Document:

ex10-1

 

Exhibit 10.1

 

AMENDMENT NO. 2 TO SECURED PROMISSORY NOTE

AND SECURITY AGREEMENT

 

 

 

This
AMENDMENT NO. 2 TO
SECURED PROMISSORY NOTE
(this “Amendment”), dated September 30,
2020, is made by and between Charlie’s Holdings, Inc., a
Nevada corporation (“Holdings”), Charlie’s Chalk
Dust, LLC, a Delaware limited liability company
(“Chalk Dust”),
and Don Polly LLC, a Nevada limited liability company
(“Don Polly”,
and together with Holdings and Chalk Dust, individually and
collectively, “Company”), on the one hand, and
Red Beard Holdings, LLC, a Delaware limited liability company
(“Red Beard”)
on the other. Company and Red Beard are sometimes collectively
referred to herein as the “Parties” and each individually as
a “Party”.

 

RECITALS

 

WHEREAS, the Parties executed that
certain Secured Promissory Note on April 8, 2020, in favor of Red
Beard in the original principal amount of $750,000, a copy of which
is attached hereto as Exhibit A (the
“Note”), and on
August 27, 2020, the Parties executed Amendment No. 1 to the Note,
a copy of which is attached hereto as Exhibit B, to increase the
principal amount of the Note to $1,400,000 (“Amendment No. 1”);

 

WHEREAS, to secure repayment of the
Note, the Company executed and delivered to Red Beard that certain
Security Agreement also dated April 8, 2020, a copy of which is
attached hereto as Exhibit
C (the “Security
Agreement”); and

 

WHEREAS, the Note, as amended by
Amendment No. 1, currently matures on October 1, 2020 (the
“Maturity
Date”); and

 

WHEREAS, Company has requested, and Red
Beard has agreed, to extend the Maturity Date to November 1,
2020.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the
foregoing and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the Parties hereto
agree as follows:

 

1. Amendment to Maturity Date. The
Note, as amended by Amendment No. 1, is hereby amended so that all
references to the “Maturity Date” in the Note shall,
hereafter, mean November 1, 2020.

 

2. Amendment to Security
Agreement. The Security Agreement is hereby amended so that
any reference to the “Note” in the Security Agreement
shall mean the Note as amended by this Amendment.

 

3. Event of Conflict. The
provisions of the Note, as modified by Amendment No. 1 and in this
Amendment, shall remain in full force and effect in accordance with
their terms and are hereby ratified and confirmed. In the event of
any conflict between the terms and conditions of this Amendment and
the terms and conditions set forth in the Note, as amended, the
terms and conditions set forth herein shall control. This Amendment
shall be governed by and construed in accordance with the laws of
the State of California.

 

4. Counterparts; Electronic
Execution. This Amendment may be executed in any number of
counterparts and by different parties on separate counterparts,
each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall
constitute but one and the same Agreement. Delivery of an executed
counterpart of this Amendment by telefacsimile or other electronic
method of transmission (including without limitation a PDF
attachment) shall be equally as effective as delivery of an
original executed counterpart of this Amendment.

 

 

 

 

-1-

 

 

 

IN WITNESS
WHEREOF, this Amendment was duly executed on the date first written
above.

 

	
“COMPANY”

 

CHARLIE’S
HOLDINGS, INC.,

a
Nevada corporation

	

 

 

	

“RED
BEARD”

 

RED
BEARD HOLDINGS, LLC,

a
Delaware limited liability company

 

	
 

By:
/s/ Brandon
Stump

Mr.
Brandon Stump

Chief
Executive Officer

 

	

 

 

	

 

By:
/s/ Vincent C.
Smith

Mr.
Vincent C. Smith

General
Partner

 

 

	

CHARLIE’S
CHALK DUST, LLC

a
Delaware limited liability company

 

 

	
 

	
 

	

By:
/s/ Brandon
Stump

Mr.
Brandon Stump

Chief
Executive Officer

 

 

	
 

	
 

	

DON
POLLY LLC

a
Nevada limited liability company

 

	
 

	
 

	

By: /s/
Brandon Stump

Mr.
Brandon Stump

Chief
Executive Officer

 

 

	
 

	
 

 

 

 

-2-

 

 

EXHIBIT A

Secured Promissory Note

 

 

$750,000.00                                                                                                                      

April 8,
2020

 

THIS
SECURED PROMISSORY NOTE (this "Note") is a duly authorized and
validly issued joint and several promissory note of Charlie's
Holdings, Inc., a Nevada corporation ("Holdings"), Charlie's Chalk
Dust, LLC, a Delaware limited liability company ("Chalk Dust"), and Don Polly
LLC, a Nevada limited liability company ("Don Polly" and together with
Holdings and Chalk Dust, individually and collectively, the
“Company”), each of which
have a principal place of business located at 1007 Brioso Drive,
Costa Mesa CA 92627.

 

FOR
VALUE RECEIVED, the Company hereby promises to pay to the order of
Red Beard Holdings, LLC, a Delaware limited liability company
("Red Beard"), or
its successors and assigns (together with Red Beard, the
“Holder”), the principal
sum of Seven Hundred Fifty Thousand Dollars ($750,000.00) (the
“Principal
Amount”), together with interest thereon and other
amounts payable hereunder at the times and on the dates set forth
herein and in any event no later than the Maturity
Date.

 

Capitalized terms
used herein without definition have the meanings set forth on
Exhibit A hereto, which is incorporated herein by this reference as
though set forth herein in full. This Note is subject to the
following additional provisions:

 

Section
1.                        Advance
of Funds: Conditions to Advance.

 

(a) On or substantially
concurrently with the Effective Date, the Holder shall advance to
the Company by wire of immediately available funds the Principal
Amount less any
amounts that may be deducted therefrom by agreement between the
Holder and the Company or otherwise pursuant to the terms of this
Note. The entire Principal Amount shall be deemed to have been
advanced on the Effective Date.

 

(b) Prior to the Holder
having the obligation of making the foregoing advance, the
following shall have occurred to the satisfaction of the Holder in
its sole discretion (such date being the "Effective Date"): (i) this
Note shall have been duly executed and delivered by the Company to
the Holder; (ii) the Security Agreement shall have been duly
executed and delivered by the Company to the Holder; and
(iii) if requested by the Holder, the Company shall have
delivered to the Holder true and correct copies of the
Company’s organizational documents, resolutions approving the
transactions contemplated hereby and under the other Transaction
Documents, and current good standing certificates from each
jurisdiction requested by the Holder.

 

Section
2.                        Payment
of Principal and Interest; Security.

 

(a) Payment of Principal. The
Principal Amount shall be due and payable in full by the Company to
the Holder on the Maturity Date or, if earlier, upon acceleration
of this Note in accordance with the terms hereof. Any amount of
principal repaid hereunder may not be reborrowed.

 

(b) Payment of Interest. From the
Effective Date until paid in full, interest on the aggregate
outstanding Principal Amount shall be equal to at least $75,000
(the "Guaranteed Minimum
Interest"), which amount shall be the minimum amount due and
owing regardless of the duration of the loan evidenced by this
Note. The Guaranteed Minimum Interest shall accrue and be fully
earned upon the advance by Holder of the loan evidenced by this
Note on or substantially concurrently with the Effective Date. The
Guaranteed Minimum Interest and any additional accrued interest
shall be due and payable by the Company to the Holder on the
Maturity Date or, if earlier, upon acceleration of this Note in
accordance with the terms hereof. Upon and after the occurrence of
an Event of Default (as defined below), then, in addition to the
Guaranteed Minimum Interest, the principal and unpaid interest and
unpaid other amounts under this Note shall, at the election of the
Holder in its sole and absolute discretion, bear interest at the
lesser of a rate equal to 20% per annum or the Maximum Rate (as
defined below) (the "Default Rate"). Such interest
shall accrue daily commencing on occurrence of such Event of
Default until payment in full of the Principal Amount, together
with all accrued and unpaid interest and other amounts which may
become due hereunder, has been made.

 

	
 

	
	
 

	
 

	
 

	
 

 

A-1

 

(c) Prepayment. The Company may
prepay all or any portion of the Principal Amount, together with
the Guaranteed Minimum Interest.

 

(d) Payments. Notwithstanding
anything to the contrary contained herein or in any other
Transaction Document, all payments made by the Company shall be
applied to principal, interest, fees and other charges due the
Holder hereunder in such order of priority as the Holder shall
elect.

 

(e) Security. The obligations of
the Company under this Note are secured by the collateral
identified in the Security Agreement.

 

(f) Use of Proceeds. The proceeds
of this Note shall be used by the Company for working capital and
for general corporate purposes. Notwithstanding the foregoing, the
proceeds of this Note shall not in any event be used to make or pay
any dividend or distribution or to redeem any equity of the Company
or securities convertible, exercisable or exchangeable into equity
of the Company, to settle any outstanding litigation or to make any
payment or prepayment on any existing indebtedness for borrowed
money.

 

Section
3.                        Representations
and Warranties. The Company hereby represents and warrants
to the Holder as follows:

 

(a) The Company has
been duly formed, is validly existing and is in good standing under
the laws of its jurisdiction of formation, is in good standing or
duly qualified as a foreign corporation in all jurisdictions where
the conduct of its business so requires and where the failure to so
qualify could reasonably be expected to have a Material Adverse
Effect, and has all requisite power and authority to execute,
deliver and perform its obligations under this Note and all other
Transaction Documents to which it is a party. Each of this Note and
all other Transaction Documents have been duly authorized, executed
and delivered by the Company and constitute its legal, valid and
binding obligation, enforceable against it in accordance with the
terms hereof and thereof except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, or other laws of general application relating to or
affecting the enforcement of creditors’ rights generally. The
execution, delivery and performance by the Company of this Note and
all other Transaction Documents to which it is a party, and the
incurrence by it of obligations hereunder and thereunder, do not
(i) contravene or conflict with the Company’s certificate of
formation, operating agreement or similar governing documents or
any law applicable to the Company or other instrument binding on or
otherwise affecting the Company, or (ii) give rise to any lien,
security interest or other charge or encumbrance (other than in
favor of the Holder) upon any of the Company’s properties. No
consent or approval of or notice to or filing with any governmental
authority or other third party is or will be required on the part
of the Company as a condition to the validity or enforceability of
this Note or the other Transaction Documents, other than such
consents which have been obtained and are in full force and effect,
true and complete copies of which have been previously provided to
the Holder.

 

(b) The Company is in
compliance in all material respects with all laws and regulatory
requirements to which it or its properties are subject. There is no
litigation pending or, to the knowledge of the Company, threatened
against the Company. The Company’s principal place of
business is at the address set forth at the beginning of this Note.
The Company has paid all federal, foreign, state and local taxes
required to be paid by it on or prior to the date they were due.
All documents, instruments and other written material heretofore or
hereafter furnished to the Holder pursuant to the terms of any
Transaction Document contain no misstatements of a material fact
and do not fail to disclose any material fact and the Company has
not failed to disclose to the Holder any material
information.

 

	
 

	
	
 

	
 

	
 

	
 

 

A-2

 

(c) All financial
statements of the Company delivered to Holder, if any, fairly
present in all material respects the financial position of the
Company as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in
the case of unaudited statements, to normal, immaterial, year-end
audit adjustments. None of such financial reports, as of their
date, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not
misleading.

 

Section
4.                        Covenants.
As long as any portion of this Note remains outstanding, the
Company agrees as follows:

 

(a) the Company shall
not enter into, create, incur, assume or suffer to exist any Lien
on or with respect to any of its assets now owned or hereafter
acquired or any interest therein or any income or profits
therefrom;

 

(b) the Company shall
not amend its constitutional documents, including without
limitation, its certificate of formation, operating agreement or
similar governing documents, in any manner that adversely affects
any rights of the Holder;

 

(c) the Company shall
not enter into, create, incur, assume or suffer to exist any
Indebtedness, other than Indebtedness existing on the date hereof
in the amount in effect on the date hereof that has been previously
disclosed to Holder in writing;

 

(d) the Company shall
comply with its obligations under this Note and the other
Transaction Documents;

 

(e) the Company shall
comply with all applicable laws and duly observe and conform in all
material respects to all valid requirements of governmental
authorities relating to the conduct of its business or to its
properties or assets;

 

(f) the Company shall
not engage in any transactions with any officer, director,
employee, stockholder or any affiliate of the Company, including
any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or
from any officer, director or such employee, stockholder or, to the
knowledge of the Company, any entity in which any officer,
director, or any such employee has a substantial interest or is an
officer, director, stockholder, trustee or partner, other than any
transactions in which the terms of such transaction are, in all
material respects, no less favorable to the Company than would
likely apply if such transaction was negotiated on an arms’
length basis between unrelated parties;

 

(g) the Company shall
not declare or pay any dividends or make any distributions to any
holder(s) of equity interests or other equity security of the
Company, or purchase or otherwise acquire for value, directly or
indirectly, any equity interests or other equity security of the
Company; except that Holdings may pay the one-time dividend equal
to the eight percent (8%) Dividend Amount (as defined in the Series
A Certificate) as contemplated by Section 3 of the Series A
Certificate so long as (a) Holdings shall have used its best
efforts to satisfy the Equity Conditions (as defined in the Series
A Certificate), (b) if the Equity Conditions have been satisfied,
such dividend payment shall be paid in shares of common stock of
Holdings and (c) in the event that Holdings has failed to satisfy
the Equity Conditions and such dividend is required the be paid in
cash, the aggregate amount of all such cash distributions shall not
exceed $1,650,000.

 

	
 

	
	
 

	
 

	
 

	
 

 

A-3

 

(h) the Company shall
not (i) merge or consolidate with any other Person (regardless
of which Person is the surviving entity); (ii) sell or dispose of
any of its assets other than immaterial dispositions in the
ordinary course of business and for fair equivalent value or
(iii) in any way or manner alter its organizational structure
or effect a change of entity;

 

(i) the Company shall
promptly pay and discharge, or cause to be paid and discharged,
when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits,
property or business of the Company; provided, however, that any
such tax, assessment, charge or levy need not be paid if the
validity thereof shall currently be contested in good faith by
appropriate proceedings and if the Company shall have set aside on
its books adequate reserves with respect thereto, and provided,
further, that the Company will pay all such taxes, assessments,
charges or levies forthwith upon the commencement of proceedings to
foreclose any Lien which may have attached as security
therefor;

 

(j) the Company shall
maintain in full force and effect its corporate existence, rights
and franchises and all licenses and other rights to use property
owned or possessed by it and reasonably deemed to be necessary to
the conduct of its business;

 

(k) the Company shall
keep its properties in good repair, working order and condition,
reasonable wear and tear excepted, and from time to time make all
necessary and proper repairs, renewals, replacements, additions and
improvements thereto; and the Company shall at all times comply
with each provision of all leases to which it is a party or under
which it occupies property;

 

(l) the Company shall
not make any payment on any indebtedness owed to officers,
directors or affiliates except with the prior written consent of
the Holder;

 

(m) the Company shall
maintain with financially sound and reputable insurance companies
not affiliates of the Company, insurance with respect to its
properties and business against loss or damage of the kinds
customarily insured against by Persons engaged in the same or
similar business, of such types and in such amounts as are
customarily carried under similar circumstances by such other
Persons and providing for not less than 30 days’ prior notice
to the Holder of termination, lapse or cancellation of such
insurance;

 

(n) If, notwithstanding
any prohibitions in this Note on the incurrence of Indebtedness,
(i) any Indebtedness shall be incurred by any Company or any of its
subsidiaries or (ii) any equity interests shall be issued by any
Company or any of its subsidiaries, then, in each case, unless
Holder otherwise provides its prior written consent, Company shall
immediately prepay the obligations owing with respect to this Note
in an amount equal to the net cash proceeds received from such
incurrence or issuance.

 

(o) the Company shall
deliver to the Holder or provide access to the Holder, (i) promptly
upon the Holder’s request, such books, records, financial
statements, tax returns, investment statements, lists of property
and accounts, budgets, forecasts or reports as to the Company as
the Holder may request; and (ii) immediately upon knowledge of
the same, notice of the occurrence of any Event of
Default.

 

Section
5.                        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):

 

 

	
 

	
	
 

	
 

	
 

	
 

 

A-4

 

i. any default in the
payment of (A) the principal amount of this Note or
(B) interest or other amounts owing to the Holder on this
Note, as and when the same shall become due and payable (whether on
the Maturity Date or by acceleration or otherwise);

 

ii. the Company shall
fail to observe or perform any other covenant or agreement
contained in this Note or any other Transaction
Document;

 

iii. a
default or event of default shall occur under any of the
Transaction Documents, or the failure or invalidity of any of the
Transaction Documents;

 

iv. any representation
or warranty made in this Note, any other Transaction Documents, any
written statement pursuant hereto or thereto or any other report,
financial statement or certificate made or delivered to the Holder
shall be untrue or incorrect in any respect as of the date when
made or deemed made;

 

v. the Company shall
be subject to a Bankruptcy Event;

 

vi. the Company shall
default on any other obligations under any promissory note,
mortgage, credit agreement or other facility, indenture agreement,
factoring agreement or other instrument under which there may be
issued, or by which there may be secured or evidenced, any
indebtedness for borrowed money or money due under any long term
leasing or factoring arrangement, whether such indebtedness now
exists or shall hereafter be created;

 

vii. any
monetary judgment, writ or similar final process in excess of
$100,000 shall be entered or filed against the Company or its
property or other assets, and such judgment, writ or similar final
process shall remain unvacated, unbonded or unstayed for a period
of 10 calendar days; or

 

viii. a
Material Adverse Effect occurs.

 

(b) Remedies Upon Event of Default.
If any Event of Default occurs, the entire unpaid principal amount
of this Note plus all accrued interest and other amounts owing
under this Note through the date of acceleration, shall become, at
the Holder’s election in its sole and absolute discretion,
immediately due and payable upon written notice to the Company,
except that, with respect to a default under Section 5(a)(v)
above, no such notice shall be required and such acceleration shall
be automatic and immediate. In connection with such acceleration
described herein, the Holder need not provide, and the Company
hereby waives, any presentment, demand or protest 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 and the
Transaction Documents. 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 the holder of the Note until
such time, if any, as the Holder receives full payment pursuant to
this Section 5(b). No such rescission or annulment shall
affect any subsequent Event of Default or impair any right
consequent thereon.

 

Section
6.                        Miscellaneous.

 

(a) Notices. Any and all notices or
other communications or deliveries to be provided by the Holder to
the Company hereunder shall be delivered to the address of the
Company set forth in the first paragraph of this Note. Notices to
the Holder shall be delivered to its address at 2525 Main Street,
Suite 400, Irvine CA 92614 or such other address as may be
designated by the Holder from time to time.

 

	
 

	
	
 

	
 

	
 

	
 

 

A-5

 

(b) Absolute Obligation. No
provision of this Note shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal
of, 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, unconditional and secured debt obligation of
the Company. All payments to be made by the Company hereunder and
under the other Transaction Documents shall be made, in lawful
money of the United States of America, and without condition or
deduction for any counterclaim, defense, recoupment or
setoff.

 

(c) Lost or Mutilated Note. If this
Note shall be mutilated, lost, stolen or destroyed, then 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.

 

(d) Governing Law. All questions
concerning the construction, validity, enforcement and
interpretation of this Note or any other Transaction Document shall
be governed by and construed and enforced in accordance with the
internal laws of the State of California, without regard to the
principles of conflict of laws thereof. The Company hereby agrees
that it will commence any and all legal proceedings under, with
respect to or related to any of the Transaction Documents (whether
brought against a party hereto or its respective affiliates,
directors, officers, members, employees or agents) only in the
state and federal courts sitting in the County of Orange, State of
California (the “California Courts”). The
Company hereby irrevocably submits to the nonexclusive jurisdiction
of the California Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby
irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the
jurisdiction of any such California Court, or that such California
Court is an improper or inconvenient venue for such proceeding.
Each party hereby irrevocably waives personal service of process
and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such
party at the address in effect for notices to it under this Note
and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in
any manner permitted by law. EACH PARTY HERETO HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS NOTE, THE OTHER TRANSACTION DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. If either party shall
commence an action or proceeding to enforce any provisions of this
Note, then the prevailing party in such action or proceeding shall
be reimbursed by the other party for its reasonable
attorneys’ fees and other reasonable costs and expenses
incurred with the investigation, preparation and prosecution of
such action or proceeding. Nothing in this Note or any other
Transaction Document shall affect any right that the Holder may
otherwise have to bring any action or proceeding relating to this
Note or any other Transaction Document against the Company or its
properties in the courts of any jurisdiction.

 

(e) Costs and Expenses. The Company
agrees to pay all costs and expenses, including the fees and
expenses of any attorneys, accountants and other experts retained
by the Holder, which are expended or incurred by the Holder in
connection with (i) the preparation, negotiation, modification
and/or enforcement of this Note or any other Transaction Document,
or the collection of any sums due hereunder or thereunder, whether
or not suit is commenced; (ii) any actions for declaratory relief
in any way related to this Note or any other Transaction Document;
(iii) the protection or preservation of any rights of the
Holder under this Note or any other Transaction Document; (iv) any
actions taken by the Holder in negotiating any amendment, waiver,
consent or release of or under this Note or any other Transaction
Document; (v) any actions taken in reviewing the Holder’s
financial affairs if an Event of Default has occurred or the Holder
has determined in good faith that an Event of Default may likely
occur; (vi) the Holder’s participation in any refinancing,
restructuring, bankruptcy or insolvency proceeding involving the
Company; (vii) verifying, maintaining, or perfecting any security
interest or other lien granted to the Holder in any collateral;
(viii) any effort by the Holder to protect, assemble, complete,
collect, sell, liquidate or otherwise dispose of any collateral,
including in connection with any action or proceeding; or (ix) any
refinancing or restructuring of this Note, including, without
limitation, any restructuring in the nature of a “work
out” or in any insolvency or bankruptcy proceeding. All sums
due to the Holder pursuant to this clause (f) shall be due and
payable immediately on demand and shall bear interest at the same
rate as then applicable to the Principal Amount.

 

	
 

	
	
 

	
 

	
 

	
 

 

A-6

 

(f) Waiver. Any waiver by the
Holder of a breach of any provision of this Note or any other
Transaction Document 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 or any other Transaction Document.
The failure of the Holder to insist upon strict adherence to any
term of this Note or any other Transaction Document 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 or such Transaction Document, as
applicable. Any waiver by the Holder must be in
writing.

 

(g) Severability. If any provision
of this Note or any other Transaction Document is invalid, illegal
or unenforceable, the balance of this Note or other Transaction
Document, as applicable, 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.

 

(h) 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.

 

(i) 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.

 

(j) Usury.

 

i. To the extent it
may lawfully do so, the Company hereby agrees not to insist upon or
plead or in any manner whatsoever claim, and will resist any and
all efforts to be compelled to take the benefit or advantage of,
usury laws wherever enacted, now or at any time hereafter in force,
in connection with any claim, action or proceeding that may be
brought by the Holder in order to enforce any right or remedy under
any Transaction Document; provided that, notwithstanding any
provision to the contrary contained in any Transaction Document, it
is expressly agreed and provided that the total liability of the
Company under the Transaction Documents for payments in the nature
of interest shall not exceed the maximum lawful rate authorized
under applicable law (taking into account any usury exception or
exemption available to the Holder, the “Maximum Rate”), and,
without limiting the foregoing, in no event shall any rate of
interest or default interest, or both of them, when aggregated with
any other sums in the nature of interest that the Company may be
obligated to pay under the Transaction Documents exceed such
Maximum Rate. It is agreed that if the maximum contract rate of
interest allowed by law and applicable to the Transaction Documents
is increased or decreased by statute or any official governmental
action subsequent to the date hereof, the new maximum contract rate
of interest allowed by law will be the Maximum Rate applicable to
the Transaction Documents from the effective date forward, unless
such application is precluded by applicable law. If under any
circumstances whatsoever, interest in excess of the Maximum Rate is
paid by the Company to the Holder with respect to indebtedness
evidenced by the Transaction Documents, such excess shall be
applied by the Holder to the unpaid principal balance of any such
indebtedness or be refunded to the Company, the manner of handling
such excess to be at the Holder’s election.

 

ii. Without limiting
the generality of; the foregoing, it is the intent of Holder and
Company that the loan evidenced by this Note comply with the usury
exemption set forth in California Corporations Code §
25118(b). In accordance with such Section, Company hereby
represents and warrants to Holder the following:

 

(1)

Holder and Company,
or any of their respective officers, directors, members, managers
or other controlling persons, have a preexisting personal or
business relationship.

 

(2)

Holder and Company,
by reason of their own business and financial experience or that of
their professional advisers, have the capacity to protect their own
interests in connection with the transaction.

 

 

	
 

	
	
 

	
 

	
 

	
 

 

A-7

 

(k) Indemnification. The Company
will indemnify and hold the Holder harmless from any loss,
liability, damages, judgments, and costs of any kind
(“Liabilities”) relating to
or arising directly or indirectly out of (i) this Note or any
other Transaction Document, (ii) any credit extended or
committed by the Holder to the Company hereunder, and
(iii) any litigation or proceeding related to or arising out
of this Note, any such Transaction, Document, or any such credit;
provided, however that the Company shall have no obligation to
indemnify the Holder for any Liabilities that have arisen as a
result of the Holder’s gross negligence or willful misconduct
as determined by a final non-appealable judgment of a court of
competent jurisdiction.. This indemnity includes but is not limited
to attorneys’ fees and expenses. This indemnity extends to
the Holder, its affiliates, partners, directors, officers,
employees, agents, successors, attorneys, and assigns. This
indemnity will survive repayment of the Company’s obligations
to the Holder. All sums due to the Holder hereunder shall be due
and payable immediately without demand and shall bear interest at
the same rate as then applicable to the Principal
Amount.

 

(l) Joint and Several Liability.
Each of Holdings, Chalk Dust and Don Polly acknowledge that each of
the undersigned are parties to this note as the "Company" as joint
and several co-borrowers hereunder. Any references in this Note to
the "Company" shall refer to any of Holdings, Chalk Dust or Don
Polly, or both such Persons as the context may require. Each of
Holdings, Chalk Dust and Don Polly accept joint and several
liability for the payment and performance of all of the obligations
of the Company hereunder, and each of such obligations constitute
the absolute and unconditional full recourse obligations of each
such Person enforceable against each such Person to the full extent
of its properties and assets. Each of Holdings, Chalk Dust and Don
Polly hereby waive, to the fullest extent permitted by law, any and
all defenses or benefits that may be derived from or afforded by
applicable law limiting the liability of or exonerating guarantors
or sureties (including co-borrowers to the extent applicable),
including , including but not limited to any rights and defenses
that are or may become available to any such Person by reason of
Sections 2787 to 2855, inclusive, 2899 and 3433 of the California
Civil Code.

 

(m) Successors and Assigns; Assignments
and Participations. This Note shall be binding upon and
inure to the benefit of the Company and the Holder and their
respective successors and assigns, except that the Company may not
assign or transfer any of its rights or obligations under this Note
or any other Transaction Document without the express written
consent of the Holder.

 

(n) Counterparts; Electronic
Execution. This Note may be executed in any number of
counterparts and by different parties on separate counterparts,
each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall
constitute but one and the same Note. Delivery of an executed
counterpart of this Note by telefacsimile or other electronic
method of transmission (including without limitation a PDF
attachment) shall be equally as effective as delivery of an
original executed counterpart of this Note. The foregoing shall
apply to each other Transaction Document mutatis mutandis.

 

	
 

	
	
 

	
 

	
 

	
 

 

A-8

 

 

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

 

	
 

	

"Company"

 

CHARLIE'S
HOLDINGS, INC.,

a
Nevada corporation

 

 

By:
Brandon Stump
                                                                

Name:
Brandon
Stump
                                                                

Title:
Chief Executive Officer 
                                                                

 

 

CHARLIE'S
CHALK DUST, LLC,

a
Delaware limited liability company

 

 

By:
Brandon Stump
                                                                

Name:
Brandon
Stump
                                                                

Title:
Chief Executive Office

                                                                  

 

DON
POLLY LLC,

a
Nevada limited liability company

 

 

By:
Brandon Stump
                                                                

Name:
Brandon
Stump
                                                                

Title:
Chief Executive Officer

                                                           

 

 

AGREED AND ACKNOWLEDGED:

 

RED
BEARD HOLDINGS, LLC,

a
Delaware limited liability company

 

 

 

By: Vinny Smith

Name: 
Vinny
Smith

Title: General
Partner

 

 

 

 

 

	
 

	

	
 

	
 

	
 

	
 

 

A-9

 

EXHIBIT
A

 

(Certain
Defined Terms)

 

“Bankruptcy Event” means
any of the following events: (a) the Company commences a case
or other proceeding under any Debtor Relief Laws; (b) there is
commenced against the Company any case or proceeding under Debtor
Relief Laws that is not dismissed within 30 calendar days after
commencement; (c) the Company is adjudicated insolvent or
bankrupt or any order of relief or other order approving any such
case or proceeding is entered; (d) the Company 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 30
calendar days after such appointment; (e) the Company makes a
general assignment for the benefit of creditors; (f) the
Company calls a meeting of its creditors with a view to arranging a
composition, adjustment or restructuring of its debts; or
(g) the Company, 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.

 

“Business Day” means any
day other than a Saturday, Sunday or other day on which commercial
banks are authorized to close under the laws of, or are in fact
closed in, Orange County, California.

 

“Debtor Relief Laws” means
the Bankruptcy Code of the United States, and all other
liquidation, conservatorship, bankruptcy, assignment for the
benefit of creditors, moratorium, rearrangement, receivership,
insolvency, reorganization, or similar debtor relief laws of the
United States or other applicable jurisdictions from time to time
in effect and affecting the rights of creditors
generally.

 

“Indebtedness” means
(a) all obligations for borrowed money; (b) all
obligations evidenced by bonds, debentures, notes, or other similar
instruments and all reimbursement or other obligations in respect
of letters of credit, bankers acceptances, current swap agreements,
interest rate hedging agreements, interest rate swaps, or other
financial products; (c) all capital lease obligations;
(d) all obligations or liabilities secured by a lien or
encumbrance on any asset of the Company, irrespective of whether
such obligation or liability is assumed; (e) all obligations
for the deferred purchase price of assets; (f) all synthetic
leases; and (g) any obligation guaranteeing or intended to
guarantee (whether directly or indirectly guaranteed, endorsed,
co-made, discounted or sold with recourse) any of the foregoing
obligations of any other person; provided, however, Indebtedness
shall not include (x) usual and customary trade debt incurred
in the ordinary course of business and (y) endorsements for
collection or deposit in the ordinary course of
business.

 

“Lien” means any mortgage,
pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or other), charge, or preference,
priority or other security interest or preferential arrangement in
the nature of a security interest of any kind or nature whatsoever
(including any conditional sale or other title retention agreement,
any easement, right of way or other encumbrance on title to real
property, and any financing lease having substantially the same
economic effect as any of the foregoing).

 

"Liquidity Event" means any of
the following, in each case with respect to either Company (or
both) or any of their respective subsidiaries and/or affiliates:
(a) the raising of any additional capital by any Company, whether
in the form of debt, equity or otherwise, in which Company receives
aggregate net cash proceeds therefrom of at least $1,000,000,
including, without limitation, the anticipated investment, whether
in the form of equity, debt or otherwise, by United Capital
Partners LLC and/or any of its affiliates, (b) any merger or
consolidation in which any Company is a constituent party, or (c)
the sale, transfer, pledge or other disposition of any equity
interests of any Company and/or any of their respective
subsidiaries and/or affiliates, or (d) the sale, lease, transfer,
exclusive license or other disposition, in a single transaction or
series of related transactions, by the Company or any subsidiary or
affiliate of the Company of all or substantially all the assets of
the Company and its subsidiaries and/or affiliates.

 

	
 

	
	
 

	
 

	
 

	
 

 

A-10

 

“Material Adverse Effect”
means (a) a material adverse change in, or a material adverse
effect upon, the operations, business, properties, liabilities
(actual or contingent), condition (financial or otherwise) or
prospects of the Company; (b) a material impairment of the rights
and remedies of the Holder under any Transaction Document or of the
ability of Company to perform its obligations under any Transaction
Document; (c) a material adverse effect upon the legality,
validity, binding effect or enforceability against the Company of
any Transaction Document; or (d) the issuance by any third party
lender to the Company of a notice of default on
Indebtedness.

 

"Maturity Date" means the
earlier to occur of (a) a Liquidity Event or (b) October 1,
2020.

 

“Note” means this Secured
Promissory Note, as amended, restated, supplemented, extended or
otherwise modified from time to time.

 

“Person” means any
individual, firm, corporation, partnership, trust, incorporated or
unincorporated association, joint venture, joint stock company,
limited liability company, governmental authority or other entity
of any kind.

 

“Security Agreement” means
the Security Agreement of even date herewith made by Company in
favor of the Holder, as amended, restated, supplemented, extended
or otherwise modified from time to time.

 

"Series A Certificate" means
that certain Certificate of Designations, Preferences and Rights of
the Series A Convertible Preferred Stock of True Drinks Holdings,
Inc. (now known as Charlie's Holdings, Inc.) as in effect as of the
date of this Agreement.

 

“Transaction Documents”
means this Note, the Security Agreement, each guaranty entered into
in connection herewith, if any, and each other instrument, document
or agreement now or hereafter executed by the Company in favor of
the Holder in connection with this Note, in each case as amended,
restated, supplemented, extended or otherwise modified from time to
time.

 

  

 

 

A-11

 

 

EXHIBIT B 

AMENDMENT NO. 1

TO

SECURED PROMISSORY NOTE

AND SECURITY AGREEMENT

 

This AMENDMENT NO.
1 TO SECURED PROMISSORY
NOTE AND SECURITY
AGREEMENT (this “Amendment”), dated August, 27,
2020, is made by and between Charlie’s Holdings, Inc., a
Nevada corporation (“Holdings”), Charlie’s Chalk
Dust, LLC, a Delaware limited liability company
(“Chalk Dust”),
and Don Polly LLC, a Nevada limited liability company
(“Don Polly”,
and together with Holdings and Chalk Dust, individually and
collectively, “Company”), on the one hand, and
Red Beard Holdings, LLC, a Delaware limited liability company
(“Red Beard”)
on the other. Company and Red Beard are sometimes collectively
referred to herein as the “Parties” and each individually as
a “Party”.

 

RECITALS

 

WHEREAS, the Parties executed that
certain Secured Promissory Note on April 8, 2020, in favor of Red
Beard in the original principal amount of Seven Hundred Fifty
Thousand and 00/100 Dollars ($750,000.00), a copy of which is
attached hereto as Exhibit
A and by this reference incorporated herein (the
“Note”);

 

WHEREAS, to secure repayment of the
Note, the Company executed and delivered to Red Beard that certain
Security Agreement also dated April 8, 2020, a copy of which is
attached hereto as Exhibit
B and by this reference incorporated herein (the
“Security
Agreement”); and

 

WHEREAS, Company has requested, and Red
Beard has agreed, to increase the amount that can be borrowed under
the Note.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the
foregoing and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the Parties hereto
agree as follows:

 

1. Increase in Principal. The
Principal Amount of the Note shall be increased from Seven Hundred
Fifty Thousand and 00/100 Dollars ($750,000.00) to One Million Four
Hundred Thousand and 00/100 Dollars ($1,400,000.00).

 

2. Increase in Guaranteed Minimum
Interest. The Guaranteed Minimum Interest shall be increased
from Seventy Five Thousand and 00/100 Dollars ($75,000.00) to One
Hundred Thousand and 00/100 Dollars ($100,000.00).

 

3. Amendment to Security
Agreement. The Security Agreement is hereby amended so that
any reference to the “Note” in the Security Agreement
shall mean the Note as amended by this Amendment.

 

4. Event of Conflict. The
provisions of the Note, as modified in this Amendment, shall remain
in full force and effect in accordance with their terms and are
hereby ratified and confirmed. In the event of any conflict between
the terms and conditions of this Amendment and the terms and
conditions set forth in the Note, the terms and conditions set
forth herein shall control. This Amendment shall be governed by and
construed in accordance with the laws of the State of
California.

 

5. Counterparts; Electronic
Execution. This Amendment may be executed in any number of
counterparts and by different parties on separate counterparts,
each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall
constitute but one and the same Agreement. Delivery of an executed
counterpart of this Amendment by telefacsimile or other electronic
method of transmission (including without limitation a PDF
attachment) shall be equally as effective as delivery of an
original executed counterpart of this Amendment.

 

 

 

B-1

 

 

 

IN
WITNESS WHEREOF, this Amendment was duly executed on the date first
written above.

 

	
“COMPANY”

 

CHARLIE’S
HOLDINGS, INC.,

a
Nevada corporation

	

 

 

	

“RED
BEARD”

 

RED
BEARD HOLDINGS, LLC

a
Delaware limited liability company

 

	
By: /s/ Brandon
Stump 

Mr. Brandon
Stump

Chief
Executive Officer

	

 

 

	

By:
/s/ Vinny
Smith 

Vinny
Smith

General
Partner

 

 

	

CHARLIE’S
CHALK DUST, LLC

a
Delaware limited liability company

 

 

	
 

	
 

	

By:
/s/ Brandon
Stump 

Mr.
Brandon Stump

Chief
Executive Officer

 

 

	
 

	
 

	

DON
POLLY LLC

a
Nevada limited liability company

 

	
 

	
 

	

By:
/s/ Brandon
Stump 

Mr.
Brandon Stump

Chief
Executive Officer

 

 

	
 

	
 

 

 

 

  

 

 

B-2

 

 

EXHIBIT C

Security Agreement

 

THIS SECURITY
AGREEMENT (as amended, restated, supplemented, extended or
otherwise modified from time to time, this "Agreement") dated as
of April 8, 2020, is jointly and severally entered into by
Charlie's Holdings, Inc., a Nevada corporation ("Holdings"),
Charlie's Chalk Dust, LLC, a Delaware limited liability company
("Chalk
Dust"), and Don Polly LLC, a Nevada limited liability
company ("Don
Polly" and together with Holdings and Chalk Dust,
individually and collectively, the "Debtor"), as debtor
in favor of Red Beard Holdings, LLC, a Delaware limited liability
Company ("Red
Beard" and together with its successors and assigns,
"Secured
Party").

 

WHEREAS,
concurrently herewith, Debtor is issuing that certain Secured
Promissory Note of even date herewith in favor of Secured Party (as
amended, restated, supplemented, extended or otherwise modified
from time to time, the "Red Beard
Note").

 

WHEREAS, as a
condition to the obligation of Secured Party to enter into the Red
Beard Note and to loan and advance funds thereunder pursuant to the
Red Beard Note, Secured Party has required Debtor to enter into
this Agreement, and Debtor to grant the security interests
described herein in the Collateral in favor of Secured
Party.

 

NOW THEREFORE, in
consideration of the premises and mutual covenants contained herein
and for other good, valuable, and binding consideration, the
receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound hereby, agree as
follows:

 

1. Definitions.

 

(a)     
Capitalized terms
used herein and not otherwise defined herein shall have the
meanings provided in the Red Beard Note. This Agreement is the
"Security Agreement" referred to in the Red Beard Note. This
Agreement is one of the "Transaction Documents" referred to in the
Red Beard Note. To the extent that any terms or concepts defined or
used herein are defined or used in the UCC (as defined below), such
terms or concepts shall be interpreted for purposes hereof in a
manner that is consistent with such definition or use in the
UCC.

 

(b) The following terms
shall have the meanings set forth below:

 

"Collateral"
shall mean all right, title, and interest of the Debtor in and to
all of the following property of the Debtor, whether now owned or
hereafter acquired and whether now existing or hereafter coming
into existence:

 

(i)           Accounts;

 

(ii)           Chattel
Paper and rights to receive monies included thereby;

 

(iii)           Commercial
Tort Claims;

 

(iv)           Deposit
Accounts;

 

(v)           Documents;

 

(vi)           Equity
Collateral;

 

(vii)           General
Intangibles;

 

(viii)           Goods,
including Inventory and Equipment;

 

(ix)           Instruments
and rights to receive monies included thereby;

 

 

 

 

C-1

 

 

  

(x)           Intellectual
Property;

 

(xi)           Investment
Property, including Commodity Accounts and Commodity
Contracts;

 

(xii)           Letter-of-Credit
Rights;

 

(xiii)           Notes;

 

(xiv)           other
tangible and intangible personal property and Fixtures of the
Debtor;

 

(xv)           to
the extent related to any property described in the clauses (i)
through (xiv), all books, correspondence, loan files, records,
invoices, and other papers, including without limitation all tapes,
cards, computer runs, and other papers and documents in the
possession or under the control of the Debtor or any computer
service company from time to time acting for the Debtor;
and

 

(xvi)           cash
and non-cash Proceeds of any and all of the foregoing.

 

"Copyright
Collateral" shall
mean all Copyrights, whether now owned or hereafter acquired by the
Debtor.

 

"Copyrights"
shall mean all copyrights, copyright registrations, and
applications for copyright registrations, including, without
limitation, all renewals and extensions thereof, the right to
recover for all past, present, and future infringements thereof,
and all other rights of any kind whatsoever accruing thereunder or
pertaining thereto.

 

"Equity
Collateral" shall
mean Pledged Equity and Pledged Equity Proceeds.

 

"Intellectual
Property" shall mean,
collectively, all Copyright Collateral, all Patent Collateral, and
all Trademark Collateral, together with (a) all inventions,
processes, production methods, proprietary information, know-how,
and trade secrets; (b) all licenses or user or other
agreements granted to the Debtor with respect to any of the
foregoing, in each case whether now or hereafter owned or used;
(c) all information, customer lists, identification of
suppliers, data, plans, blueprints, specifications, designs,
drawings, recorded knowledge, surveys, engineering reports, test
reports, manuals, materials standards, processing standards,
performance standards, catalogs, computer and automatic machinery
software and programs, splash screens, films, masters, and artwork;
(d) all field repair data, sales data, and other information
relating to sales or service of products now or hereafter
manufactured; (e) all accounting information and all media in
which or on which any information or knowledge or data or records
may be recorded or stored and all computer programs used for the
compilation or printout of such information, knowledge, records, or
data; and (f) all licenses, consents, permits, variances,
certifications, and approvals of governmental agencies now or
hereafter held by the Debtor.

 

"Lien" shall mean a pledge, assignment, lien,
charge, mortgage, encumbrance, or other security interest obtained
under this Agreement or under any other agreement or instrument
with respect to any present or future assets, property, contract
rights, or revenues in order to secure the payment of indebtedness
of the party referred to in the context in which the term is
used.

 

"Motor
Vehicles" shall mean
motor vehicles, tractors, trailers, and other like property,
whether or not the title thereto is governed by a certificate of
title or ownership.

 

"Notes" shall mean all Promissory Notes or
other debt instruments (including, without limitation, bonds and
debentures of any nature whatsoever) from time to time issued to,
or held by, the Debtor.

 

 

 

C-2

 

 

"Obligations"
shall mean (i) (x) the principal of and any interest on the Red
Beard Note (including, without limitation, any further advances),
and (y) all other obligations and liabilities of the Debtor,
whether now existing or hereafter incurred, under, arising out of,
or in connection with, the Red Beard Note and the due performance
and compliance by the Debtor with all of the terms, conditions, and
agreements contained in the Red Beard Note; (ii) any and all sums
advanced by the Secured Party in order to preserve the
Collateral or preserve its Lien and security interest in the
Collateral; (iii) in the event of any proceeding for the collection
or enforcement of any indebtedness, obligations, or liabilities
referred to in clauses (i) and (ii) above, all costs and expenses
of any exercise by the Secured Party of its rights hereunder,
together with attorneys' fees and court costs; and (iv) to the
extent not otherwise included in clauses (i), (ii), or (iii) above,
the Debtor's obligations set forth in this Agreement, including,
without limitation, the Debtor's obligations set forth in
Section
21.

 

"Patent
Collateral" shall
mean all Patents, whether now owned or hereafter acquired by the
Debtor.

 

"Patents" shall mean all patents and patent
applications, including, without limitation, the inventions and
improvements described and claimed therein together with the
reissues, divisions, continuations, renewals, extensions, and
continuations-in-part thereof, all income, royalties, damages, and
payments now or hereafter due and/or payable under and with respect
thereto, including, without limitation, damages and payments for
past or future infringements thereof, the right to sue for past,
present, and future infringements thereof, and all rights
corresponding thereto throughout the world.

 

"Pledged
Equity" shall mean
(i) the shares of stock of, or partnership and other ownership
interest in, any entity, and any and all equity interests now or
hereafter issued in substitution, exchange or replacement therefor
or with respect thereto, and (ii) all ownership interests of any
class or character of a successor entity formed by or resulting
from a consolidation or merger in which any such issuer is not the
surviving entity; in each case, whether now or hereafter owned by
the Debtor, together with any certificates evidencing any of the
foregoing.

 

"Pledged Equity
Proceeds" shall mean
all shares, securities, moneys, or property representing a dividend
on any of the Pledged Equity, or representing a distribution or
return of capital upon or in respect of the Pledged Equity, or
resulting from a split-up, revision, reclassification, or other
like change of the Pledged Equity or otherwise received in exchange
therefor, and any subscription warrants, rights, or options issued
to the holders of, or otherwise in respect of, the Pledged
Equity.

 

"Trademark
Collateral" shall
mean all Trademarks, whether now owned or hereafter acquired by the
Debtor.

 

"Trademarks"
shall mean all trade names, trademarks and service marks, logos,
domain names, trademark and service mark registrations, and
applications for trademark and service mark registrations,
including, without limitation, all renewals of trademark and
service mark registrations, all rights corresponding thereto
throughout the world, the right to recover for all past, present,
and future infringements thereof, all other rights of any kind
whatsoever accruing thereunder or pertaining thereto, together, in
each case, with the product lines and goodwill of the business
connected with the use of, and symbolized by, each such trade name,
trademark, and service mark.

 

"UCC" shall mean the Uniform Commercial Code
as in effect in the State of California from time to
time.

 

2.  Grant of Liens

 

. As security for
the due and punctual payment and performance in full of all
Obligations (whether at the stated maturity, by acceleration, or
otherwise and whether now owing or incurred in the future), the
Debtor hereby pledges, assigns, charges, delivers, and grants to
the Secured Party a continuing perfected first priority security interest in and a general
Lien upon all of the Debtor's right, title, and interest in and to
the Collateral and all additions thereto and substitutions
therefor, whether heretofore, now or hereafter received by or
delivered or transferred to the Secured
Party hereunder.

 

 

 

C-3

 

3. Continuing Security Interest.
This Agreement creates an assignment, pledge, charge, continuing
perfected first priority security interest in, and general
Lien upon, the Collateral and shall (a) remain in full force and
effect until all Obligations have been indefeasibly paid in full in
cash, (b) be binding upon the Debtor and its successors, permitted
transferees, and permitted assigns, and (c) inure, together with
the rights and remedies of the Secured Party hereunder, to the
benefit of the Secured Party and its successors, transferees,
and assigns.

 

4. Debtor
Remains Liable

 

. Anything herein
to the contrary notwithstanding, (a) the Debtor shall remain liable
under any agreements which have been (in whole or in part) pledged
or assigned herein to perform all of its duties and obligations
thereunder to the same extent as if this Agreement had not been
executed; (b) the exercise by the Secured Party of any of the
rights hereunder shall not release the Debtor from any of its
duties or obligations under any such agreements; and (c) the
Secured Party shall not have any obligation or liability under
any such agreements by reason of this Agreement, nor shall the
Secured Party be obligated to perform any of the obligations
or duties of the Debtor thereunder or to take any action to collect
or enforce any claim for payment assigned hereunder.

 

5. Delivery
and Perfection

 

. The Debtor hereby
authorizes the Secured Party to file one or more financing or
continuation statements, and amendments thereto, relating to all or
any part of the Collateral, and agrees to take all such other
actions and to execute and deliver and file or cause to be filed
such other instruments or documents, as the Secured Party may
reasonably require in order to establish and maintain a perfected,
valid, and continuing security interest and Lien in the Collateral
in accordance with this Agreement and the UCC and other applicable
law.

 

(a) The Debtor shall,
at the request of the Secured Party:

 

(i) immediately deliver
any and all Documents, Instruments, and Chattel Paper (including,
without limitation, any Certificates of Title) evidencing or
relating to the Collateral to the Secured Party at the time and
place and manner specified in the Secured Party's
request;

 

(ii) immediately execute
(if applicable) and deliver to the Secured Party (or file or
record in such offices as the Secured Party may deem necessary
or appropriate) any and all financing and continuation statements,
other agreements, instruments, or other documents or amendments
thereto, and perform any acts which may be necessary or desirable
(A) to create, perfect, preserve, or otherwise protect the security
interest and Liens granted herein or (B) to enable the Secured
Party to exercise and enforce its rights
hereunder;

 

(iii) with respect to any
Certificated Security not otherwise credited to a Securities
Account, the Debtor shall immediately effect transfer thereof to
the Secured Party (A) by physical delivery of such
Certificated Security to the Secured Party endorsed to the
Secured Party or its nominee or in blank or (B) in the case of
a Certificated Security in registered form, by physical delivery of
such Certificated Security to the Secured Party specially
endorsed to the Secured Party or its nominee and thereafter
reregistered in the name of the Secured Party or their
nominee;

 

(iv) with respect to any
Uncertificated Security not otherwise credited to a Securities
Account, the Debtor shall immediately (A) effect transfer thereof
to the Secured Party by registration thereof on the books and
records of the issuer in the name of the Secured Party or its
nominee or (B) obtain the agreement of the issuer of such
Uncertificated Securities that it will comply with instructions
originated by the Secured Party without further consent by the
registered owner, through a written agreement in form and substance
satisfactory to the Secured Party; and

 

 

 

C-4

 

  

 

(v) mark all
Certificates of Title in the manner specified in a written notice
of the Secured Party to the Debtor requesting such marking, to
evidence the fact that such Certificates of Title are subject to
the security interest and Lien of the Secured Party granted
herein.

 

(b) Upon the request of
the Secured Party, the Debtor agrees immediately to deliver to the
Secured Party, appropriately endorsed to the order of the Secured
Party, any Notes, trade acceptance, Chattel Paper, or other
Instrument in which a security interest must be perfected by
delivery or transfer of such Collateral to a secured party, which
are acquired by the Debtor from time to time.

 

(c) Notwithstanding
Section 9207 of the UCC, the Secured Party may hold as additional
security any Proceeds, including money and funds, received from the
Collateral, all of which shall constitute Collateral hereunder, and
the Secured Party shall not be required to apply such money or
funds to reduce the Obligations other than as expressly set forth
herein.

 

6. Proceeds
of Sale

 

. Nothing contained
in this Agreement shall limit or restrict in any way the Secured
Party's right to receive Proceeds of the Collateral in any form in
accordance with the provisions of this Agreement. All Proceeds that
are received by the Debtor contrary to the provisions of this
Agreement shall be received in trust for the benefit of the Secured
Party, shall be segregated from other property or funds of the
Debtor and shall be forthwith paid over to the Secured
Party as Collateral in the same form as so received (with any
necessary endorsement, document or instrument of
transfer).

 

7. Records
and Information

 

. The Debtor agrees
to keep, at its office set forth in Section 11(d), its records
concerning the Collateral. The Debtor agrees to promptly furnish to
the Secured Party such information concerning itself, the
Collateral, and any Account Debtor as the Secured Party may
request at any time and from time to time.

 

8. Inspection

 

. The Debtor agrees
upon notice provided by the Secured Party, to permit the Secured
Party, through its officers and agents, to examine and inspect the
Collateral and all records pertaining thereto, and to make extracts
from such records as the Secured Party may
require.

 

9. Use
of Collateral

 

. Except upon the
occurrence and during the continuance of any Event of Default, the
Debtor may in the ordinary course of its business use, consume,
exhibit, demonstrate, sell, lease, or otherwise dispose of its
Inventory in carrying on its businesses substantially in the same
manner as now conducted; provided, however, that a sale,
disposition or transfer in the ordinary course of business shall
not include any sale, disposition or transfer in satisfaction,
partial or complete, of a debt owed by the Debtor or any sale,
transfer or disposition to any shareholder or affiliate of the
Debtor; and provided further that any such sale,
disposition or transfer shall be for fair equivalent value and
shall not be unlawful or inconsistent with the terms of this
Agreement or of any policy of insurance covering such
Collateral.

 

10. No
Disposition

 

. The Debtor
covenants and agrees that it will not sell, assign, transfer,
exchange, or otherwise dispose of, or grant any option with respect
to, any of the Collateral, except as provided for in Section 9 hereof, nor will it
create, incur, or permit to exist any Lien on or with respect to
any of the Collateral, any interest therein, or any Proceeds
thereof.

 

11. Representations
and Warranties

 

. The Debtor
represents, warrants and covenants to the Secured
Party throughout the term of this Agreement that:

 

(a) The Debtor is and
will be the sole legal and beneficial owner of all of the
Collateral now owned or hereafter acquired free and clear of any
Lien, security interest, assignment, option, or other charge or
encumbrance;

 

 

 

 

C-5

 

  

 

(b) This Agreement has
been duly and validly authorized by the Debtor and executed and
delivered by the Debtor and constitutes the legal, valid, and
binding obligation of the Debtor, enforceable against the Debtor in
accordance with its terms (subject to applicable bankruptcy,
reorganization, insolvency, moratorium, or similar laws affecting
creditors' rights generally) and, subject to the performance of the
relevant procedures as specified in Section 5 herein with respect
to such Collateral, creates a valid, binding, enforceable, and
first priority perfected security interest in and general first
Lien upon all of the Collateral, and the Debtor is duly authorized
to make all filings and take all other actions necessary or
desirable to perfect and to continue perfected such security
interest;

 

(c) As of the date
hereof and on the date of delivery or transfer to the Secured
Party of any Collateral under this Agreement, the Debtor has
good and marketable title to the Collateral;

 

(d) The office where
the Debtor maintains all records relating to the Collateral is
located at:

 

	
 

	
1007 Brioso
Drive

Costa Mesa CA
92627

 

(e) Holdings is a
corporation duly incorporated and validly existing under the laws
of the State of Nevada. Chalk Dust is a limited liability company
duly organized and validly existing under the laws of the State of
Delaware. Don Polly is a limited liability company duly organized
and validly existing under the laws of the State of
Nevada.

 

(f) The Debtor's exact
legal name as that name appears on the Debtor's Certificate of
Formation or equivalent formation document is exactly as set forth
in the signature page for Debtor below.

 

(g) All Pledged Equity
in which the Debtor currently has or shall hereafter acquire an
interest is and will be, as applicable, duly authorized, validly
existing, fully paid, and non-assessable (in the case of any equity
interest in a corporation) and duly issued and outstanding (in the
case of any equity interest in any other entity), and none of such
Pledged Equity is or will be subject to any contractual
restriction, or any restriction under the charter, by-laws,
partnership agreement, or other organizational document of the
respective issuer, upon the transfer of such Pledged
Equity;

 

(h) Except pursuant to
licenses and other user agreements entered into by the Debtor in
the ordinary course of business, the Debtor owns and possesses the
right to use, and has done nothing to authorize or enable any other
Person to use, any Copyright, Patent or Trademark owned or used by
the Debtor on the date hereof, and all registrations therefor are
valid and in full force and effect; and the Debtor owns or
possesses the right to use all such Copyrights, Patents and
Trademarks;

 

(i) To the Debtor's
knowledge, (i) there is no violation by others of any right of
the Debtor with respect to any Copyright, Patent or Trademark of
Debtor and (ii) the Debtor is not infringing in any respect
upon any Copyright, Patent or Trademark of any other Person; and no
proceedings have been instituted or are pending against the Debtor
or, to the Debtor's knowledge, threatened, and no claim against the
Debtor has been received by the Debtor, and

 

(j) To the best of
Debtor's knowledge, there are no actions, suits, proceedings or
investigations pending or threatened in writing against Debtor
before any governmental authority which could reasonably be
expected to cause any portion of the Intellectual Property to be
adjudged invalid or unenforceable, in whole or in
part.

 

 

 

 

C-6

 

  

 

12. Covenants.

 

(a)            The Debtor
shall:

 

(i) Maintain, or cause
to be maintained, all items of the Collateral in good condition and
repair, ordinary wear and tear excepted in the case of Equipment,
and pay, or cause to be paid, the costs of repairs to or
maintenance of that Collateral which is of a type that could be
repaired or maintained;

 

(ii) Take all steps to
preserve and protect the Collateral, including, with respect to the
Intellectual Property, the filing of any renewal affidavits and
applications;

 

(iii) Not use any
Collateral in violation of applicable laws or any applicable policy
of insurance;

 

(iv) Pay or cause to be
paid when due all taxes, assessments, and other charges relating to
the Collateral or this Agreement and reimburse the Secured
Party for all costs of and fees incurred in connection with
any filing of the documents and instruments referred to in
Section
5;

 

(v) Not change its: (a)
name or the name under which it does business; (b) chief executive
office; (c) type of organization; (d) jurisdiction of
incorporation; or (e) other legal structure without at least 30
day's prior written notice to the Secured Party. Prior to
effectuating any change described in the preceding sentence, the
Debtor shall take or cause to be taken all actions deemed by the
Secured Party to be necessary or desirable to prevent any
financing or continuation statement from becoming seriously
misleading or rendered ineffective, or the security interests
granted herein from becoming unperfected or the relative priority
thereof otherwise impaired, as a result of such removal or
change;

 

(vi) Perform and observe
all the terms and provisions of any agreement for the sale or lease
of goods, or any agreement for the rendering of services, giving
rise to an Account to be performed or observed by it, maintain any
such agreement in full force and effect, enforce any such agreement
in accordance with its terms, and take all such action to such end
as may be from time to time reasonably requested by the Secured
Party;

 

(vii) Render any
assistance, as Secured Party may solely determine is necessary, to
Secured Party in any proceeding before the USPTO, the USCO, any
federal or state court, or any similar office or agency in the
United States of America, or any State therein, to maintain any
Patent Collateral, Trademark Collateral or Copyright Collateral and
to protect Secured Party's security interest therein, including,
without limitation, filing of renewals, affidavits of use,
affidavits of incontestability and opposition, interference, and
cancellation proceedings;

 

(viii) Immediately notify
Secured Party if Debtor learns of any use by any Person of any term
or design likely to cause confusion with any of the Trademark
Collateral, or of any use by any Person of any other process or
product which infringes upon any of the Trademark Collateral in a
manner which is adverse to Debtor's business, and if requested by
Secured Party, Debtor, at its expense, shall join with Secured
Party in such action as Secured Party in Secured Party's discretion
may deem advisable for the protection of Secured Party's interest
in and to the Trademark Collateral;

 

 

 

 

C-7

 

  

 

(ix) Assume all
responsibility and liability arising from the use of the
Intellectual Property, and Debtor hereby indemnifies and holds
Secured Party harmless from and against any claim, suit, loss,
damage or expense (including attorneys' fees) arising out of any
alleged defect in any product manufactured, promoted, or sold by
Debtor in connection with any Intellectual Property or out of the
manufacture, promotion, labeling, sale, or advertisement of any
such product by Debtor;

 

(x) Immediately notify
Secured Party in writing of any adverse determination in any
proceeding in the USPTO, USCO, or any other foreign or domestic
governmental authority, court or body, Debtor becomes aware of
regarding Debtor's claim of ownership in any of the Trademark
Collateral, Patent Collateral or Copyright Collateral, and in the
event of any infringement of any Trademark, Patent or Copyright
owned by Debtor by a third party which is adverse to Debtor's
business, Debtor shall promptly notify Secured Party of such
infringement and sue for and diligently pursue damages for such
infringement, and if Debtor shall fail to take such action within
one (1) month after such notice is given to Secured Party, Secured
Party may, but shall not be required to, itself take such action in
the name of Debtor, and Debtor hereby appoints Secured Party the
true and lawful attorney of Debtor, for it and in its name, place
and stead, on behalf of Debtor, solely, without limitation on any
other rights of Secured Party under this Agreement, to commence
judicial proceedings in any court or before any other tribunal to
enjoin and recover damages for such infringement, any such damages
due to Debtor, net of costs and attorneys' fees, to be applied to
the Obligations;

 

(xi) (A) Maintain, with
responsible insurance companies, insurance covering the Collateral
against such insurable losses as is consistent with sound business
practice and, in any event, as is required by the Transaction
Documents and, (B) cause Secured Party to be designated as loss
payee (as customary for secured parties based on the type of
insurance) with respect to all insurance (whether or not required
by the Transaction Documents), (C) obtain the written agreement of
the insurers that such insurance shall not be cancelled, terminated
or materially modified to the detriment of Secured Party without at
least 30 days' prior written notice to Secured Party, and (D)
furnish copies of such insurance policies or certificates to
Secured Party immediately upon request therefor and otherwise
comply with the terms and provisions of the Transaction Documents
with respect to such insurance coverage; and

 

(xii) with respect to the
Copyright Collateral, at its sole expense, do, make, execute and
deliver all such additional and further acts, things, deeds,
assurances, and instruments, in each case in form and substance
satisfactory to Secured Party, relating to the creation, validity,
or perfection of the security interests provided for in this
Agreement under 35 U.S.C. Section 261, 15 U.S.C. Section 1051 et
seq., 17 U.S.C. Sections 101, 201 et seq., the UCC or other law of
the United States of America, the State of California, other States
or any other domestic or foreign jurisdiction as Secured Party may
from time to time reasonably request, and shall take all such other
action as Secured Party may reasonably require to perfect Secured
Party's security interest in any of the Copyright Collateral and to
completely vest in and assure to Secured Party its rights hereunder
in any of the Copyright Collateral; and

 

(xiii) within 10 days
after any request by Secured Party, Debtor shall, and shall cause
each depository or intermediary holding any of the Debtor's Deposit
Accounts, Securities Accounts, or other deposit, brokerage,
securities or other similar accounts to, enter into control
agreements in favor of Secured Party, in form and substance
satisfactory to Secured Party in its sole and absolute discretion,
over such accounts.

 

 

 

 

C-8

 

  

 

13. Further Assurances and
Protections.

 

(a)     
 The Debtor shall at
its expense do, file, record, make, execute, and deliver all such
acts, notices, instruments, statements, or other documents as the
Secured Party may request to perfect, preserve, or otherwise
protect the security interest and Liens of the Secured
Party in the Collateral or any part thereof or to give effect
to the rights, powers, and remedies of the Secured Party under
this Agreement;

 

(b) The Debtor will
give prompt written notice to the Secured Party of, and defend
the Collateral against, any suit, action, or proceeding related to
the Collateral or which could adversely affect the security
interests and Liens granted hereunder; and

 

(c) Debtor authorizes
Secured Party to have this or any other similar agreement recorded
or filed with the USCO, USPTO or other appropriate federal, state
or foreign government office.

 

14. Events
of Default

 

. The occurrence of
any of the following events or conditions shall constitute an event
of default (each an "Event of Default")
under this Agreement:

 

(a) The occurrence and
continuation of an Event of Default as defined in the Red Beard
Note;

 

(b) any representation
or warranty made in this Agreement or the Red Beard Note or any
written statement pursuant hereto or thereto or any other report,
financial statement or certificate made or delivered to the Secured
Party shall be untrue or incorrect in any respect as of the date
when made or deemed made;

 

(c) The failure or
refusal by the Debtor to perform, or the breach or violation of,
any of the terms, obligations, covenants, or warranties of this
Agreement or the Red Beard Note.

 

15. Remedies
upon an Event of Default

 

. On and after the
occurrence and continuance of an Event of Default, the Secured
Party may, in its discretion:

 

(a) request that the
Debtor, and upon such request the Debtor shall, assemble the
Collateral at such place or places convenient to the Secured
Party designated in such request;

 

(b) enforce collection
of any of the Collateral by suit or any other lawful means
available to the Secured Party, or demand, collect, or receive any
money or property at any time payable or receivable on account of
or in exchange for any of the Collateral;

 

(c) surrender, release,
or exchange or otherwise modify the terms of all or any part of the
Collateral, or compromise or extend or renew for any period any
indebtedness thereunder or evidenced thereby;

 

 

 

 

C-9

 

  

 

(d) assert all other
rights and remedies of a secured party under the UCC (whether or
not in effect in any applicable jurisdiction) and all other
applicable law, including, without limitation, the right to take
possession of, hold, collect, sell, lease, deliver, grant options
to purchase, or otherwise retain, liquidate, or dispose of all or
any portion of the Collateral. The proceeds of any collection,
liquidation, or other disposition of the Collateral shall be
applied by the Secured Party first to the payment of all
expenses (including, without limitation, all fees, taxes,
attorneys' fees and legal expenses) incurred by the Secured
Party in connection with retaking, holding, collecting, or
liquidating the Collateral. The balance of such proceeds, if any,
shall, to the extent permitted by law, be applied to the payment of
the Obligations in the order and manner designated by the Secured
Party in its sole discretion until all Obligations are indefeasibly
paid in full in cash. After all of the Obligations have been
indefeasibly paid in full in cash, the balance of such proceeds, if
any, shall be remitted to the Debtor or as otherwise required by
law. In case of any deficiency, the Debtor shall, whether or not
then due, remain liable therefor. If notice prior to disposition of
the Collateral or any portion thereof is necessary under applicable
law, written notice mailed to the Debtor at its notice address
specified in the Red Beard Note ten (10) days prior to the date of
such disposition shall constitute commercially reasonable notice,
but notice given in any other reasonable manner shall be
sufficient. Without precluding any other methods of sale or other
disposition, the sale or other disposition of the Collateral or any
portion thereof shall have been made in a commercially reasonable
manner if conducted in conformity with commercial practices of
creditors disposing of similar property; but in any event the
Secured Party may sell, lease, deliver, grant options to
purchase or otherwise retain, liquidate or dispose such Collateral
on such terms and to such purchaser(s) (including the Secured
Party) as the Secured Party in its absolute discretion may
choose, and for cash or for credit or for future delivery, without
assuming any credit risk, at public or private sale or other
disposition, without demand of performance, and without any
obligation to advertise or give notice of any kind other than that
necessary under applicable law. The Debtor hereby waives and
releases to the fullest extent permitted by law any right or equity
of redemption with respect to the Collateral, whether before or
after sale or other disposition hereunder, and all rights, if any,
of marshalling the Collateral and any other security for the
Obligations or otherwise. At any such sale or other disposition,
unless prohibited by applicable law, the Secured Party may bid
for and purchase all or any part of the Collateral so sold free
from any such right or equity of redemption. The Secured
Party shall not be liable for failure to collect or realize
upon any or all of the Collateral or for any delay in so doing nor
shall it be under any obligation to take any action whatsoever with
regard thereto.

 

The Secured
Party shall incur no liability as a result of the sale of the
Collateral, or any part thereof, at any private sale pursuant to
this Agreement. The Debtor hereby waives any claims against the
Secured Party arising by reason of the fact that the price at
which the Collateral may have been sold at such a private sale was
less than the price that might have been obtained at a public sale
or was less than the aggregate amount of the Obligations, even if
the Secured Party accepts the first offer received and does
not offer the Collateral to more than one offeree.

 

The Debtor
recognizes that, by reason of certain prohibitions contained in the
Securities Act of 1933, as amended, and applicable state securities
laws, the Secured Party may be compelled, with respect to any
sale of all or any part of the Collateral, to limit purchasers to
those who will agree, among other things, to acquire the relevant
Collateral for their own account, for investment and not with a
view to the distribution or resale thereof. The Debtor acknowledges
that any such private sale may be at prices and on terms less
favorable to the Secured Party than those obtainable through a
public sale without such restrictions, and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to
have been made in a commercially reasonable manner and that the
Secured Party shall have no obligation to engage in public
sales and no obligation to delay the sale of any Collateral for the
period of time necessary to enable the registration of the
Collateral or related transaction so as to permit a public offer to
be made with respect thereto;

 

 

 

 

C-10

 

  

 

(e) license or
sublicense, whether general, special or otherwise, and whether on
an exclusive or non-exclusive basis, any Intellectual Property
included in the Collateral throughout the world for such term or
terms, on such conditions and in such manner as the Secured
Party shall in its sole discretion determine;

 

(f) without assuming
any obligation or liability thereunder, at any time and from time
to time, in its sole discretion, enforce (and shall have the
exclusive right to enforce) against any licensee or sublicensee all
rights and remedies of the Debtor in, to and under any of its
Intellectual Property and take or refrain from taking any action
under any thereof, and the Debtor releases the Secured
Party from liability for, and agrees to hold the Secured
Party free and harmless from and against any claims and
expenses arising out of, any lawful action so taken or omitted to
be taken with respect thereto;

 

(g) make a request upon
the Debtor (which shall not be construed as implying any limitation
on the rights or powers of the Secured Party), and upon such
request the Debtor shall, execute and deliver to the Secured
Party a power of attorney, in form and substance satisfactory
to the Secured Party, for the implementation of any sale, lease,
license or other disposition of Intellectual Property owned by the
Debtor or any such action related thereto. In connection with any
such disposition, the Debtor will supply to the Secured
Party its know-how and expertise relating to the relevant
Intellectual Property, and its customer lists and other records
relating to such Intellectual Property and to the distribution of
said products or services;

 

(h) to the extent not
already so transferred, transfer all or any part of the Collateral
into the Secured Party's names or the name of their nominee or
nominees; and

 

(i) give all consents,
waivers, and ratifications in respect of the Collateral and
otherwise act with respect thereto as though it were the outright
owner thereof (the Debtor hereby irrevocably constituting and
appointing the Secured Party the proxy and attorney-in-fact of the
Debtor, with full power of substitution to do so, which power is
coupled with an interest), including, without limitation, the
exercise of all voting, consensual and other powers of ownership
pertaining to the Collateral.

 

16. Secured Party Appointed
Attorney-in-Fact

 

. Without limiting
any rights or powers granted to the Secured Party pursuant to
this Agreement, applicable law or otherwise, the Debtor hereby
appoints the Secured Party as its attorney-in-fact, with full
power and authority in the place and stead of the Debtor and in the
name of the Debtor or otherwise, from time to time in the Secured
Party's discretion to take any and all action and to execute, file
and record any and all instruments, agreements, and documents which
the Secured Party may deem necessary or advisable to
accomplish the purposes of this Agreement, including, without
limitation, to execute any assignment of Intellectual Property to
the Secured Party or other transferee, and to receive, endorse
and collect all instruments made or payable to the Debtor
representing any Collateral or Proceeds in respect of the
Collateral or any part thereof and to give full discharge for the
same. The appointment set forth in this Section 16 is coupled with an
interest and is irrevocable.

 

17. Secured Party May Perform

 

. If the Debtor
fails to perform any agreement, covenant, or obligation contained
herein, the Secured Party may itself perform, or cause
performance of such agreement, covenant or obligation and the
expenses and costs of the Secured Party incurred in connection
therewith shall be payable by the Debtor.

 

18. Security
Interest Absolute

 

. All rights of the
Secured Party and all Liens hereunder, and all obligations of
the Debtor hereunder, shall be absolute and unconditional
irrespective of:

 

(a) lack of validity or
enforceability of this Agreement or the Red Beard Note or any other
Transaction Document;

 

 

 

 

C-11

 

  

 

(b) any change in the
time, manner, or place of payment of, or in any other term of any
or all of the Obligations or any amendment or waiver of any
provision of this Agreement or the Red Beard Note or any other
Transaction Document;

 

(c) any release or
non-perfection of any portion of the Collateral or any exchange,
release, or non-perfection of any other collateral, or any release,
amendment, or waiver of any guaranty for all or any of the
Obligations; or

 

(d) any other
circumstance which might otherwise constitute a defense available
to, or a discharge of the Debtor in respect of the Obligations or
this Agreement or the Red Beard Note or any other Transaction
Document.

 

19. Secured Party's Duties

 

. The powers
conferred to the Secured Party hereunder are solely to protect
the Secured Party's interest in the Collateral and shall not impose
any duty upon it to exercise any such powers except for the safe
custody of any Collateral or any portion thereof in its possession,
and the Secured Party shall exercise that standard of care
with respect to the Collateral in its possession which it exercises
in the administration of its own assets and property; provided, however, that the Secured
Party shall not be liable for any action taken or omitted with
respect to the Collateral or this Agreement unless such liability
results solely from the gross negligence or willful misconduct of
the Secured Party as determined by a final non-appealable judgment
by a court of competent jurisdiction. The Secured Party shall
have no duty as to the Collateral or as to the taking of any
necessary steps to preserve rights against other parties pertaining
to the Collateral.

 

20. Rights
Cumulative

 

. The rights,
powers, and remedies of the Secured Party under this Agreement
shall be in addition to all rights, powers, and remedies given to
the Secured Party by virtue of any statute or rule of law or
any agreement, all of which rights, powers and remedies shall be
cumulative and may be exercised successively or concurrently
without impairing the Secured Party's security interest, Lien, and
assignment in the Collateral.

 

21. Indemnity and
Expenses.

 

(a)            The Secured
Party shall not have any liability to any Person and shall be
indemnified and held harmless by the Debtor for any liability
incurred by reason of taking or refraining from taking any action
with respect to the Collateral, except in the case such liability
results solely from the gross negligence or willful misconduct of
the Secured Party as determined by a final non-appealable judgment
by a court of competent jurisdiction. The Debtor agrees to
indemnify the Secured Party from and against any and all
claims, losses, and liabilities arising out of or connected with
this Agreement (including, without limitation, enforcement of this
Agreement), except such claims, losses, or liabilities resulting
solely from the Secured Party's gross negligence or willful
misconduct as determined by a final non-appealable judgment by a
court of competent jurisdiction. This Section 21(a) shall survive any
termination of this Agreement.

 

(b) The Debtor agrees
to pay all expenses, costs, and disbursements incurred by the
Secured Party (including, without limitation, all attorneys'
fees and other legal expenses incurred by the Secured Party in
connection therewith) in connection with (i) retaking, holding,
collecting, preparing for sale, and selling or otherwise realizing
upon, liquidating, or disposing of the Collateral, (ii) the
enforcement of its rights hereunder upon the occurrence and during
the continuance of an Event of Default, (iii) the performance by
the Secured Party of any agreement, covenant, or obligation of
the Debtor contained herein that the Debtor has failed or refused
to perform, and (iv) the participation or other involvement of the
Secured Party with (x) bankruptcy, insolvency, receivership,
foreclosure, winding up, or liquidation proceedings, or any actual
or attempted sale, or any exchange, enforcement, collection,
compromise, or settlement in respect of any of the Collateral, and
for the care of the Collateral and defending or asserting rights
and claims of the Secured Party in respect thereof, by litigation
or otherwise, including expenses of insurance, (y) judicial or
regulatory proceedings, and (z) workout, restructuring, or other
negotiations or proceedings (whether or not the workout,
restructuring or transaction contemplated thereby is
consummated).

 

 

 

 

C-12

 

  

 

22. Amendment
or Waiver

 

. Neither this
Agreement nor any terms hereof may be changed, waived, discharged,
or terminated unless such change, waiver, discharge or termination
is in writing signed by the parties hereto.

 

23. Notices

 

. Except as
otherwise expressly provided herein, all notices and other
communications provided for hereunder shall be in writing and
mailed or delivered to the Debtor or the Secured Party at the
respective addresses specified in the Red Beard Note; or at such
other address as shall be designated by any party in a written
notice to the other parties hereto. All such notices and
communications shall, when mailed, be effective three business days
after deposit in the mails and shall, when delivered, be effective
upon delivery of such notice.

 

24. No
Waiver

 

. No failure or
delay on the part of the Secured Party in exercising any
right, power or privilege hereunder or under the UCC or any other
applicable law shall operate as a waiver hereof or thereof; nor
shall any single or partial exercise of any right, power, or
privilege hereunder or under the UCC or any other applicable law
preclude any other or further exercise thereof or the exercise of
any other right, power or privilege hereunder or thereunder. No
notice to or demand on the Secured Party in any case shall
entitle the Debtor to any other or further notice or demand in
similar or other circumstances or constitute a waiver of the rights
of the Secured Party to any other or further action in any
circumstances without notice or demand.

 

25. Severability
of Provisions

 

. Any provision of
this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to the
extent of that prohibition or unenforceability without invalidating
the remaining provisions hereof or affecting the validity or
enforceability of that provision in any other
jurisdiction.

 

26. Non-Assignment

 

. The Debtor shall
not have the right to assign its rights or delegate its obligations
hereunder or any part thereof to any other person without the
Secured Party's prior written consent. This Agreement shall be
binding upon any successors or assigns of the Debtor, and shall
benefit any successors or assigns of the Secured
Party.

 

27. Integration
of Terms

 

. This Agreement
contains the entire agreement between the parties with respect to
the subject matter hereof and supersedes all oral statements and
prior writings with respect thereto.

 

28. Governing
Law

 

. This Agreement
and the rights and obligations of the parties hereunder shall be
construed in accordance with and be governed by the law of the
State of California without regard to choice of law principles
thereof that would cause the laws of any other jurisdiction to
apply.

 

29. Counterparts

 

. This Agreement
may be executed in any number of counterparts and by the different
parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall
together constitute one and the same instrument.

 

30. Joint
and Several Liability

 

. Each of Holdings,
Chalk Dust and Don Polly acknowledge that each of the undersigned
are parties to this Agreement as the "Debtor" as joint and several
grantors hereunder. Any references in this Agreement to the
"Debtor" shall refer to any of Holdings, Chalk Dust or Don Polly,
or both such Persons as the context may require. Each of Holdings,
Chalk Dust and Don Polly accept joint and several liability for the
payment and performance of all of the obligations of the Debtor
hereunder, and each of such obligations constitute the absolute and
unconditional full recourse obligations of each such Person
enforceable against each such Person to the full extent of its
properties and assets. Each of Holdings, Chalk Dust and Don Polly
hereby waive, to the fullest extent permitted by law, any and all
defenses or benefits that may be derived from or afforded by
applicable law limiting the liability of or exonerating guarantors
or sureties (including co-borrowers to the extent applicable),
including , including but not limited to any rights and defenses
that are or may become available to any such Person by reason of
Sections 2787 to 2855, inclusive, 2899 and 3433 of the California
Civil Code.

 

[Signature Page
Follows]

 

 

 

C-13

 

  

IN WITNESS WHEREOF,
the parties hereto have caused this Agreement to be duly executed
and delivered as of the day and year first written
above.

 

DEBTOR:

CHARLIE'S HOLDINGS,
INC.,

a Nevada
corporation

 

 

By: Brandon
Stump

Name: Brandon Stump
                      

Title: Chief
Executive Officer   

                     

 

CHARLIE'S CHALK
DUST, LLC,

a Delaware limited
liability company

 

 

By: Brandon
Stump

Name: Brandon Stump
                      

Title: Chief
Executive Officer
                       

 

DON POLLY
LLC,

a Nevada limited
liability company

 

 

By: Brandon
Stump

Name: Brandon Stump
                      

Title: Chief
Executive Officer    

                     

 

SECURED
PARTY:

RED BEARD HOLDINGS,
LLC

a Delaware limited
liability company

 

 

By: Vinny Smith

Name: Vinny Smith
              

Title: General
Partner
                     

 

 

  

 

 

 

C-14Exhibit

Exhibit 4.7

DESCRIPTION OF THE REGISTRANT’S SECURITIES 
REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934 

DESCRIPTION OF COMMON STOCK

        The following description is a summary that is not complete and is qualified in its entirety by reference to our Amended and Restated Certificate of Incorporation (our “Certificate of Incorporation”) and our Amended and Restated By-Laws (our “By-Laws”), each of which is an exhibit to the Annual Report on Form 10-K to which this description is an exhibit. 

General  

Under our Certificate of Incorporation, Fluor is authorized to issue 375,000,000 shares of common stock, par value $0.01 per share, and 20,000,000 shares of preferred stock, par value $0.01 per share. The shares of common stock currently outstanding are fully paid and nonassessable.  No shares of preferred stock are currently outstanding. 
  
Voting Rights 

Holders of our common stock are entitled to one vote per share on all matters voted on generally by stockholders. Except as otherwise required by law or with respect to any outstanding series of our preferred stock, the holders of our common stock possess all voting power. Our Bylaws and Certificate of Incorporation generally provide that stockholder action is effective upon the affirmative vote of a majority in outstanding voting power present in person or by proxy at any meeting of stockholders. However, directors shall be elected by a vote of the majority of the votes cast, unless the number of director nominees exceeds the number of directors to be elected. A majority of the votes cast means that the number of shares voted "for" a director nominee must exceed the number of shares voted "against" that nominee. 

Dividend Rights; Rights Upon Liquidation 

Subject to any preferential rights of holders of any of our preferred stock that may be outstanding, holders of shares of our common stock are entitled to receive dividends on such stock out of assets legally available for distribution when, as and if authorized and declared by our board of directors and to share ratably in the assets of Fluor legally available for distribution to our stockholders in the event of our liquidation, dissolution or winding-up. 

Other Matters

Holders of our common stock will have no preferences or preemptive, conversion or exchange rights. Shares of our common stock will not be liable for further calls or assessments by Fluor. Our common stock is listed on the New York Stock Exchange and trades under the symbol "FLR." 

Anti-Takeover Provisions 

General 

Certain provisions of our Certificate of Incorporation, our Bylaws and Section 203 of the Delaware General Corporation Law may have the effect of impeding the acquisition of control of Fluor by means of a tender offer, a proxy contest, open market purchases or otherwise in a transaction not approved by our board of directors. These provisions are designed to reduce, or have the effect of reducing, the vulnerability of Fluor to an unsolicited proposal for the restructuring or sale of all or substantially all the assets of Fluor or an unsolicited takeover attempt which is unfair to Fluor stockholders. 

Charter and Bylaw Provisions 

          Our Certificate of Incorporation authorizes our board of directors to issue from time to time, without further vote or action by the stockholders, up to 20,000,000 shares of our preferred stock in one or more series and to fix the designations, powers, preferences and rights, and any qualifications, limitations or restrictions, with respect to the shares issued under each such series. Pursuant to this authority, our board could create and issue a series of our preferred stock with such designations, 

powers, preferences and rights which have the effect of discriminating against an existing or prospective holder of our capital stock, thus making it more difficult for, or discouraging any attempt by, a potential acquirer to obtain control of Fluor by means of a merger, tender offer, proxy contest or otherwise. As a result, the authority to issue shares of preferred stock may have the effect of delaying, deferring or preventing a change in control of Fluor without any further action by our stockholders. 

        Other provisions of our Certificate of Incorporation and Bylaws that may make it more difficult to replace our board of directors include:

		
	•
	the prohibition on stockholders acting by written consent; 

		
	•
	the limitations on the ability of our stockholders to call a special meeting, although, holders of at least 25% of our outstanding shares of common stock have the right to call a special meeting of stockholders, subject to certain limitations and procedures; 

		
	•
	requirements for advance notice for raising business or making nominations at stockholder meetings; and 

		
	•
	the ability of our board of directors to amend the Bylaws, increase the size of our board and to fill vacancies on our board. 

Section 203 of the Delaware General Corporation Law 

We are subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date on which the person becomes an interested stockholder, unless (i) prior to the time that such stockholder becomes an interested stockholder, the Board of Directors approves such transaction or business combination, (ii) the stockholder acquires more than 85% of the outstanding voting stock of the corporation (excluding shares held by directors who are officers or held in employee stock plans) upon consummation of such transaction, or (iii) at or subsequent to the time such stockholder becomes an interested stockholder, the business combination is approved by the Board of Directors and by two-thirds of the outstanding voting stock of the corporation (excluding shares held by the interested stockholder) at a meeting of stockholders (and not by written consent). A “business combination” includes a merger, asset sale or other transaction resulting in a financial benefit to such interested stockholder. For purposes of Section 203, “interested stockholder” is a person who, together with affiliates and associates, owns (or within three years prior, did own) 15% or more of the corporation’s voting stock.  Fluor has not opted out of the protections of Section 203 of the Delaware General Corporation Law.

DESCRIPTION OF PREFERRED STOCK PURCHASE RIGHTS

The following description is a summary that is not complete and is qualified in its entirety by reference to the Rights Agreement, dated as of March 25, 2020, by and between Fluor and Computershare Trust Company, N.A., as rights agent, a copy of which is attached as Exhibit 4.1 to the Current Report on Form 8-K filed on March 25, 2020.

On March 24, 2020, the board of directors declared a dividend of one preferred share purchase right (a “Right”) for each share of common stock to purchase one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $0.01 per share (“Series A Preferred Stock”), at a price of $50 per one-thousandth of a share of Series A Preferred Stock. The Rights will be exercisable only if a person or group acquires 10% or more of our common stock then outstanding. If a person or group acquires 10% of our outstanding common stock (unless such person or group acquires 50% or more), the board of directors may exchange one share of common stock for each outstanding Right. Prior thereto, the Rights are redeemable for $0.01 per Right at the option of the board of directors.

The board of directors may adjust the Purchase Price, the number of shares of Series A Preferred Stock or other securities or assets issuable upon exercise of a Right, and the number of Rights outstanding to prevent dilution that may occur (a) in the event of a stock dividend on, or a subdivision, combination, or reclassification of, the Series A Preferred Stock, (b) in the event of a stock dividend on, or a subdivision or combination of, the common stock, (c) if holders of the Series A Preferred Stock are granted certain rights, options, or warrants to subscribe for Series A Preferred Stock or convertible securities at less than the current market price of the Series A Preferred Stock, or (d) upon the distribution to holders of the Series A Preferred Stock of evidences of indebtedness or assets (excluding regular periodic cash dividends) or of subscription rights or warrants (other than those referred to above). In addition, the board of directors may supplement or amend any provision of the Rights Agreement in any respect without the approval of any registered holder of Rights, provided, however, that no amendment may be made after a person or group acquires 10% of our outstanding common stock that shall adversely affect the interests of the holders of the Rights or that shall cause the Rights Agreement to become amendable other than in accordance with the amendment provision contained therein.

As of the date hereof, the Rights have not been exercised and no Series A Preferred Stock has been issued or is outstanding. Prior to exercise, the Rights do not give any holder thereof any dividend, voting or liquidation rights.

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