposit Insurance Act, 12 U.S.C. 1813(x), all obligations under this Agreement shall terminate. 

ARTICLE 7 

CLAIMS AND REVIEW PROCEDURES 

7.1    Claims Procedure. The Bank will notify any person or entity that makes a claim for benefits under
this Agreement (the “Claimant”) in writing, within 90 days after receiving Claimant’s written application for benefits, of his or her eligibility or noneligibility for benefits under the Agreement. If the Plan Administrator determines
that the Claimant is not eligible for benefits or full benefits, the notice will state (w) the specific reasons for denial, (x) a specific reference to the provisions of the Agreement on which the denial is based,
(y) a description of any additional information or material necessary for the Claimant to perfect his or her claim, and a description of why it is needed, and (z) an explanation of the Agreement’s claims review procedure
and other appropriate information concerning steps to be taken if the Claimant wishes to have the claim reviewed. If the Plan Administrator determines that there are special circumstances requiring additional time to make a decision, the Bank will
notify the Claimant of the special circumstances and the date by which a decision is expected to be made and may extend the time for up to an additional 90 days. 

7.2    Review Procedure. If the Claimant is determined by the Plan Administrator not to be eligible for
benefits, or if the Claimant believes that he or she is entitled to greater or different benefits, the Claimant will have the opportunity to have his or her claim reviewed by the Bank by filing a petition for review with the Bank within 60 days
after receipt of the notice issued by the Bank. The Claimant’s petition must state the specific reasons the Claimant believes entitle him or her to benefits or to greater or different benefits. Within 60 days after receipt by the Bank of the
petition, the Plan Administrator will give the Claimant (and counsel, if any) an opportunity to present his or her position verbally or in writing, and the Claimant (or counsel) will have the right to review the pertinent documents. The Plan
Administrator will notify the Claimant of the Plan Administrator’s decision in writing within the 60-day period, stating specifically the basis of its decision, written in a manner to be understood by the
Claimant, and the specific provisions of the Agreement on which the decision is based. If, because of the need for a hearing, the 60-day period is not sufficient, the decision may be deferred for up to another
60 days at the election of the Plan Administrator but notice of this deferral will be given to the Claimant. 
 ARTICLE 8

 ADMINISTRATION OF AGREEMENT 

8.1    Plan Administrator Duties. This Agreement shall be administered by a Plan Administrator consisting of
the board or such committee or persons as the board shall appoint. The Executive may not be a member of the Plan Administrator. The Plan Administrator shall have the discretion and authority to (x) make, amend, interpret, and enforce all
appropriate rules and regulations for the administration of this Agreement and (y) decide or resolve any and all questions that may arise, including interpretations of this Agreement. 

8.2    Agents. In the administration of this Agreement, the Plan Administrator may employ agents and
delegate to them such administrative duties as it sees fit (including acting through a duly appointed representative) and may from time to time consult with counsel, who may be counsel to the Bank. 

  
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 8.3    Binding Effect of Decisions. The decision or action of
the Plan Administrator concerning any question arising out of the administration, interpretation, and application of the Agreement and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having
any interest in the Agreement. Neither the Executive nor any Beneficiary shall be deemed to have any right, vested or unvested, regarding the continuing effect of any decision or action of the Plan Administrator. 

8.4    Indemnity of Plan Administrator. The Bank shall indemnify and hold harmless the members of the Plan
Administrator against any and all claims, losses, damages, expenses, or liabilities arising from any action or failure to act with respect to this Agreement, except in the case of willful misconduct by the Plan Administrator or any of its members.

 8.5    Bank Information. To enable the Plan Administrator to perform its functions, the Bank shall
supply full and timely information to the Plan Administrator on all matters relating to the date and circumstances of the retirement, death, or Separation from Service of the Executive and such other pertinent information as the Plan Administrator
may reasonably require. 
 ARTICLE 9 

MISCELLANEOUS 

9.1    Amendments and Termination. This Agreement may be amended solely by a written agreement signed by the
Bank and by the Executive, except that the Bank’s Plan Administrator may on its own change the financial condition or conditions constituting the Performance Goals, which change shall constitute an amendment of this Agreement, provided that
written notice of the change is given to the Executive as promptly as practicable after the change is adopted by the Plan Administrator. This Agreement may be terminated by the Bank without the Executive’s consent. Unless Article 6 provides
that the Executive is not entitled to payment or unless when termination occurs the Executive has already received payment of benefits under this Agreement, the Bank must pay the Account Balance in a single lump sum to the Executive if the Bank
terminates this Agreement. The lump-sum termination payment will be made to the Executive consistent with the terms of the Code section 409A plan-termination exception to the prohibition against accelerated
payment [Rule 1.409A-3(j)(4)(ix)]. 
 9.2    Binding Effect. This
Agreement shall bind the Executive and the Bank and their beneficiaries, survivors, executors, successors, administrators, and transferees. 

9.3    Successors; Binding Agreement. By an assumption agreement in form and substance satisfactory
to the Executive, the Bank shall require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the Bank’s business or assets to expressly assume and agree to perform this
Agreement in the same manner and to the same extent the Bank would be required to perform this Agreement had no succession occurred. 

9.4    No Guarantee of Employment. This Agreement is not an employment policy or contract. It does not give
the Executive the right to remain an employee of the Bank nor does it interfere with the Bank’s right to discharge the Executive. It also does not require the Executive to remain an employee or interfere with the Executive’s right to
terminate employment at any time. 

  
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9.5    Non-Transferability. Benefits under this Agreement may not be
sold, transferred, assigned, pledged, attached, or encumbered. 
 9.6    Tax Withholding. The Bank shall
withhold any taxes that are required to be withheld from the benefits provided under this Agreement. 

9.7    Applicable Law. This Agreement and all rights hereunder shall be governed by the laws of the State of
Ohio, except to the extent the laws of the United States of America otherwise require. 
 9.8    Unfunded
Arrangement. The Executive and the Beneficiary are general unsecured creditors of the Bank for the payment of benefits under this Agreement. The benefits represent the mere promise by the Bank to pay benefits. The rights to benefits are not
subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. Any insurance on the Executive’s life is a general asset of the Bank to which the Executive and the Beneficiary have
no preferred or secured claim. 
 9.9    Entire Agreement. This Agreement constitutes the entire agreement
between the Bank and the Executive concerning the subject matter. No rights are granted to the Executive under this Agreement other than those specifically set forth. This Agreement does not supersede or modify the May 8, 2008 Amended Executive
Deferred Compensation Agreement. This Agreement and the May 8, 2008 Amended Executive Deferred Compensation Agreement are entirely independent of each other. 

9.10    Tax Consequences. The Bank does not insure or guarantee the tax consequences of payments provided
hereunder for matters beyond its control. The Bank shall not be liable in any way to Executive if any payment or benefit which is to be provided pursuant to this Agreement and which is considered deferred compensation subject to Code section 409A
otherwise fails to comply with, or be exempt from, the requirements of Code section 409A. 
 9.11    Payment
of Legal Fees. The Bank is aware that after a Change in Control management of the Bank could cause or attempt to cause the Bank to refuse to comply with its obligations under this Agreement or could institute or cause or attempt to cause the
Bank to institute litigation seeking to have this Agreement declared unenforceable or could take or attempt to take other action to deny the Executive the benefits intended under this Agreement. In these circumstances the purpose of this Agreement
would be frustrated. The Bank desires that the Executive not be required to incur the expenses associated with the enforcement of rights under this Agreement, whether by litigation or other legal action, because the cost and expense thereof would
substantially detract from the benefits intended to be granted to the Executive hereunder. The Bank desires that the Executive not be forced to negotiate settlement of rights under this Agreement under threat of incurring expenses. Accordingly, if
after a Change in Control occurs it appears to the Executive that (x) the Bank has failed to comply with any of its obligations under this Agreement, or (y) the Bank or any other person has taken any action to declare this
Agreement void or unenforceable, or instituted any litigation or other legal action designed to deny, diminish, or to recover from the Executive the benefits intended to be provided to the Executive hereunder, the Bank irrevocably authorizes the
Executive from time to time to retain counsel of the Executive’s choice, at the Bank’s expense as provided in this section 9.11, to represent the Executive in the initiation or defense of any litigation or other legal action, whether by or
against the Bank or any director, officer, stockholder, or other person affiliated with the Bank, in any jurisdiction. Despite any existing or previous attorney-client relationship between the Bank and any counsel chosen by the Executive under this
section 9.11, the Bank irrevocably consents to the Executive entering into an attorney-client relationship with 

  
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that counsel, and the Bank and the Executive agree that a confidential relationship shall exist between the Executive and that counsel. The fees and expenses of counsel selected from time to time
by the Executive as provided in this section shall be paid or reimbursed to the Executive by the Bank on a regular, periodic basis upon presentation by the Executive of a statement or statements prepared by counsel in accordance with counsel’s
customary practices, up to a maximum aggregate amount of $500,000, whether suit be brought or not, and whether or not incurred in trial, bankruptcy, or appellate proceedings. The Bank’s obligation to pay the Executive’s legal fees under
this section 9.11 operates separately from and in addition to any legal fee reimbursement obligation the Bank may have with the Executive under any separate employment, severance, or other agreement between the Executive and the Bank. Despite
anything in this section 9.11 to the contrary however, the Bank shall not be required to pay or reimburse the Executive’s legal expenses if doing so would violate section 18(k) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)] and Rule
359.3 of the Federal Deposit Insurance Corporation [12 CFR 359.3]. 
 9.12    Severability. If any
provision of this Agreement is held invalid, such invalidity shall not affect any other provision of this Agreement not held invalid, and each such other provision shall continue in full force and effect to the full extent consistent with law. If
any provision of this Agreement is held invalid in part, such invalidity shall not affect the remainder of the provision not held invalid, and the remainder of such provision together with all other provisions of this Agreement shall continue in
full force and effect to the full extent consistent with law. 
 9.13    Waiver. A waiver by either party
of any of the terms or conditions of this Agreement in any one instance shall not be considered a waiver of the terms or conditions for the future or a waiver of any subsequent breach. All remedies, rights, undertakings, obligations, and agreements
contained in this Agreement shall be cumulative, and none of them shall be in limitation of any other remedy, right, undertaking, obligation or agreement of either party. 

9.14    Captions and Counterparts. Captions in this Agreement are included for convenience only and shall
not affect the interpretation or construction of the Agreement or any of its provisions. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which taken together shall constitute a
single agreement. 
 9.15    Notice. All notices, requests, demands, and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or registered mail, return receipt requested, with postage prepaid. Unless otherwise changed by notice, notice shall be properly addressed to
the Executive if addressed to the address of the Executive on the books and records of the Bank at the time of the delivery of such notice, and properly addressed to the Bank if addressed to the Board of Directors, The Middlefield Banking Company,
15985 East High Street, Middlefield, Ohio 44062-0035. 

  
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 IN WITNESS WHEREOF, the
Executive and a duly authorized Bank officer have executed this Executive Deferred Variable Benefit Compensation Agreement as of the date first written above. 
  

									
	EXECUTIVE:	 		 	 BANK:
 The
Middlefield Banking Company

				
	 	 		 	By:	 	 
	Donald L. Stacy	 		 		 	Thomas G. Caldwell
		 		 	Its:	 	President and Chief Executive Officer

  
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 THE MIDDLEFIELD BANKING COMPANY

 EXECUTIVE VARIABLE BENEFIT DEFERRED COMPENSATION
AGREEMENT 
 Beneficiary Designation 

I designate the following as beneficiary under this Executive Variable Benefit Deferred Compensation Agreement of benefits payable after my
death. 

Primary:                       
                                         
                                         
                                         
                                         
                
  

 
 Contingent:
                                         
                                         
                                         
                                         
                                 

 
  
  

	Note:	To name a trust as beneficiary, please provide the name of the trustee(s) and the exact name and date of the trust agreement. 

I understand that I may change these beneficiary designations by filing a new written designation with the Bank. I further understand that the
designations will be automatically revoked if the beneficiary predeceases me, or, if I have named my spouse as beneficiary and our marriage is subsequently dissolved. 

 

			
		
	Signature:	 	 
		 	Donald L. Stacy

  

			
	Date:	 	July 9, 2018

 Received by the Bank this 9th day of July, 2018 

 

			
		
	By:	 	 
		 	Thomas G. Caldwell
	Title:	 	President and Chief Executive Officer

  
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 THE MIDDLEFIELD BANKING COMPANY

 EXECUTIVE VARIABLE BENEFIT DEFERRED COMPENSATION
AGREEMENT 
 Schedule A 

Performance Goals 
 The
Bank’s board of directors shall establish Performance Goals, which may be absolute performance targets taking the Bank’s performance only into account, or relative targets taking the Bank’s performance into account relative to a peer
group of companies, or a combination of both. The measures of performance used to establish Performance Goals shall not change from one Plan Year to the next unless the board of directors concludes that compelling reasons exist to use different or
additional measures of performance. If performance relative to a peer group is used, the peer group analysis selected by the board of directors shall not be changed from one Plan Year to the next unless the board of directors concludes that the peer
group being employed is no longer representative of the Bank’s actual peer group of companies. 
 For the first Plan Year, the
Performance Goals are – 
  

					
	 Performance Target #1
	  	Performance Goal #1	  	 Annual Contribution for Achievement of

Performance Goal #1

			
	Bank’s Target Net Income for Plan Year	  	$7,662,833	  	2.5% of the Executive’s Base Annual Salary
			
	Bank’s Net Income for Plan Year Is Equal to or Greater than –	  	$7,739,461 (101%)	  	3.5% of the Executive’s Base Annual Salary
			
	Bank’s Net Income for Plan Year Is Equal to or Greater than –	  	$7,816,090 (102%)	  	4.5% of the Executive’s Base Annual Salary
			
	Bank’s Net Income for Plan Year Is Equal to or Greater than –	  	$7,892,718 (103%)	  	5.5% of the Executive’s Base Annual Salary
			
	Bank’s Net Income for Plan Year Is Equal to or Greater than –	  	$7,969,346 (104%)	  	6.5% of the Executive’s Base Annual Salary
			
	Bank’s Net Income for Plan Year Is Equal to or Greater than –	  	$8,045,975 (105%)	  	7.5% of the Executive’s Base Annual Salary

 The Bank’s target net income for Performance Goal #1 is $7,662,833. At a minimum, the Executive is entitled to an Annual
Contribution for Performance Goal #1 equal to 2.5% of Base Annual Salary. For the Executive to receive a greater Annual Contribution under Performance Goal #1, the Bank’s net income for the Plan Year must meet or exceed 101% of the Bank’s
target net income for the Plan Year. For every additional 1% that the Bank’s target net income is met or exceeded in any Plan Year, up to 105%, the Executive’s Annual Contribution amount also increases by 1%. Thus, the maximum Annual
Contribution for achievement of Performance Goal #1 is 7.5% of the Executive’s Base Annual Salary. The Bank and the Executive agree that the Bank’s net income for the Plan Year shall be derived from the quarterly reports of condition filed
with the FDIC under the Federal Deposit Insurance Act section 7(a), 12 U.S.C. 1817(a), and FDIC rules, 12 CFR Part 304. 

  
 13 

					
	 Performance Target #2
	  	 Performance Goal #2
	  	 Annual Contribution for Achievement of

Performance Goal #2

			
	Bank’s Target Peer Rank	  	 Overall Ranking in Top 50% of
 FDIC-insured
commercial banks having assets between $1 billion and $3 billion
	  	2.5% of the Executive’s Base Annual Salary
			
	Bank Has An –	  	 Overall Ranking in Top 60% of
 FDIC-insured
commercial banks having assets between $1 billion and $3 billion
	  	3.5% of the Executive’s Base Annual Salary
			
	Bank Has An –	  	 Overall Ranking in Top 70% of
 FDIC-insured
commercial banks having assets between $1 billion and $3 billion
	  	4.5% of the Executive’s Base Annual Salary
			
	Bank Has An –	  	 Overall Ranking in Top 80% of
 FDIC-insured
commercial banks having assets between $1 billion and $3 billion
	  	5.5% of the Executive’s Base Annual Salary
			
	Bank Has An –	  	 Overall Ranking in Top 90% of
 FDIC-insured
commercial banks having assets between $1 billion and $3 billion
	  	6.5% of the Executive’s Base Annual Salary
			
	Bank Has An –	  	 Overall Ranking in Top 100% of
 FDIC-insured
commercial banks having assets between $1 billion and $3 billion [ranked #1]
	  	7.5% of the Executive’s Base Annual Salary

 The Bank’s target Peer Rank for Performance Goal #2 is an overall ranking in the top 50% of all FDIC-insured commercial
banks having assets between $1 billion and $3 billion as reported on the Uniform Bank Performance Report (“UBPR”) as reported on the Federal Financial Institutions Examination Council’s website at www.ffiec.gov/UBPR.htm. The
UBPR is an analytical tool created for bank supervisory, examination, and management purposes. In a concise format, the UPBR shows the impact of management decisions and economic conditions on a bank’s performance and balance-sheet composition.
The performance and composition data contained in the report can be used as an aid in evaluating the adequacy of earnings, liquidity, capital, asset and liability management, and growth management. 

At a minimum, the Executive is entitled to an Annual Contribution for Performance Goal #2 equal to 2.5% of Base Annual Salary. For the
Executive to receive a greater Annual Contribution under Performance Goal #2, the Bank must have an overall ranking in the top 60% of FDIC-insured commercial banks having assets between $1 billion and $3 billion as reported on the UBPR for
the Plan Year. For every additional 10% that the Bank’s peer ranking improves in any Plan Year, up to being ranked first, the Executive’s Annual Contribution amount also increases by 1%. Thus, the maximum Annual Contribution for
achievement of Performance Goal #2 is 7.5% of the Executive’s Base Annual Salary. 
 At a minimum, the Executive’s Annual
Contribution in any Plan Year shall not be less than 5% of the Executive’s Base Annual Salary (i.e., the 2.5% of Base Annual Salary Annual Contribution under Performance 

  
 14 

 
Goal #1 plus the 2.5% of Base Annual Salary Annual Contribution under Performance Goal #2). At a maximum, the Executive’s Annual Contribution in any Plan Year shall not exceed 15% of the
Executive’s Base Annual Salary (i.e., the 7.5% of Base Annual Salary Annual Contribution under Performance Goal #1 plus the 7.5% of Base Annual Salary Annual Contribution under Performance Goal #2). 

Changes in the Performance Goals approved by the board of directors shall become effective no more frequently than annually. The Plan
Administrator’s determination that the Performance Goals for a Plan Year have or have not been achieved shall be conclusive and binding. 

  
 15SENIOR SECURED CONVERTIBLE PROMISSORY NOTE

 

EXHIBIT 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 IN A FORM ACCEPTABLE TO THE COMPANY.  

		
	Original Issue Date: July 5, 2018

	Principal Amount: $1,500,000

SENIOR SECURED CONVERTIBLE PROMISSORY NOTE

DUE JANUARY 5, 2020

THIS SENIOR SECURED CONVERTIBLE PROMISSORY NOTE is the duly authorized and validly issued convertible promissory note of Dolphin Entertainment, Inc., a Florida corporation (the “Company”), having its principal place of business at 2151 Le Jeune Road, Suite 150-Mezzanine, Coral Gables, FL 33134, designated as its Senior Secured Convertible Promissory Note due January 5, 2020 (the “Note”).

FOR VALUE RECEIVED, the Company promises to pay to Pinnacle Family Office Investments, L.P. or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of $1,500,000 on January 5, 2020 (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:

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

“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) 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). 

“Board of Directors” means the board of directors of the Company. 

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

“Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of fifty percent (50%) of the aggregate votes of the then-issued and outstanding voting securities of the Company on such basis as is then required by the Company’s charter documents (other than by means of conversion of the Note), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than fifty percent (50%) of the aggregate voting power of the Company or the successor entity of such transaction, (c) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than fifty percent (50%) of the aggregate voting power of the acquiring entity immediately after the transaction, or (d) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (c) above.

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

“Conversion Limitation” shall have the meaning set forth in Section 5(e).

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

 

“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.

“DTC” means the Depository Trust Company.

 

“DTC/FAST Program” means the DTC’s Fast Automated Securities Transfer Program.

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

“Exempt Issuance” means the issuance of (a) shares of Common Stock, options or other equity awards (including, without limitation, restricted awards) to employees, consultants, officers or directors of the Company pursuant to any stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose and subsequently ratified by the stockholders of the Company, (b) securities upon the exercise or exchange of or conversion of any Securities issued pursuant to the Purchase Agreement and/or other securities directly or indirectly exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the Original Issue Date, provided that such securities have not been amended since the Original Issue Date to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities, or (c) securities issued pursuant to mergers, consolidations, acquisitions, similar business combinations or strategic transactions approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person (or to the equity holders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.

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

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

“New York Courts” shall have the meaning set forth in Section 8(d).

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

“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.

 

“Purchase Agreement” means the Securities Purchase Agreement, dated as of July 5, 2018 by and among the Company, the original Holder, and the other parties named therein, if any, as amended, modified or supplemented from time to time in accordance with its terms. 

 “Registration Statement” means a registration statement covering the resale of the Underlying Shares by each Holder. 

“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).

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

Section 2.

Interest.

a)

Payment of Interest.  The Company shall pay interest to the Holder quarterly in cash on the principal amount of this Note at the rate of 8% per annum (which interest rate may be increased as provided elsewhere herein).  Interest provided for in this Section (2)(a) shall be due and payable on the last calendar day of each quarter and on the Maturity Date (the “Fixed Interest Payment Date”); provided, however, notwithstanding anything to the contrary provided herein or elsewhere, interest accrued but not yet paid will be due and payable upon any conversion, prepayment, and/or acceleration whether as a result of an Event of Default or otherwise with respect to the principal amount being so converted, prepaid and/or accelerated.    

b)

Interest Calculations.  Interest shall be calculated on the basis of a 360-day year, consisting of twelve 30-calendar day periods, and shall accrue 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 Fees.  All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at an interest rate equal to the lesser of 10% 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 Prepayments.  The Company may, upon seven (7) Business Days prior notice to the Holder, prepay the outstanding amount of the Note in whole, but not in part.  Notwithstanding the foregoing, the Borrower may rescind or postpone any notice of prepayment under this Section 2(d), if such prepayment would have resulted from a refinancing of the Loans, which refinancing shall not have been consummated or shall have otherwise been delayed.  In connection with any voluntary prepayment by the 

 

Company, the Company shall also (i) pay a ten percent (10%) prepayment penalty and (ii) issue to the Holder (or to the Holders pro rata) warrants to purchase 100,000 shares of the Company’s common stock, with an exercise price per share equal to the Conversion Price.  In connection with any prepayment of the Note, within three Business Days of receiving notice of voluntary prepayment by the Company, the Holders may elect to convert all or a portion of the outstanding amounts due under the Notes by issuing a Notice of Conversion in accordance with Section 4(a).  If, after receiving a notice of voluntary prepayment from the Company, any Holder timely issues a Notice of Conversion for less than all of the outstanding amounts due under the Notes, the Company shall (i) pay a ten percent (10%) prepayment penalty on any amount of the Notes not otherwise to be converted and (ii) shall issue to the Holder (or to the Holders pro rata) warrants to purchase such number of shares equal to the following:

(Amount of Principal Being Prepaid and not subject to Conversion/Aggregate Face Amount of Notes on the Original Issue Date) multiplied by 100,000.

Section 3.

Registration of Transfers and Exchanges. 

 

a)

Investment Representations.  This Note has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance therewith and applicable federal and state securities laws and regulations; provided that the Holder shall only transfer this Note (or any rights, obligations or benefits thereunder) to an Affiliate of such Holder without the prior written consent of the Company.  

b)

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 and from time to time, commencing on the Original Issue Date until this Note is no longer outstanding, 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 and/or any other amounts due under 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, all accrued and unpaid interest thereon and all other amounts due under this Note have 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 amount.  The Holder and the Company shall maintain a Conversion Schedule showing the principal amount(s) and/or any other amounts due under this Note 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.  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.

 

b)

Conversion Price.  The conversion price in effect on any Conversion Date shall be equal to $3.25, subject to adjustment as set forth herein (the “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.  

c)

Mechanics of Conversion.

 

i.

Conversion Shares Issuable Upon a Conversion.  The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the sum of (i) the outstanding principal to be converted as provided in the applicable Notice of Conversion, (ii) accrued and unpaid interest thereon (if the Company has elected to pay interest in shares of Common Stock) and (iii) any other amount due under this Note by (y) the 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) a certificate or certificates representing the Conversion Shares, which, on or after the date on which the resale of such Conversion Shares are covered by and are being sold pursuant to an effective Registration Statement or 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 acceptable to the Company (which opinion the Company will be responsible for obtaining at its own cost) shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired or being sold, as the case may be, upon the conversion of this Note, and (B) payment in the amount of accrued and unpaid interest (if the Company has elected to pay accrued interest in cash).  All certificate or certificates required to be delivered by the Company under this Section 4(c) shall be delivered electronically through DTC or another established clearing corporation performing similar functions, unless the Company or its Transfer Agent does not have an account with DTC and/or is not participating in 

 

the DTC/FAST System, in which case the Company shall issue and deliver to the address as specified in such Notice of Conversion a certificate (or certificates), registered in the name of the Holder or its designee, for the number of Conversion Shares to which the Holder shall be entitled.  If the Conversion Shares are not being sold pursuant to an effective Registration Statement or 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, 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 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 ACCEPTABLE TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT. ”

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 Notice of 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 certificate or certificates issued to such Holder pursuant to the rescinded Notice of Conversion. 

 

iv.

Obligation Absolute.  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 that 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.  

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.

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 the Required Minimum (as defined in the Purchase Agreement) 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.  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 that 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 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.

c)

Holder’s Conversion Limitations.  The Company shall not effect any conversion of this Note, and a Holder shall not have the right to convert any portion 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 that 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 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 61 days’ prior written 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 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.  In no event shall the Beneficial Ownership Limitation extend or otherwise modify the Maturity Date, whereupon all remaining principal and interest due hereunder shall be due and payable by the Company.

d)

Principal Market Regulation. The Company shall not issue any shares of Common Stock pursuant to the terms of this Note if the issuance of such shares of Common Stock would exceed the aggregate number of shares of Common Stock which the Company may issue without breaching the Company’s obligations under the rules or regulations of the Principal Market (the number of shares which may be issued without violating such rules and regulations, the “Exchange Cap”).

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 the avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of interest on, the 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 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 reclassification.

 

b)

Subsequent Equity Sales.  If, at any time while this Note is outstanding, the Company sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price.  Such adjustment shall be made whenever such Common Stock or Common Stock equivalents are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 5(b) in respect of an Exempt Issuance. If the Company enters into a variable rate transaction, the Company shall be deemed to have issued Common Stock or Common Stock equivalents at the lowest possible conversion price at which such securities may be converted or exercised. The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock equivalents subject to this Section 5(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.  

c)

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 that 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 and the Conversion 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 or the Conversion 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 or the Conversion Limitation, as applicable).

 

d)

Pro Rata Distributions.  During such time as this Note is outstanding, if the Company shall 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”), at any time after the issuance of this Note, then, in each such case, 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 conversion of this Note (without regard to any limitations on conversion hereof, including without limitation, the Beneficial Ownership Limitation and the Conversion 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 or the Conversion 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 or the Conversion Limitation, as applicable).

 

e)

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 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, or (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 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(d) 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 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 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 the other Documents (as defined in the Purchase Agreement) in accordance with the provisions of this Section 5(d) 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 that 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 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 Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

f)

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.

g)

Notice to the Holder.

i.

Adjustment to Conversion Price.  Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the 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 (other than upon the exercise of certain put rights as described in the Company’s annual report on Form 10-K, as filed with the Securities and Exchange Commission), (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. 

 

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 the Note or (B) interest, liquidated damages, Late Fees and other amounts owing to the Holder on the 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 three (3) Trading Days;

 

ii.

the Company shall fail to observe or perform any other material covenant or agreement contained in the Note (and other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (vii) below), which failure is not cured, if possible to cure, within ten (10) Trading Days after notice of such failure sent by the Holder to the Company;

iii.

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

iv.

any representation or warranty made in this Note, any other Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the 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 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 ten (10) Trading Days or the transfer of shares of Common Stock through the DTC is no longer available, “frozen” or “chilled”;

vii.

the Company shall fail for any reason to deliver Conversion Shares to a Holder prior to the fifth (5th) Trading Day after a Share Delivery Date pursuant to Section 4(d) 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 the Note in accordance with the terms hereof; 

viii.

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); and

ix.

the Company shall fail to maintain sufficient reserved shares pursuant to Section 4.4 of the Purchase Agreement.

b)

Remedies Upon Event of Default.  If any Event of Default occurs, then at the Holder’s election, 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 immediately due and payable.  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 interest rate equal to the lesser of 10% per annum or the maximum rate permitted under applicable law (with a credit for any “unused” guaranteed interest).  Upon the payment in full of the outstanding principal amount of this Note, plus accrued but unpaid interest, liquidated damages and other amount owing in respects thereof, 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, 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 the 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.

 

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 facsimile, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above or such other 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 facsimile, or sent by a nationally recognized overnight courier service addressed to the Holder at the facsimile number or address of the Holder appearing on the books of the Company, or if no such facsimile number or address appears on the books of the Company, at the principal place of business of such Holder, as set forth in the Purchase Agreement.  Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:00 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 at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:00 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.

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 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 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 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.

 

e)

Amendment; Waiver.  Any provision of this Note may be amended by a written instrument executed by the Company and the Holder, which amendment shall be binding on all successors and assigns. Any provision of this Note may be waived by the Holder, which waiver shall be binding on all successors and assigns.  Any waiver by the Company or the Holder must be in writing.  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. 

 

f)

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.  

g)

Usury. 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 power 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 Documents (including, without limitation, the security agreements referenced in the Purchase Agreement), 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.

j)

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.

k)

Secured Obligation.  The obligations of the Company under this Note are secured by all assets of the Company and each Subsidiary pursuant to the Security Agreement, dated as of the date hereof, between the Company and the Secured Parties (as defined therein).

l)

Disclosure.  Upon receipt or delivery by the Company of any notice in accordance with the terms of this Note, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries, the Company shall within four (4) Business Days after such receipt or delivery publicly disclose such material, nonpublic information on a Current Report on Form 8-K or otherwise.  In the event that the Company believes that a notice contains material, non-public information relating to the Company or its Subsidiaries, the Company shall so indicate to the Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries.

*********************

(Signature Pages Follow)

 

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.

			
	 
	DOLPHIN ENTERTAINMENT, INC.

	 
	 
	 

	 
	 
	 

	 
	By:

	/s/ William O’Dowd

	     

	 
	Name: William O’Dowd IV

	     

	 
	Title: Chief Executive Officer

	 
	 
	 

	 
	Facsimile No. for delivery of Notices: 305-775-0405

	 
	 
	 

	 
	 
	 

 

ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert the Senior Secured Convertible Promissory Note due January 5, 2020 of Dolphin Entertainment, Inc., a Florida 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, if the resale of any such shares of Common Stock are covered by and are being sold pursuant to an effective Registration Statement. 

Conversion calculations:

Date to Effect Conversion: __________________________

Principal Amount of Note to be Converted: ____________

Number of Shares of Common Stock to be Issued: _______

Signature: _______________________________________

Name: __________________________________________

Delivery Instructions:

 

Schedule 1

CONVERSION SCHEDULE

This Senior Secured Convertible Promissory Note due on January 5, 2020 in the principal amount of $1,500,000 is issued by Dolphin Entertainment, Inc., a Florida 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

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