Document:

exhibit102.htm

Exhibit 10.2

THIRD AMENDED AND RESTATED SERVICE AGREEMENT

 

This Third Amended and Restated Service Agreement (the “Third Amended Agreement”) is dated as of March 23, 2016, and amends and restates the Second Amended and Restated Service Agreement dated as of September 28, 2015, which amended and restated the Amended and Restated Service Agreement dated as of November 14, 2014, which amended and restated the Service Agreement dated March 31, 2014, each by and among Celadon Group, Inc., a Delaware corporation and Quality Equipment Leasing, LLC., a Delaware limited liability company (collectively, “Servicer”), and Element Financial Corp., a Delaware corporation (“Element”).  The effective date of this Third Amended Agreement is as of March 31, 2014.

 

WHEREAS, Servicer (as Seller) and Element entered into a Portfolio Purchase and Sale Agreement dated as of March 31, 2014 (the “Purchase and Sale Agreement”), pursuant to which Servicer sold and assigned to Element the Assigned Property (as defined in the Purchase and Sale Agreement), which included, among other things, certain Transactions (as defined in the Purchase and Sale Agreement, which Transactions are sometimes referred to herein as, the “Existing Transactions”), the Vehicles (as defined in the Purchase and Sale Agreement for purposes of the Purchase and Sale Agreement), and all Payments (as defined in the Purchase and Sale Agreement) due and to become due under the Transactions;

 

WHEREAS, Servicer and Element have entered into an Amended and Restated Program Agreement (the “Amended Program Agreement”) and an Amended and Restated Fleet Program Agreement (the “Amended Fleet Program Agreement”) (together the “Amended Program Agreements”) whereby Servicer has agreed to refer certain Independent Contractors and Fleets (together, the “Obligors”) to Element on an ongoing, going-forward basis for the purpose of the Obligors entering into Transactions with Element to lease or finance certain vehicles for use in delivering goods or to be used as part of a fleet, as set forth in the Amended Program Agreements (individually, and respectively, a “Delivery Vehicle” or “Fleet Vehicle” and together “Vehicles”) (the “Future Transactions”);

 

WHEREAS, Element and Servicer desire that Servicer shall serve as billing and collecting agent under this Third Amended Agreement for the benefit of Element, and in such capacity perform certain administrative duties as set forth herein in connection with the Existing Transactions and the Payments related thereto, as well as the Future Transactions and the Contract Payments related thereto, including, without limitation, collecting and receiving the Payments and Contract Payments on behalf of Element, remitting or otherwise making the Payments or Contact Payments to Element, ensuring that insurance remains in place with respect to Vehicles, ensuring that all sales, use, personal property, privilege, license and other taxes arising under, or in connection with, the Transactions, the Vehicles and any other property that may be the subject of any Transaction are paid (“Tax Payments”), and ensuring that all tax returns, reports and filings in respect thereto (“Tax Filings”) are properly made;

 

  

  

  

 

WHEREAS, Servicer and Element have also entered into the Third Amended and Restated Reserve Account Agreement dated as of March 23, 2016 (the “Reserve Account Agreement”) pursuant to which Servicer (as Seller) has retained a percentage of the credit and asset losses associated with the ultimate disposition of the Transactions.  Servicer’s obligations under the Third Amended Agreement shall be fulfilled notwithstanding the provisions of other Transaction related agreements, including, the Reserve Account Agreement, and

 

WHEREAS, Servicer and Element desire to set forth the terms and conditions under which Servicer will be responsible for providing the foregoing services.

 

NOW, THEREFORE, in consideration of the mutual covenants and amended agreements herein contained, and of other valuable considerations, including consideration under the Purchase and Sale Agreement and the Amended Program Agreements, receipt of which is hereby acknowledged, the parties hereby agree as follows:

 

1.           General.

 

(a)           Defined Terms.  Capitalized terms used herein but not otherwise defined herein shall have the meaning ascribed to such terms in the Purchase and Sale Agreement or the Amended Program Agreements.

 

(b)           Definitions.  The terms listed below shall have the following meaning (certain of these terms are exclusively defined below and shall only have the meaning ascribed to them below, while the remaining terms are defined within the body of this Third Amended Agreement, the Purchase and Sale Agreement or the Amended Program Agreements and are reiterated, summarized and/or expounded upon in this definition section):

 

(i)           “Actual Collections” means the actual amount of funds received by Servicer from Independent Contractors (directly or through their related Sponsors) in respect to Transactions.

 

(ii)          “Amended Program Agreements” means both the Amended and Restated Program Agreement and the Amended and Restated Fleet Program Agreement by and between Element and Servicer, each dated as of November 14, 2014.

 

(iii)         “Assigned Property” means all property and interests sold, assigned and transferred by Servicer (as Seller) to Element under the Purchase and Sale Agreement.

 

(iv)         “Assignee” means any third party to whom Element sells or assigns any of its rights and/or obligation under the Third Amended Agreement.

 

  

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(v)           “Collective Payout” means the sum of the Current NBV, the Net Shortfall and approved Covered Expenses with respect to a Defaulted Vehicle.

 

(vi)          “Contract Payments” means both Variable Contract Payments and Fixed Contract Payments.

 

(vii)         “Covered Expenses” means all repair and maintenance expenses incurred in connection with the remarketing, sale or disposition of a Vehicle subject to a Transaction.

 

(viii)        “Current NBV” means the then current net book value of a Defaulted Transaction.

 

(ix)           “Current Vehicle Value” means the then current market value of a Defaulted Vehicle.

 

(x)            “Damages” means any direct damages, claims, costs or expenses (including but not limited to reasonable attorneys’ fees.

 

(xi)           “Defaulted Transaction” means a Transaction in which an Obligor is in default.

 

(xii)          “Defaulted Vehicle” means the Vehicle associated with a Defaulted Transaction.

 

(xiii)          “Distributable Proceeds” means the sum of the proceeds from the sale of a Defaulted Vehicle plus any available Security Deposit Accrual relating thereto.

 

(xiv)          “Distribution Waterfall” means the manner in which the Distributable Proceeds from a Positive Value Transaction will be distributed, as described in Section 2(c)(v) hereof.

 

(xv)           “Element” means Element Financial Corp., a Delaware corporation.

 

(xvi)          “EOT Amount” means any end of term payment or residual amounts with respect to a Transaction and shall consist of:  (A) amounts required to be paid under the terms of the Transaction upon its expiration, and (B) amounts which may be paid under the terms of the Transaction upon its expiration.

 

(xvii)         “EOT Payment Date” means the date that Servicer must make payment of an EOT Amount under Perfect Pay with respect to a Transaction.

 

(xviii)        “Event of Bankruptcy” means either of the following:

 

(A)           Servicer shall become insolvent or bankrupt, or shall admit in writing its inability to pay any portion of its debts as they mature or make an assignment for the benefit of creditors, or a receiver or trustee shall have been appointed with respect to it or to any of its estate; or

 

  

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(B)           any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other proceedings for relief, under the United States Bankruptcy Code or any federal or state bankruptcy or insolvency law or similar law now or hereafter in force for the relief of debtors, shall be instituted by or against Servicer, which proceeding Servicer shall have consented to or taken any action in the furtherance of, or which proceeding is not be dismissed within sixty (60) days of such institution.

 

(xix)           “Event of Default” means certain events triggering a default of the Third Amended Agreement, as described in Section 6(b) hereof.

 

(xx)            “Existing Transactions” means Transactions sold, assigned and transferred by Servicer (as Seller) to Element under the Purchase and Sale Agreement.

 

(xxi)           “Expected Payment” means an expected monthly lease or other contract payment for each Variable Payment Transaction based upon an average thirty-eight (38) month lease or other contract term.

 

(xxii)          “Fixed Contract Payments” means payments made under a Fixed Payment Transaction and are comprised of both:  (A) periodic lease or other contract payments, and (B) any EOT Amount.

 

(xxiii)         “Fixed Payment Transactions” means Transactions which call for fixed lease or other contract payments.

 

(xxiv)         “Full Payout” means the full payout of all Transactions.

 

(xxv)          “Future Transactions” means Transactions entered into, or to be entered into, by Obligors with Element under the Amended Program Agreements.  “Future Transactions” do not include any of the Existing Transactions.

 

(xxvi)         “Independent Contractor” means a truck driver engaged by a subsidiary or an affiliate of Servicer or a Sponsor on a contractual basis to deliver certain products for customers (as more fully defined in the Amended Program Agreement).

 

(xxvii)        “Initial Payment” means the first payment by Servicer under Perfect Pay with respect to a Transaction.

 

    (xxviii)       “Maintenance Contributions” means payments made by an Independent Contractor into a Maintenance Fund held by a Sponsor with respect to a Delivery Vehicle.

 

(xxix)          “Maintenance Fund” means the fund held by a Sponsor which is established solely in regard to each Delivery Vehicle to provide available monies for Vehicle maintenance.

 

  

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(xxx)              “Net Shortfall” means the net shortfall between Expected Payments or Fixed Contract Payments made by Servicer to Element and Actual Collections received by Servicer from an Obligor with respect to a Transaction.

 

(xxxi)             “Net Windfall” means the excess of Actual Collections over the Expected Payments or Fixed Contract Payments made by Servicer to Element with respect to a Transaction.

 

(xxxii)            “Obligor” means a lessee or borrower under a Transaction.

 

(xxxiii)           “Original Transaction Payments” means the remaining Contract Payments under the original terms of a Defaulted Transaction, the Defaulted Vehicle from which is the subject of a Remarketed Transaction.

 

(xxxiv)           “Payments” means all payments due, and to become due, under the Existing Transactions.

 

(xxxv)            “Perfect Pay” means Servicer’s obligation to make all Contract Payments with respect to a Vintage irrespective of Actual Collections (until all Transactions within a given Vintage have terminated).

 

(xxxvi)           “Positive Value Transaction” means a Defaulted Transaction with respect to which Realizable Proceeds exceeds the Collective Payout.

 

(xxxvii)          “Purchase and Sale Agreement” means the Portfolio Purchase and Sale Agreement dated as of March 31, 2014 by and between Servicer (as Seller) and Element.

 

(xxxviii)         “Realizable Proceeds” means the Current Vehicle Value of a Defaulted Vehicle plus any available Security Deposit Accrual relating thereto.

 

(xxxix)            “Remarketed Transaction” means with respect to a Defaulted Vehicle, a new Transaction entered into between Element and a new Obligor.

 

(xl)                 “Repair Recommendation” means Servicer’s written recommendation for approval of Covered Expenses that exceed twelve percent (12%) of the original cost of a Defaulted Vehicle.

 

(xli)               “Reserve Account” means the loss pool or reserve account on Servicer’s (as Seller) balance sheet, against certain asset and credit losses with respect to Transactions (as more fully defined in the Reserve Account Agreement).

 

(xlii)              “Reserve Account Agreement” means the Third Amended and Restated Reserve Account Agreement dated as of March 23, 2016 by and between Element and Servicer.

 

  

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(xliii)           “Reserve Balance” means the then current balance in the Reserve Account.

 

(xliv)           “Retained Team Lease Payments” means the excess amount received by Servicer over the Contract Payments with respect to a Team Lease Transaction.

 

(xlv)           “Rewritten Transaction” means a Remarketed Transaction that Element (in its sole and absolute discretion) has accepted as a newly written Transaction on, or as of, the EOT Payment Date of the original Transaction.

 

(xlvi)           “Risk Acceptance Criteria” or “RAC” means the criteria (minimum standards) established, from time to time, by Element which must be met in order for Element to accept the financing of a Transaction.

 

(xlvii)          “Second IC Charge” means the additional charge imposed by Servicer with respect to the second Independent Contractor in a Team Lease Transaction.

 

(xlviii)         “Security Deposit Account” means each separate account established solely in regard to a Delivery Vehicle into which Security Deposit Accruals for that Vehicle have been, or will be, paid.

 

(xlix)           “Security Deposit Accruals” means security deposits billed and collected by Servicer from Independent Contractors with respect to newly originated Transactions.

 

(l)                “Servicer” means Celadon Group, Inc., a Delaware corporation and Quality Equipment Leasing, LLC., a Delaware limited liability company, collectively.

 

(li)               “Sponsors” means companies with which Servicer maintains sponsorship agreements.

 

(lii)              “Team Lease Transactions” means Transactions in which Servicer contracts with two Independent Contractors to operate one Delivery Vehicle.

 

(liii)             “Tax Filings” means all required tax returns, reports and filings in respect to the Transactions, the Vehicles, other property that may be the subject of any Transaction and any Tax Payments that are made.

 

(liv)             “Tax Payments” means all sales, use, personal property, privilege, license and other taxes arising under, or in connection with, the Transactions, the Vehicles and any other property that may be the subject of any Transaction.

 

  

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(lv)           “Third Amended Agreement” means this Third Amended and Restated Service Agreement dated as of March 23, 2016 by and between Servicer and Element.

 

(lvi)          “Transaction” means each financing agreement and/or lease for the acquisition or lease of a Vehicle between Element, as lender or lessor, and an Obligor, as lessee or borrower.  The term “Transaction” includes both Existing Transactions and Future Transactions.

 

(lvii)         “Variable Contract Payments” means payments made under a Variable Payment Transaction and are comprised of both:  (A) periodic lease or other contract payments, and (B) any EOT Amount.

 

(lviii)        “Variable Payment Transactions” means Existing Transactions which call for variable lease or other contract payments.

 

(lvix)        “Vehicle” means certain trucks and/or trailers for use in delivering goods or to be used as part of a fleet, as set forth in the Amended Program Agreements, which are financed pursuant to Transaction.

 

(lx)           “Vehicle Buyout Transactions” means Transactions in which an Independent Contractor has elected to pay the EOT Amount and acquire its Delivery Vehicle, but has not made, or has insufficient funds to make cash payment, of such EOT Amount.

 

(lxi)          “Vehicle EOT Financing Program” means the program under which Element will finance (under certain conditions) the EOT Amounts in certain Vehicle Buyout Transactions, which financings will be treated as newly written Transactions.

 

(lxii)         “VIN” means the vehicle identification number of a Vehicle.

 

(lxiii)        “Vintage” means a pool of Transactions (including Remarketed Transactions and Rewritten Transactions relating to such Transactions, irrespective of the calendar year in which such Remarketed and Rewritten Transactions commence), that all commence within a calendar year (other than calendar years 2014 and 2015 which are combined in a single “Vintage”).

 

(c)           Cross-reference with Related Agreements.  All references in the Purchase Agreement and Amended Program Agreements to Service Agreement, Amended Service Agreement or Second Amended Service Agreement shall be deemed to refer to this Third Amended Agreement.

 

2.           Servicer Obligations.  Servicer shall undertake the following servicing duties and obligations under this Third Amended Agreement:

 

  

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(a)           Collection of Payments/Maintenance of Reserve Account.  Servicer shall, at its sole cost and expense, act as billing and collections agent for the benefit of Element with respect to the Transactions and maintain the Reserve Account (as defined in the Reserve Account Agreement). With respect to billing and collections and maintenance of the Reserve Account, the following terms shall apply, and in such capacity, Servicer shall do the following:

(i)           Fleet Payments.  Notwithstanding the foregoing in respect to collections, Fleets may be or have been directed to, and may or shall, remit lease or other contract payments directly by wire to Element rather than to Servicer. Wire instructions have been provided to Servicer, and Servicer has forwarded, or will forward, such instructions to Fleets. If any lease or other payments from Fleets are received by Servicer, then Servicer shall immediately forward such payments to Element. For clarity’s sake, Servicer is generally not acting as collections agent with respect to lease or other contract payments from Fleets, and the remainder of this Section 2(a) (other than the reserve requirement of Section 2(a)(ii) and the reporting requirements of Section 2(a)(vii)) generally deals with Servicer’s billing and collection obligations in regard to Delivery Vehicles.

(ii)           Maintenance of Reserve Account.  Servicer shall maintain the Reserve Account in accordance with the terms of the Reserve Account Agreement.

(iii)           Contract Payments.

(A)           A portion of the Existing Transactions call for variable lease or other contract payments by Independent Contractors (“Variable Payment Transactions”), such payments being based on the number of miles that each Delivery Vehicle is driven per month by an Independent Contractor (“Variable Contract Payments”). Variable Contract Payments are comprised of both:  (1) periodic lease or other contract payments, and (2) any EOT Amount;

(B)           all remaining Existing Transactions as well as all Future Transactions with respect to Delivery Vehicles (“Fixed Payment Transactions”) call for, or will call for, fixed lease or other contract payments (“Fixed Contract Payments,” and together with the Variable Contract Payments, collectively, “Contract Payments”). Fixed Contract Payments each are comprised of both:  (1) periodic lease or other contract payments, and (2) any EOT Amount;

(C)           “EOT Amount” means any end of term payment or residual amounts with respect to a Transaction and shall consist of:  (1) amounts required to be paid under the terms of the Transaction upon its expiration (balloon, adjustment or similar payments or amounts), and (2) amounts which may be paid under the terms of the Transaction upon its expiration (purchase option amounts or similar amounts) (in these instances, the end of term payment shall be deemed to be the amount required to be paid as if such purchase option was exercised);

 

  

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(D)           for the sake of clarity, Rewritten Transactions, Remarketed Transactions (as herein defined) and Vehicle Buyout Transactions that are financed through the Vehicle EOT Financing Program are Transactions under which Contract Payments are, or to be, made; and

(E)           for certain Transactions, Servicer will contract with two Independent Contractors to operate one Delivery Vehicle (“Team Lease Transactions”). Team Lease Transactions will have base Contract Payments that are the same as if the Delivery Vehicle were operated by an individual Independent Contractor. Nonetheless, Servicer will also bill and collect an additional charge, with respect to the second Independent Contractor (the “Second IC Charge”). The Second IC Charge will compensate Element for the additional mileage and depreciation associated with the second Independent Contractor’s use of the Delivery Vehicle. No Second IC Charge shall be imposed or collected at any time when a Delivery Vehicle subject to a Team Lease Transaction is only contracted to be operated by a single Independent Contractor.  The Second IC Charge will be applied to the Team Lease Transaction to shorten its term. Despite the more rapid receipt of Contract Payments related to the Team Lease Transaction when Second IC Charges are being paid, Element will book such transaction as if it received a single set of Contract Payments (in order to allow for a contingency of contracting the Delivery Vehicle with a single Independent Contractor).  Servicer will pay Element the single Contract Payments amounts and retain any excess (all or a portion of the Second IC Charge, the “Retained Team Lease Payments”). For Distribution Waterfall purposes, the Retained Team Lease Payments shall be included as an addition to the Net Windfall, or a reduction in the Net Shortfall, as the case may be.  Servicer will service and manage Team Lease Transactions in accordance with the foregoing provisions.

(iv)           Collection of Payments.  All Contract Payments with respect to Delivery Vehicles, shall be automatically deducted from the earnings of the Independent Contractor by the related Sponsor, and paid to Servicer for the benefit of, and shall be held in trust for, Element.  Notwithstanding the foregoing, the actual amount of funds received by Servicer from Independent Contractors (directly or through their related Sponsors) in respect to Variable and Fixed Payment Transactions (the “Actual Collections”) may be less or more than the Contract Payments.

(v)           Perfect Pay by Servicer.

(A)           With respect to Variable Payment Transactions, Servicer and Element have agreed upon, and Servicer shall pay to Element, an expected monthly lease or other contract payment for each Variable Payment Transaction based upon an average thirty-eight (38) month lease or other contract term (the “Expected Payment”);  The Expected Payments constitute the periodic lease or other contract payments component (as described in Section 2(a)(iii)(A) hereof) of a Variable Contract Payment (i.e., for Servicer payment purposes, Element and Servicer have determined a fixed payment for an otherwise variable amount). With respect to Variable Payment Transactions, Servicer and Element have agreed that Servicer shall pay to Element the Expected Payments together with any EOT Amount for each Variable Payment Transaction, irrespective of Actual Collections received by Servicer with respect thereto;

 

  

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(B)           with respect to Fixed Payment Transactions, Servicer and Element have agreed that Servicer shall pay to Element the Fixed Contract Payments (which includes any EOT Amount) for each Fixed Payment Transaction, irrespective of Actual Collections received by Servicer with respect thereto;

(C)           with respect to Remarketed Transactions, the Original Transaction Payments are Contract Payments that Servicer shall pay to Element, irrespective of Actual Collections received by Servicer with respect thereto;

(D)           with respect to Rewritten Transactions or Buyout Transactions financed through the Vehicle EOT Financing Program, Servicer and Element have agreed that Servicer shall pay to Element the Contract Payments for each Rewritten Transaction or a Buyout Transaction financed through the Vehicle EOT Financing Program through the full term of such newly written Transaction, irrespective of Actual Collections received by Servicer with respect thereto; and

(E)           all Contract Payments shall be paid by Servicer to Element on the dates set forth in paragraph (vi) below until such time as Element shall have received all Expected Payments plus any EOT Amount with respect to a Variable Payment Transaction, all Fixed Contract Payments (which includes any EOT Amount) with respect to a Fixed Payment Transaction, all Original Transaction Payments with respect to a Remarketed Transaction or all Contract Payments for each Rewritten Transaction or a Buyout Transaction financed through the Vehicle EOT Financing Program.  Servicer’s obligation to make payments to Element of all Expected Payments plus any EOT Amount, all Fixed Contract Payments (which includes any EOT Amount), all Original Contract Payments with respect to a Remarketed Transaction and all Contract Payments with respect to Rewritten Transactions and Vehicle Buyout Transactions financed through the Vehicle EOT Financing Program, in each case irrespective of Actual Collections, shall be known herein, as well for purposes of the Reserve Account Agreement, as “Perfect Pay”.  Servicer’s obligation to make Perfect Pay is for the purpose of assuring and normalizing cash flows during the period that Servicer is servicing the Transactions. Accordingly, if at any time (other than at expiration of the Transactions in accordance with their terms), all Transactions within a given Vintage  have terminated (i.e., have defaulted, been sold, or been subjected to a complete casualty event, and, in each case, all applicable payments required to be made pursuant to Section 2(c) and (d) hereof with respect to any such Transactions have been made), then Servicer, not having any Transactions within such vintages to reconcile its Perfect Pay obligation against, shall discontinue Perfect Pay with respect to such Vintage, and reconciliation of the Transactions of such Vintage shall occur upon the termination of the last Transaction in such Vintage.

 

  

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(vi)           Timing of Payments by Servicer to Element.  Servicer shall make Perfect Pay to Element at such times and in the manner set forth in this Section 2(a)(vi). Servicer shall pay Element the Expected Payment with respect to each outstanding Variable Payment Transaction (including a Remarketed Transaction or a Rewritten Transaction that is a Variable Payment Transaction) together with the Fixed Contract Payment for each outstanding Fixed Payment Transaction (including a Remarketed Transaction, a Rewritten Transaction or a Buyout Transaction financed through the Vehicle EOT Financing Program that is a Fixed Payment Transaction) by the 10th day of the third (3rd) month after the date that Element reimbursed Servicer for all advances made by Servicer for the purchase of each such Delivery Vehicle (the payment in such third (3rd) month being, the “Initial Payment”), and on the tenth (10th) day of each succeeding month following the Initial Payment, through the end of the term of each such Transaction. Servicer shall pay Element any EOT Amount specified in a Transaction or a Remarketed Transaction for any Vehicle (both Fleet and Delivery Vehicles) by the tenth (10th) day of the succeeding month following the contractual due date of such payment or amount (the “EOT Payment Date”).

 

(vii)           EOT Offsets or Payments by Element to Seller.

(A)           In order to assist Servicer in obtaining funds to make its required payment of the EOT Amounts, Element shall establish a financing program for certain Transactions in which an Independent Contractor has elected to pay the EOT Amount and acquire its Delivery Vehicle, but has not made, or has insufficient funds to make cash payment, of such EOT Amount (“Vehicle Buyout Transactions”). Element will finance the EOT Amounts in such Vehicle Buyout Transactions (under the conditions that follow) as newly written Transactions (the “Vehicle EOT Financing Program”). Element agrees to accept any Vehicle Buyout Transaction in the Vehicle EOT Financing Program if the following conditions are met:  (1) the Independent Contractor meets Element’s then-current RAC (Risk Acceptance Criteria, as defined in the Amended Program Agreement) in effect on the EOT Payment Date, (2) pricing is at then-prevailing rates in effect on the EOT Payment Date, (3) there is no existing Event of Default, and (4) the related Sponsor to the Vehicle Buyout Transaction is in good standing with Element and continuing to do business under the Program Agreement.  All Covered Expenses, Security Deposit Accruals and any Net Shortfall or Net Windfall associated with the original Transaction will automatically attach to a Vehicle Buyout Transaction financed under the Vehicle EOT Financing Program; and

(B)           additionally, to further assist Servicer in obtaining funds to make its required payment of the EOT Amounts, Element at its sole option and in its sole and absolute discretion, may treat a Remarketed Transaction as a newly written Transaction on the EOT Payment Date of the original Transaction (a “Rewritten Transaction”). Without limiting Element’s sole and absolute discretion in regard thereto, Element would be inclined to enter into a Rewritten Transaction if Element’s return on investment therefrom would be at least 12%. All Covered Expenses, Security Deposit Accruals and any Net Shortfall or Net Windfall associated with the original Transaction will automatically attach to the Rewritten Transaction.

 

  

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(viii)           Security Deposit Accruals.  During the term of this Third Amended Agreement, Servicer shall, with respect to newly originated Transactions (which for clarity’s sake do not include Remarketed Transactions), bill and collect from Independent Contractors, security deposits with respect to Delivery Vehicles, as outlined in the pricing matrices agreed upon by Element and Servicer (“Security Deposit Accruals”). Servicer will retain Security Deposit Accruals to ensure Independent Contractor’s performance of Independent Contractor’s Transaction obligations. Security Deposit Accruals shall be booked to separate accounts established solely in regard to such Delivery Vehicle with respect to which such amounts have been paid (each, a “Security Deposit Account”).  Security Deposit Accruals may be comingled with Servicer’s other funds and will not earn interest (unless otherwise required by applicable law). If an Independent Contractor satisfies its payment obligations under its Transaction, and either acquires title to a Delivery Vehicle(s) or returns the Delivery Vehicle(s) in acceptable condition pursuant to the terms and conditions set forth in such Transaction, then the Security Deposit Accrual will be returned to the Independent Contractor within ten (10) business days following such event. If an Independent Contractor fails to satisfy its payment obligations under its Transaction, then the Security Deposit Accrual shall be forfeited by Independent Contractor to the extent of such non-satisfaction, and applied by Servicer as otherwise set forth in this Third Amended Agreement. If an Independent Contractor satisfies its payment obligations under its Transaction, but returns the Vehicle(s) in a condition that violates the terms of such Transaction, then Servicer shall apply all or a part of the Security Deposit Accrual to the cost of repairs and maintenance necessary to re-lease or sell the Vehicle(s) at such Vehicle(s)’ Current Vehicle Value, and return the remaining balance of Security Deposit Accrual, if any, to the Independent Contractor.

 

(b)           Maintenance of Delivery Vehicles.  During the term of the Transactions, Servicer shall, and/or shall ensure that the appropriate Sponsor shall, manage the regular maintenance of the Delivery Vehicles which are the subject of the Transactions as follows:

 

(i)           Maintenance Fund.  each of the Existing Transactions and Future Transactions relating to a Delivery Vehicle calls for, or will call for, payments by Independent Contractors into a maintenance fund held by a Sponsor which is established solely in regard to such Delivery Vehicle, which payments are based on the total number of miles the Delivery Vehicle is driven per month by such Independent Contractor (each said fund is referred to a “Maintenance Fund” and the aforesaid payment contributions are referred to, collectively, as “Maintenance Contributions”).

 

(ii)           Deductions.  All Maintenance Contributions shall be automatically deducted from the earnings of Independent Contractors by Sponsors and held by a Sponsor (or paid to Servicer) for Independent Contractor’s benefit to be used to fund the maintenance and repair costs for the Delivery Vehicles.

 

  

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(iii)           Accounting.  Sponsor and/or Servicer shall keep an accounting of the Maintenance Fund for each Transaction (and its related Delivery Vehicle).

 

(iv)           Maintenance and Repairs.  If maintenance or repair of a Delivery Vehicle is necessary, then Sponsor and/or Servicer shall ensure the use of the applicable Maintenance Fund to pay for the necessary maintenance or repair.

 

(v)           Fund Insufficiency.  If the applicable Maintenance Fund is insufficient to cover the expense of required maintenance or repair, Sponsor and/or Servicer shall make arrangements with the Independent Contractor to provide, or obtain, credit with respect to the deficient amount, the amount of credit provided or obtained to be paid over time through future Maintenance Contributions.

 

(vi)           No Element Obligation.  Element has no obligation to maintain or repair Delivery Vehicles which are the subject of the Transactions while this Third Amended Agreement remains in force.

 

(vii)          Ensure Sponsor Compliance.  To the extent Sponsor is providing any or all of the maintenance or repair services as set forth in subsections (i) – (v) of this Section 2(b), Servicer shall ensure that Sponsor is providing such maintenance or repair services on a timely basis in accordance with industry standards, and if Sponsor fails to so, then Servicer shall be required to provide such maintenance or repair services.

 

(c)           Remarketing and Sale or Re-Lease of Vehicles.  Servicer shall be responsible for the remarketing and eventual sale or re-lease of Vehicles as follows:

 

(i)           Defaulted Transactions.  In the event that an Obligor defaults on its Transaction prior to the Transaction’s expiration (a “Defaulted Transaction”), Servicer shall (A) promptly notify Element of such default, and (B) inform Element, in writing, of Servicer’s planned course of action, under this Section 2(c) of the Third Amended Agreement, with respect to the Vehicle associated with such Defaulted Transaction (the “Defaulted Vehicle”).

 

(ii)           Current Vehicle Value/Current Net Book Value.  With respect to any Defaulted Transaction, Servicer shall first determine the then current market value of the Defaulted Vehicle (the “Current Vehicle Value”), as well as the then Current NBV of the Defaulted Transaction. The “Current NBV” shall mean, at any time:  (A) for an Existing Transaction, an amount equal to the present value of the remaining Contract Payments of the applicable Vehicle, using a discount rate equal to the Discount Rate set forth in the Purchase and Sale Agreement for such Transaction, and (B) for a Future Transaction, an amount equal to the present value of the remaining Contract Payments of the applicable Vehicle, using a discount rate that is equal to Element’s initial internal rate of return for such Transaction, including any expected residual value.

 

  

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(iii)           Notification.  Servicer shall promptly notify Element of the Current Vehicle Value, the Current NBV, the balance of approved Covered Expenses and Net Shortfall or Net Windfall and the amount of any available Security Deposit Accrual relating to the Defaulted Vehicle.

 

(iv)           Sale in a Positive Value Transaction.  If the Current Vehicle Value plus any available Security Deposit Accrual relating thereto (together, the “Realizable Proceeds”) is in excess of the sum of:  (A) the Current NBV, (B) the net shortfall between Expected Payments or Fixed Contract Payments made by Servicer to Element and Actual Collections received by Servicer from an Obligor (such difference being, the “Net Shortfall”) (or if Actual Collections received by Servicer from an Obligor are in excess of the Expected Payments or Fixed Contract Payments made by Servicer to Element, such difference being the “Net Windfall,” any Net Windfall, for purposes of this Section (c)(iv) being added to the Realizable Proceeds and the Net Shortfall for such calculation being zero (0)) for the Defaulted Transaction, and (C) the approved Covered Expenses for the Defaulted Vehicle, and (the sum of (A), (B) and (C) being, the “Collective Payout,” and the Realizable Proceeds exceeding the Collective Payout being, a “Positive Value Transaction”), then Servicer shall sell the Defaulted Vehicle. Notwithstanding the foregoing, Servicer may solicit Element’s authorization to enter into a replacement lease for a Defaulted Vehicle in a Positive Value Transaction, and if Element grants such authorization, which authorization is in Element’s sole and absolute discretion, then Servicer may re-lease such Defaulted Vehicle.

 

(v)           Distribution Waterfall. The proceeds from the sale of a Defaulted Vehicle plus any available Security Deposit Accrual relating thereto (the “Distributable Proceeds”), shall, with respect to a Positive Value Transaction, be distributed within two (2) business days of Servicer’s receipt thereof, in the following order and amounts:  (A) first, the Current NBV shall be distributed to Element; (B) second, the amount of the Net Shortfall shall be retained by Servicer (or in the case of a Net Windfall, the Net Windfall being added to the Distributable Proceeds and the Net Shortfall for distribution purposes being zero (0)); (C) approved Covered Expenses for the reconditioning of the Defaulted Vehicle (and with respect to a Defaulted Vehicle that is a Delivery Vehicle, any remaining repair costs after deducting such repair costs from the maintenance balance in the Independent Contractor’s Maintenance Fund) shall be retained by Servicer; and (D) any proceeds received in excess of the proceeds distributed pursuant to subsections (A), (B) and (C) above, shall be divided equally between Servicer and Element (the “Distribution Waterfall”).

 

(vi)           Negative Value Delivery Vehicle Transactions.  With respect to any Defaulted Vehicle that is a Delivery Vehicle, if the Realizable Proceeds are not in excess of the Collective Payout, then Servicer, in the following priority:  (A) shall be responsible for obtaining a new Independent Contractor to enter into a Transaction for such Defaulted Vehicle, (B) with the written consent of Element, shall sell the Defaulted Vehicle, or (C) if neither (A) nor (B) of this paragraph has occurred by the forty-fifth (45th) day following the date that a Transaction became a Defaulted Transaction, if directed to do so by Element, shall treat such Defaulted Vehicle as being sold and the sales proceeds with respect thereto being deemed to be zero dollars ($0.00), and in each case, irrespective of actual amounts received for the sale of such Defaulted Vehicle, shall pay to Element the Current NBV with respect to such Vehicle.

 

  

14

  

 

(vii)           Negative Value Fleet Vehicle Transactions.  With respect to any Defaulted Vehicle that is a Fleet Vehicle, if the Realizable Proceeds are not in excess of the Collective Payout, then Servicer shall sell the Defaulted Vehicle and, irrespective of actual amounts received for the sale of such Defaulted Vehicle, shall pay to Element the Current NBV with respect to such Vehicle.

 

(viii)           Covered Expenses.  Servicer shall make all necessary Covered Expenses to prepare a Delivery Vehicle for Transactions with new Independent Contractors subject to the following conditions:

 

(A)           Servicer needs no consent from, nor need it provide notice to, Element with respect to Covered Expenses in an amount up to five percent (5%) of the original cost of the Defaulted Vehicle (on a cumulative basis including any repairs made to remarket the Defaulted Vehicle since its original purchase);

 

(B)           Servicer is authorized to undertake Covered Expenses in an amount in excess of five percent (5%) of the original cost of the Defaulted Vehicle, but not in excess of twelve percent (12%) of the original cost of the Defaulted Vehicle (on a cumulative basis including any repairs made to remarket the Defaulted Vehicle since its original purchase).  Servicer is required to review Covered Expenses in this category as part of its monthly Servicer meetings with Element;

 

(C)           Servicer shall not incur Covered Expenses that exceed twelve percent (12%) of the original cost of the Defaulted Vehicle (on a cumulative basis including any repairs made to remarket the Defaulted Vehicle since its original purchase) without the consent of Element. To obtain such consent, Servicer shall provide Element with a written recommendation for approval of such Covered Expenses (a “Repair Recommendation”).  Servicer and Element shall agree upon a standardized format for Repair Recommendations. Element, in its sole and absolute discretion, may make the determination whether to consent to a Repair Recommendation. If Element has not provided Servicer a response to a Repair Recommendation within six (6) business hours of its receipt, then Element will be deemed to have given its consent, and Servicer may incur the Covered Expenses set forth in the Repair Recommendation. Servicer is required to review Covered Expenses actually incurred in this category as part of its monthly Servicer meetings with Element; and

 

  

15

  

 

(D)           Covered Expenses shall be recorded and charged without markup of any type.  If repairs or maintenance constituting Covered Expenses are undertaken by any party to a Transaction (including a Sponsor), then the charge relating thereto shall be the provider’s cost of parts and labor.  If repairs or maintenance constituting Covered Expenses are undertaken by a third party vendor, then the charge relating thereto shall be the vendor’s actual invoice amount.

 

(ix)           Defaulted Delivery Vehicle Remarketing  With respect to Independent Contractors who are seeking a Vehicle, prior to showing those from Servicer’s own new or used inventory (“Servicer’s Inventory”), Servicer shall show the then available Defaulted Vehicles to the Independent Contractor, provided, however, that Servicer shall not unduly influence any Independent Contractor’s acquisition decision (purchase or leasing) and must also inform any Independent Contractor that there are a number of additional Vehicles available, including Servicer’s Inventory.  Servicer agrees that in its efforts to lease Defaulted Vehicles and Servicer’s Inventory, all efforts shall be in proportion to the number of units available in each category.

 

(x)           Remarketed Delivery Vehicle Transaction.  When a new Independent Contractor is found with respect to a remarketed Delivery Vehicle, the Independent Contractor shall enter into a new Transaction with Element, as lessor or lender thereunder, for no additional consideration (the “Remarketed Transaction”), and Servicer shall deliver all original Transaction Documents evidencing the Remarketed Transaction to Element.  Notwithstanding the remarketing of the Delivery Vehicle, Servicer shall continue to make to Element the Contract Payments as scheduled for the remaining term of the original Transaction (including for clarity’s sake, any EOT Amounts with respect to the original Transaction) (collectively, the “Original Transaction Payments”).  All the Original Transaction Payments will be applied to the Remarketed Transaction. Any proceeds received from the Remarketed Transaction in excess of the Original Transaction Payments shall be distributed in accordance with the Distribution Waterfall (for this purpose omitting subparagraph (A) thereof).  Servicer may exercise its discretion in establishing payment amount, length of term and other pertinent contract issues with respect to a Remarketed Transaction so long as aggregate present value cashflow from the Remarketed Transaction is no less than aggregate present value cashflow from the original Transaction and as long as the new Remarketed Transactions are consistent in term and end of lease options with the common and standard leases written for similar vehicles of similar age.

 

(xi)           Terminated Non-Default Transactions.  With respect to any Transaction that is terminated for reasons other than a default by an Obligor, including but not limited to:  the early termination of the Transaction by the Obligor, but only as written in the documents for a Transaction, loss due to accident, or the mutual agreement of Servicer and Element to sell a Delivery Vehicle to third parties, Servicer shall pay Element the aggregate Contract Payments for the remaining term of such Transaction (including, for clarity’s sake, any EOT Amounts with respect to such Transaction) within two (2) business days of such termination (and Servicer’s receipt of proceeds related thereto). Element shall return the title associated with such Vehicle to Servicer within ten (10) business days of Element’s receipt of the payment in the amount of the Current NBV. To the extent the proceeds from such event, including any available Security Deposit Accrual received or held by Servicer, exceed the Current NBV, such excess proceeds shall be distributed in accordance with the Distribution Waterfall (for this purpose omitting subparagraph (A) thereof, because the Current NBV has already been paid to Element).

 

  

16

  

 

(d)           Insurance.  Servicer shall provide to Element evidence of insurance for each Transaction as required in the applicable Transaction Documents, and make claims against any insurance policy relating to Vehicles in the same manner as it would pursue its own interests, and to promptly remit to Element any insurance proceeds received as a result of such claim.

 

(e)           Taxes.  Servicer shall pay, or shall ensure the payment of, all Tax Payments when due and payable, and shall provide Element with reasonable evidence of such payments. Servicer shall make, or shall ensure the making of, all Tax Filings when due, and shall provide Element with reasonable evidence of such filings.

 

3.           Reporting Requirements.  Except for Quarterly compliance certificates, which are due on or before the 5th business day following the end of each calendar quarter, Servicer shall provide Element with the following reports on or before the 5th business day of each month following the end of any month that this Third Amended Agreement is in effect:

 

(a)           a Lock Box File (the form of which has been agreed upon, and which Servicer is currently using, and will continue to use) which reflects, by deposit, the Actual Collections received with respect to Delivery Vehicles.  The Lock Box File should be a third-party sourced report coming directly from a depository bank(s).  In addition, a Lock Box File shall provide support for any intercompany journal entries, including:

 

(i)           details of how cash deposits to a depository bank(s) are attributable to Vehicles and/or Obligors; and

 

(ii)           intercompany postings of payments from Servicer and other affiliated drivers;

 

(b)           a Cash Receipts File (the form of which has been agreed upon, and which Servicer is currently using, and will continue to use) which reflects, by deposit, the Actual Collections received with respect to Delivery Vehicles at the Vehicle Identification Number (“VIN”) level.  The Cash Receipts File should reconcile to the Lock Box File in total, and shall reflect the method by which the Actual Collection was paid;

 

(c)           a reconciliation with details of Net Shortfalls and Net Windfalls and Covered Repairs to “Potential Recourse Liability” account on Servicer’s ledger, with evidence of sign off by with respect to such items by Servicer’s management;

 

  

17

  

 

(d)          a Delinquency Report sorted by Obligor, in the form attached hereto as Exhibit B (or in another form acceptable to Element at Element’s sole discretion);

 

(e)          a Termination Report accounting for all gains and losses on sale, termination or buyout of Vehicles;

 

(f)           an Outstanding Advance Report listing by Transaction indicating what portions of the most recent Aggregate Monthly Payment constituted Advances and the total outstanding advances with respect to each Transaction;

 

(g)          a Reserve Account Report, indicating the Reserve Balance (as defined in the Reserve Account Agreement) and all additions and subtractions thereto since the prior report;

 

(h)          a data file in electronic form indicating all gross balances due at the Transaction level, in the same format as outlined in Section 3.1(c) of the Portfolio Purchase Agreement;

 

(i)           an Inactive Truck Report indicating which Vehicles are idle at the end of each month and the activity related to idle trucks in such month;

 

(j)           a Reseat Activity Report, indicating Account Name, VIN, New Unit #, Initial Lease Sign Date, Term Date, Reseat Lease Date and Re-Seat Days;

 

(k)          a Quarterly compliance certificate from Chief Financial Officer of Celadon Group, Inc. and the Chief Financial Officer of Quality Equipment Leasing, LLC with respect to continuing compliance of Servicer with its representations and warranties hereunder, including the accuracy of information included in reporting made under this paragraph 3 of the Third Amended Agreement;

 

(l)           a report showing the additions to, and balance in, the Security Deposit Accounts for all Transactions in regard to Delivery Vehicles;

 

(m)         a report showing the payment deferral activity within the month;

 

(n)          a report showing all Vehicles returned to Servicer during any month in the term of this Third Amended Agreement; and

 

(o)          such other reports as may be reasonably requested by Element from time to time.

 

4.           Servicer Covenants.  During the term of this Third Amended Agreement, Servicer covenants to the following:

 

(a)           Applicable Laws.  comply with all applicable laws with respect to the Transactions and enforcing any of Element’s rights thereunder;

 

  

18

  

 

(b)           Existence.  preserve its existence as a corporation and/or limited liability company, as the case may be, duly organized, validly existing and in good standing, under the laws of the State of Delaware;

 

(c)           Inspection.  permit inspection/audit by Element or assignee of its books and records relating to the Transactions, Payments and other Assigned Property/Vehicles upon reasonable notice during normal business hours at Servicer’s address set forth herein, and shall assist Element in connection with such inspections/audits;

 

(d)           Compliance.  comply with its obligations under the Transaction Documents;

 

(e)           Amendments and Modifications.  not agree to any amendments or modifications of the Transaction Documents without the prior written consent of Element that would (i) change the amount, due date, interest rate or rental rate or prepayment fee, defer or forgive the payment of any principal or interest or rent (including changing the maturity date of a Transaction), (ii) waive any provision of a Transaction (including any change in any time period) prohibiting prepayment in whole or in part, or reduce the outstanding principal amount or imputed principal balance (except for reductions contemplated by the Transaction Documents), (iii) release, or agree to the substitution or exchange of any Vehicle for, any portion of the Transaction or Vehicle or release the liability of any person or entity liable for any payment on any Transaction, (iv) grant any concession with respect to the compliance with any material obligations imposed by the Transaction Documents, (v) release the Obligor from any of its obligations to make any payment with respect to the Transaction, (vi) accelerate or extend the maturity date of any Payment, commence any action, terminate any Transaction or repossess and resell any Vehicle, or (vii) take any action or fail to take any action which would materially adversely affect the value of any Existing Transactions or Future Transactions, reduce the likelihood of recovery of any Payment or the security of the Transaction;

 

(f)           Quiet Enjoyment.  not impair the rights or breach the quiet enjoyment of any Obligor under the Transaction Documents;

 

(g)           Liens.  not create any lien, security interest or other encumbrance against any Assigned Property except in favor of Element as may be permitted by Element in writing;

 

(h)           Policies.  comply with its credit and collection policies with respect to the Payments, which policies shall be commercially reasonable and in accordance with normal policies of similar companies in the equipment finance and leasing industries;

 

(i)           Element’s Interests.  pursue the interests of Element in the same manner as it would pursue its own interests in the exercise any remedies available under the Transaction Documents, without discrimination;

 

  

19

  

 

(j)           Notices.  promptly provide to Element copies of any notices and material information received by Servicer in connection with the Transactions;

 

(k)          Defaults.  notify Element monthly of the existence of any default or event of default, or the occurrence of any event which, with notice or lapse of time, or both, would constitute a default or  event of default under any Transaction Document of which Servicer has knowledge;

 

(l)           Indemnification.  indemnify Element against any direct damages, claims, costs or expenses (including but not limited to reasonable attorneys’ fees, collectively, “Damages”) which may be incurred by Element to the extent such Damages arise out of the negligence or willful misconduct of, or any violations of law by, Servicer in performing any of its duties hereunder.

 

(m)         Financial Statements.  provide to Element copies of its audited yearly financial statements within 120 days after the end of each fiscal year to the extent not available on Servicer’s website or at http://www.sec.gov; and

 

(n)          Payment of Interest.  pay Element interest (after as well as before judgment) on any amounts required to be paid by Servicer to Element hereunder and not paid by Servicer when due hereunder at the rate equal to the Discount Rate plus four (4) percent.

 

5.           Term.  Unless earlier terminated by Element as herein set forth, this Third Amended Agreement shall have a term that commences on the effective date as first herein noted and expires on the date of Full Payout.

 

6.           Termination.

 

(a)           Element’s Termination Rights.  Upon the occurrence of any Event of Default, Element, in its sole and absolute discretion, may, upon written notice to Servicer, (i) terminate (A) this Third Amended Agreement and/or (B) the rights and obligations of Servicer set forth in this Third Amended Agreement, or (ii) terminate (A) any portion of this Third Amended Agreement, (B) this Third Amended Agreement with respect to any portion of the Transactions serviced hereunder, and/or (iii) any particular right(s) and obligation(s) of Servicer set forth in this Third Amended Agreement, while keeping the remainder of this Third Amended Agreement in full force and effect (and notify in the appropriate circumstances the applicable Obligor(s) to make all subsequent Payments directly to Element).

 

(b)           Events of Default.  For purposes of this Third Amended Agreement, an “Event of Default” is any of the following occurrences:

 

(i)           Payment Default.  Servicer fails to make any required payment due hereunder or under the Purchase and Sale Agreement or the Amended Program Agreements, and such failure continues unremedied for ten (10) business days after notice from Element;

 

  

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(ii)           Breach of Reps and Warranties.  any material representation or warranty made by Servicer in the Purchase and Sale Agreement, the Amended Program Agreements, or this Third Amended Agreement shall prove to be false or inaccurate in any material respect, such inaccuracy would have a material adverse effect on Element, the Transactions or the Vehicles, and such inaccuracy has not been remedied in all material respects within thirty (30) days after written notice;

 

(iii)          Breach of Covenants.  Servicer’s failure to perform any covenant contained in the Purchase and Sale Agreement, the Amended Program Agreements or this Third Amended Agreement, and such failure shall continue unremedied for thirty (30) days after written notice;

 

(iv)          Change in Ownership.  a change in ownership of either entity comprising Servicer, or either such entity sells or otherwise transfers all or substantially all of the assets to any person which is not now an affiliate of Servicer, unless Element, in its absolute and sole discretion, approves the change in ownership;

 

(v)           Event of Bankruptcy.  an Event of Bankruptcy;

 

(vi)          Repurchase Failure.  Servicer’s failure to repurchase any Transaction pursuant to Article V of the Purchase and Sale Agreement, in an instance where Element elects to take over servicing thereof, as opposed to proceeding with a remarketing of the Delivery Vehicle, provided however, that in such event, any termination of Servicer as Servicer shall only be with respect to such Transaction; or

 

(vii)         Cross-Default.  the occurrence of any one or more of the events set forth in Section 1.4 of the Reserve Account Agreement which continues for ten (10) days or more after receipt of notice of the occurrence of said event from Element or its assignees.

 

(c)           Events Upon Termination.  Upon the termination of this Third Amended Agreement as provided in this Section 6, the following events shall occur:

 

(i)           Deliveries.  Servicer shall deliver to Element all requested and available information concerning the billing and collection by Servicer hereunder in order that Element or Element’s designee may assume such duties without material interruption.  Such deliveries shall include the transfer of automatic deductions generated by Obligors to Element, including any Actual Collections, Maintenance Fund balances and Security Deposit Accruals;

 

(ii)           Cooperation.  Servicer shall cooperate with Element to accomplish the prompt, effective and smooth transition of servicing of the Transactions to Element or Element’s designee;

 

  

21

  

 

(iii)           Reserve Balance Funding.  the Reserve Balance funding requirement (as set forth in the Reserve Account Agreement will be triggered, and Servicer will immediately pay Element the amount therein required in readily available funds.  The Reserve Balance will be held by Element until full payout of all Transactions (“Full Payout”);

 

(iv)           Extinguishment of Servicing Obligations.  Except as otherwise provided herein, in the Purchase and Sale Agreement or the Amended Program Agreements, Servicer shall be relieved of any further servicing obligations with regard to the Transactions;

 

(v)           Power of Attorney.  Servicer does hereby irrevocably constitute and appoint Element or a new billing and collection agent designated by Element, as its true and lawful attorney with full power of substitution, for it and in its name, place and stead, to enforce, ask, demand, collect, receive, receipt for, sue for, compound and give acquaintance for any and all Transactions serviced by Servicer pursuant to this Third Amended Agreement, and to endorse the name of Servicer on all checks, collections, receipts, instruments or notices in connection with any such Transactions; and

 

(vi)           Extinguishment of Servicer’s Rights.  Servicer shall forfeit all rights and interests, in and under this Third Amended Agreement or the Reserve Account Agreement, to share or otherwise participate in: (A) sale or other proceeds relating to Vehicles, (B) excess payments and (C) any portion of the foregoing. Notwithstanding the foregoing, Servicer shall retain its rights to (X) repayment or reimbursement of Covered Expenses, and (Y) any recoupment or payment from Element for funds expended by Servicer in excess of the amount of the Reserve Account as set forth in Section 1.3 of the Reserve Account Agreement, either as incurred through the date of termination of this Third Amended Agreement.  Thus, upon the termination of this Third Amended Agreement as provided in this Section 6, Servicer shall not forfeit any Repayment Obligation (as defined in the Reserve Account Agreement) then accrued with respect to any Vintage, and Element, upon final settlement of all Transactions in any such Vintage, will pay the Unrecouped Amount (as defined in the Reserve Account Agreement) to Servicer.

 

7.           Notices.  All notices, requests, demands and other communications authorized or required by this Amended Agreement shall be in writing, shall be delivered by personal delivery, by facsimile, or by overnight delivery service and shall be delivered to each party at the following addresses (or at such other address as any party may designate in writing to the other parties):

 

If to Servicer:

 

 

Celadon Group, Inc.

9503 E. 33rd Street

Indianapolis, IN  46235

Attn:      Eric Meek, CFO

Fax:        (317) 829-6375

 

  

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If to Element:

 

Element Financial Corp.

655 Business Center Drive

Horsham, PA  19044

Attn:     Rene Paradis, CAO & CFO

Fax:       (267) 960-2061

 

8.           Governing Law.  This Third Amended Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania (without reference to its conflict of laws provisions).

 

9.           Binding Effect.  This Third Amended Agreement shall be binding upon the parties hereto and their respective successors.

 

10.         Assignment.  Servicer shall not assign, sell, or otherwise transfer this Third Amended Agreement or any of Servicer’s rights or obligations hereunder without Element’s prior written consent, which consent is wholly within the discretion of Element.  Element may, without prior notice to Company, assign this Third Amended Agreement or any and all of its rights and obligations hereunder to any third party.  Servicer specifically consents to the sale and/or assignment by Element to a third party (an “Assignee”) of Element’s rights to receive payments from Servicer under this Third Amended Agreement with respect to the specific Transactions that are sold or assigned.  Servicer agrees that such Assignee shall have the right of Element to receive any payments that Servicer is obligated to make hereunder with respect to such sold or assigned Transactions, but that such Assignee shall have none of the obligations of Element under this Third Amended Agreement or the Reserve Account Agreement.  Element agrees to notify Servicer of any such sales and/or assignments. In addition, Element may sell and assign its rights, title and interest in and to one or more of the Transactions, without such Transactions remaining subject to this Third Amended Agreement.

 

11.         Counterparts.  This Third Amended Agreement may be executed in any number of counterparts, and by different parties hereto on separate counterparts, each of which, when so executed and delivered shall be an original but all such counterparts shall together constitute one and the same instrument.  This Third Amended Agreement shall become effective when each party hereto shall have received the counterpart thereof signed by the other party hereto.  A facsimile signature on this Third Amended Agreement is as valid as an original signature.

 

12.         Entire Agreement.  This Third Amended Agreement supersedes all previous arrangements and agreements, whether written or oral, and comprises the entire agreement, between the parties hereto in respect of the subject matter hereof.

 

  

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13.           Amendment.  This Third Amended Agreement may be amended or varied only by writing, executed by each of Element and Servicer.

 

14.           Waiver.  No course of dealing between Element and Servicer, nor any delay in exercising any rights or remedies hereunder or otherwise shall operate as a waiver of any of the rights and remedies of Element or Servicer.

 

15.           Severability.  The invalidity or unenforceability of any provision of this Third Amended Agreement shall not affect the validity or enforceability of any other provision.

 

16.           Further Assurances.  Each of Element and Servicer agrees to execute and deliver promptly to the other all such further instruments and documents as may reasonably be requested by the other in order to carry out fully the intent, and to accomplish the purposes, of the transactions referred to herein.

 

17.           Descriptive Headings.  The headings contained in this Third Amended Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Third Amended Agreement.

 

18.           WAIVER OF JURY TRIAL.  SERVICER AND ELEMENT WAIVE THEIR RIGHT TO A TRIAL BY JURY WITH RESPECT TO ANY MATTER ARISING UNDER OR IN CONNECTION WITH THIS THIRD AMENDED AGREEMENT.

 

19.           Jurisdiction.  The parties hereto agree to the exclusive jurisdiction and venue for any disputes, actions, or proceedings arising hereunder of the United States District Court for the Eastern District of Pennsylvania or, if the jurisdictional minimum amount or diversity requirement, is not met, then the Pennsylvania State Court in the Montgomery County Court of Common Pleas.

 

 

[Remainder of Page Intentionally Blank]

 

  

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IN WITNESS WHEREOF, Servicer and Element have caused this Third Amended Agreement to be executed on their behalf by their officers thereunto duly authorized, as of the date first above written.

	
CELADON GROUP, INC.

	  	  
	  	  
	
By:

	
/s/ William Eric Meek

	
Name:

	
William Eric Meek

	
Title:

	
President and COO

	  	  
	  	  
	  	  
	
QUALITY EQUIPMENT LEASING, LLC

	  	  
	  	  
	
By:

	
/s/ Leslie Tarble

	
Name:

	
Leslie Tarble

	
Title:

	
CFO

	  	  
	  	  
	  	  
	
ELEMENT FINANCIAL CORP.

	  	  
	  	  
	
By:

	
/s/ Donald P. Campbell

	
Name:

	
Donald P. Campbell

	
Title:

	
CEO

 

Back to Form 10-QExhibit 10.1

 

NEITHER THIS DEBENTURE NOR
THE SECURITIES INTO WHICH THIS DEBENTURE IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND, ACCORDINGLY, NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE ARE CONVERTIBLE
MAY BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.

 

	Original
    Issuance Date: May 2, 2016	$360,000

 

THINSPACE TECHNOLOGY, INC.

 

8% Convertible Debenture

 

Due May 2, 2018

 

FOR VALUE RECEIVED, Thinspace
Technology, Inc. a Delaware corporation (hereinafter called the “Borrower” or the “Company”),
hereby promises to pay to Rockwell Capital Partners, Inc., a Delaware corporation(the “Holder”), or order,
without demand, the sum of up to THREE HUNDRED SIXTY THOUSAND Dollars ($360,000), interest accruing at the rate described
below, on May 2, 2018 or such earlier date as the Debentures are required to be repaid as provided hereunder(the "Maturity
Date").

 

The Consideration is: (i)
One Hundred, Thirty Thousand Dollars ($130,000) payable by wire to the Borrower on the Effective Date and an additional up to
Two Hundred Thirty Thousand Dollars ($230,000) may be paid by Holder to Borrower in its discretion during the 180 day period commencing
on the date of this Debenture.

 

NOW THEREFORE, the following
terms shall apply to this Debenture:

 

ARTICLE I

 

GENERAL PROVISIONS

 

1.1        Payments.
The entire unpaid principal amount (such amount to be equal to the amount actually paid by Holder to Borrower during the one hundred
eighty day period commencing on the date of this Debenture), (the “Principal”) shall be due and payable on
the Maturity Date. Interest on this Debenture (the “Interest”) will be payable annually and on the Maturity
Date. Interest shall be payable in cash or, so long as no default or Event of Default shall have occurred and be continuing, at
the Company’s option, in freely tradable shares of the Company’s common stock, par value $0.001 per share (the "Common
Stock").

 

     

     

    

 

Upon any conversion
in part by the Holder in accordance with Article II, the Holder and the Borrower shall in good faith recalculate the outstanding
principal balance. Upon any full conversion by the Holder in accordance with Article II of all of the Interest and the Principal
due hereunder, all of the Borrower's payment obligations shall terminate. All payments in respect of the indebtedness evidenced
hereby shall be applied in the following order: to accrued Interest, Principal, and charges and expenses owing under or in connection
with this Debenture.

 

If any payment of interest
is paid in Common Stock, the number of shares issuable will be determined utilizing the conversion ratio as set forth in Article
II. Notwithstanding the foregoing, the Company’s right to pay this Debenture, including any Interest due
thereunder, in shares of Common Stock upon the Maturity Date is subject to the satisfaction of the conditions that: (i) the Common
Stock is trading on the OTC Markets, OTC Bulletin Board, New York Stock Exchange, NYSE MKT or Nasdaq; (ii) there is an effective
Registration Statement on the Maturity Date or the shares are otherwise eligible for resale pursuant to Rule 144, (iii) there are
no other defaults or Events of Default hereunder and (iv) the Company’s compliance with the public informational requirements
of Rule 144(c).

 

1.2        Interest.
Interest shall accrue on the outstanding principal balance hereof at an annual rate equal to eight percent (8%) from the date Principal
was advanced in connection with this Debenture and shall be payable annually unless otherwise converted earlier at the election
of the Holder as further described below and at Maturity. Interest shall be calculated on the basis of a 360-day year and the actual
number of days elapsed. Interest hereunder will be paid to the Holder or its assignee in whose name this Debenture is registered
on the records of the Borrower regarding registration and transfers of Debentures (the “Debenture Register”).

 

1.3        Payment Grace
Period. From and after the occurrence of an Event of Default under Article IV, the Interest Rate applicable to any unpaid amounts
owed hereunder shall be increased to eighteen percent (18%) per annum.

 

1.4        Conversion
Privileges. The conversion privileges set forth in Article II shall remain in full force and effect immediately from the date
hereof and until the Debenture is paid in full regardless of the occurrence of an Event of Default. This Debenture shall be payable
in full on the Maturity Date, unless previously converted into Common Stock in accordance with Article II hereof; provided,
that if an Event of Default has occurred, the Holder may elect to extend the Maturity Date by the amount of days of the pendency
of the Event of Default.

 

1.5        Corporate
Existence. So long as this Debenture remains outstanding, the Company shall not directly or indirectly consummate any merger,
reorganization, restructuring, reverse stock split, consolidation, sale of all or substantially all of the Company's assets or
any similar transaction or related transactions (each such transaction, a “Fundamental Change”) where the Company
is not the surviving entity unless, prior to the consummation a Fundamental Change, the Company shall have given the Holder not
less than fourteen (14) days prior written notice to the Holder. In any such case, the Holder will have the right to put this
Debenture to the Company up to the time of the effectiveness of the Fundamental Change at 150% of the then outstanding Principal
plus any unpaid and accrued Interest, which obligation shall be payable at the option of the Holder in cash or stock (calculated
as set forth in Section 2.8 hereof).

 

    	 	2	 

     

    

 

This Debenture is subject
to the following additional provisions:

  

ARTICLE II

 

CONVERSION RIGHTS AND REDEMPTION
RIGHTS

 

The Holder shall have the
right to convert the principal and accrued and unpaid interest due under this Debenture into Shares of the Borrower's Common Stock
as set forth below.

 

2.1        Conversion into
the Borrower's Common Stock.

 

(a)        The
Holder shall have the right from and after the date of the issuance of this Debenture and then at any time until this Debenture
is fully paid, to convert any outstanding and unpaid principal portion of this Debenture, and accrued Interest, at the election
of the Holder (the date of giving of such notice of conversion being a "Conversion Date") into fully paid and
non-assessable shares of Common Stock as such stock exists on the date of issuance of this Debenture (such shares, the “Conversion
Shares”), or any shares of capital stock of Borrower into which such Common Stock shall hereafter be changed or reclassified
(the “Other Securities”), at the conversion price as defined in Section 2.1(b) hereof (the "Conversion
Price"), determined as provided herein. Upon delivery to the Borrower of a completed Notice of Conversion, a form of
which is attached hereto as Exhibit A, Borrower shall issue and deliver to the Holder within three (3) business
days from the Conversion Date (such third day being the “Delivery Date”) that number of Conversion Shares for
the portion of the Debenture converted in accordance with the foregoing. At the election of the Holder, the Borrower will deliver
accrued but unpaid interest on the principal amount of the Debenture being converted in the manner provided in Section 1.1 through
the Conversion Date directly to the Holder on or before the Delivery Date. The number of Conversion Shares to be issued upon each
conversion of this Debenture shall be determined by dividing that portion of the principal of this Debenture and accrued
interest to be converted, by the Conversion Price.

 

(b)         Subject
to adjustment as provided in Section 2.1(c) hereof, the Conversion Price per share shall be 65% of the lowest closing bid price
as of 4 pm (New York Time) for the Company’s stock during the previous 20 trading days.

 

(c)         The Conversion Price and number and kind of shares or other securities to be issued upon conversion determined pursuant to Section
2.1(a), shall be subject to adjustment from time to time upon the happening of the following certain events while this conversion
right remains outstanding:

 

A.        Reorganization,
Consolidation, Merger, etc.; Reclassification. In case at any time or from time to time, the Company shall, subject to Section
1.5 hereof, effect a Fundamental Change, then, in each such case, as a condition to the consummation of such a transaction, proper
and adequate provision shall be made by the Company whereby the Holder of this Debenture, on the conversion hereof as provided
in Article II, at any time after the consummation of such Fundamental Change, shall receive, in lieu of the Conversion Shares (or
Other Securities) issuable on such conversion prior to such consummation or such effective date, the stock and other securities
and property (including cash) to which such Holder would have been entitled upon such consummation of a Fundamental Change if such
Holder had so converted this Debenture, immediately prior thereto, all subject to further adjustment thereafter as provided in
Section 2.1(c)(E).

 

If the Borrower at any time
shall, by reclassification or otherwise, change the Common Stock into the same or a different number of securities of any class
or classes that may be issued or outstanding, this Debenture, as to the unpaid principal portion thereof and accrued interest thereon,
shall thereafter be deemed to evidence the right to purchase an adjusted number of such securities and kind of securities as would
have been issuable as the result of such change with respect to the Common Stock immediately prior to such reclassification or
other change.

 

    	 	3	 

     

    

 

B.        Dissolution.
In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock and other securities and
property (including cash, where applicable) receivable by the Holder of this Debenture after the effective date of such
dissolution pursuant to this Article II to a bank or trust company (a “Trustee”) having its principal office
in New York, NY, as trustee for the Holder of the Debentures.

 

C.        Continuation
of Terms. Upon any Fundamental Change or transfer (and any dissolution following any transfer) referred to in this Article
II, this Debenture shall continue in full force and effect and the terms hereof shall be applicable to the Other Securities and
property receivable on the conversion of this Debenture after the consummation of such Fundamental Change or transfer or the effective
date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any other securities,
including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the
Company, whether or not such person shall have expressly assumed the terms of this Debenture as provided in Section 2.1(c)(E).
In the event this Debenture does not continue in full force and effect after the consummation of the transaction described in
this Article II, then only in such event will the Company's securities and property (including cash, where applicable) receivable
by the Holder of this Debenture be delivered to the Trustee as contemplated by Section 2.1(c)(B).

 

D.         Share
Issuance. If at any time this Debenture is outstanding the Company shall offer, issue or agree to issue any common stock or
securities convertible into or exercisable for shares of common stock (or modify any of the foregoing which may be outstanding)
to any person or entity at a price per share or conversion or exercise price per share which shall be less than the then applicable
Conversion Price in respect of the Shares, without the consent of the Holders of this Debenture, except with respect to Excepted
Issuances, then the Company shall issue, for each such occasion, additional shares of Common Stock to each Holder so that the
average per share purchase price of the shares of Common Stock issued to the Holder (of only the Conversion Shares still owned
by the Holder) is equal to such other lower price per share and the Conversion Price shall automatically be reduced to such other
lower price per share. For the purposes hereof, "Excepted Issuances" means any offer, issuance or agreement to issue
any common stock or securities convertible into or exercisable for shares of common stock (or modify any of the foregoing which
may be outstanding) in connection with (i) full or partial consideration in connection with a strategic merger, consolidation
or purchase of substantially all of the securities or assets of corporation or other entity, (ii) the Company’s issuance
of securities in connection with strategic license agreements and other partnering arrangements so long as such issuances are
not for the purpose of raising capital, (iii) the Company’s issuance of Common Stock or the issuance or grants of options
to purchase Common Stock pursuant to the Company’s stock option plans and employee stock purchase plans, (iv) the conversion
of any of the Debentures, and (v) the payment of any interest on the Debentures, (collectively, the “Excepted Issuances”).
The delivery to the Holder of the additional shares of Common Stock shall be not later than the closing date of the transaction
giving rise to the requirement to issue additional shares of Common Stock. For purposes of the issuance and adjustment described
in this paragraph, the issuance of any security of the Company carrying the right to convert such security into shares of Common
Stock or of any warrant, right or option to purchase Common Stock shall result in the issuance of the additional shares of Common
Stock upon the issuance of such convertible security, warrant, right or option and again at any time upon any subsequent issuances
of shares of Common Stock upon exercise of such conversion or purchase rights if such issuance is at a price lower than the Conversion
Price in effect upon such issuance. The rights of the Holder set forth in this Section 2.1 (c)(D), are in addition to any
other rights the Holder has pursuant to this Debenture, any Transaction Document and any other agreement referred to or entered
into in connection herewith.

 

    	 	4	 

     

    

 

E.        Extraordinary
Events Regarding Common Stock. In the event that the Company shall (a) issue additional shares of the Common Stock as a dividend
or other distribution on outstanding Common Stock, (b) subdivide its outstanding shares of Common Stock, or (c) subject to Section
1.5 hereof, combine its outstanding shares of the Common Stock into a smaller number of shares of the Common Stock, then, in each
such event, the Conversion Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then Conversion
Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such
event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and
the product so obtained shall thereafter be the Conversion Price then in effect. The Conversion Price, as so adjusted, shall be
readjusted in the same manner upon the happening of any successive event or events described herein in this Section 2.1(c)(E).
The number of Conversion Shares that the Holder of this Debenture shall thereafter, on the conversion hereof as provided in Article
II, be entitled to receive shall be adjusted to a number determined by multiplying the number of Conversion Shares that would otherwise
(but for the provisions of this Section 2.1(c)(E)) be issuable on such conversion by a fraction of which (a) the numerator is the
Conversion Price that would otherwise (but for the provisions of this Section 2.1(c)(E)) be in effect, and (b) the denominator
is the Conversion Price in effect on the date of such conversion.

 

F.        Certificate
as to Adjustments. In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable
on the conversion of the Debentures, the Company at its expense will promptly cause its Chief Financial Officer or other appropriate
designee to compute such adjustment or readjustment in accordance with the terms of the Debenture and prepare a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including
a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other
Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities)
outstanding or deemed to be outstanding, and (c) the Conversion Price and the number of Conversion Shares to be received upon conversion
of this Debenture, in effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as provided in
this Debenture. The Company will forthwith mail a copy of each such certificate to the Holder of the Debenture and any transfer
agent of the Company.

 

G.        Delay in Clearing.
The Company shall issue shares to the Holder as set forth in 2.1(b) (“Initial Conversion Price”). However, if the conversion
price for the common stock on the Clearing Date (defined below) is lower than the Initial Conversion Price, then the Initial Conversion
Price shall be adjusted such that the Discount shall be taken based on the Clearing Date, and the Company shall issue additional
shares to Purchaser to reflect such adjusted Conversion Price, with such additional issuance being subject to the limitation on
conversion as set forth in 2.11, below.  For purposes of this Agreement, the Clearing Date shall be on the date in which the
conversion shares are deposited into the Purchaser’s brokerage account and Purchaser’s broker has confirmed with Purchaser
that the Purchaser may execute trades of the conversion shares. The Holder shall represent and warrant that the shares were promptly
tendered to the Holder’s broker and that the delay is not the result of the Holder failing to provide the Broker or Clearing
Firm with appropriate documentation to clear such shares including but not limited to this Debenture.

 

2.2        Method of Conversion.
This Debenture may be converted by the Holder in whole or in part as described in Section 2.1(a) hereof and the Securities Purchase
Agreement, dated on or about the date hereof, between the Company and the Holder (the “Purchase Agreement”). Upon partial
conversion of this Debenture, a new Debenture containing the same date and provisions of this Debenture shall, at the request of
the Holder, be issued by the Borrower to the Holder for the principal balance of this Debenture and interest which shall not have
been converted or paid.

 

    	 	5	 

     

    

 

2.3        Issuance Below
Par. It is the intention of the Parties hereto that conversion shares shall be issued in response to a Conversion Request regardless
of Conversion Price, even if the Conversion Price is less than stated par value.

 

2.4        Intentionally
Left Blank. 

 

2.5        Conversion of
Debenture.

 

(a)        Upon
the conversion of this Debenture or part thereof, the Company shall, at its own cost and expense, take all necessary action, including
obtaining and delivering, an opinion of counsel to assure that the Company's transfer agent shall issue stock certificates in
the name of Holder (or its nominee) or such other persons as designated by Holder and in such denominations to be specified at
conversion representing the number of Conversion Shares issuable upon such conversion. The Company warrants that no instructions
other than these instructions have been or will be given to the transfer agent of the Company's Common Stock and that, unless
waived by the Holder, the Conversion Shares will be free-trading, and freely transferable, and will not contain a legend restricting
the resale or transferability of the Conversion Shares provided the Conversion Shares are being sold pursuant to an effective
registration statement covering the Conversion Shares or are otherwise exempt from registration.

 

(b)        Holder
will give notice of its decision to exercise its right to convert this Debenture or part thereof by emailing or telecopying an
executed and completed Notice of Conversion (a form of which is attached as Exhibit A to the Debenture) to the Company
via confirmed telecopier transmission, email, or overnight courier or otherwise pursuant to Section 5.2 of this Debenture. The
Holder will not be required to surrender this Debenture until this Debenture has been fully converted or satisfied, with each
date on which a Notice of Conversion is telecopied to the Company in accordance with the provisions hereof shall be deemed a Conversion
Date (as defined above). The Company will itself or cause the Company’s transfer agent to transmit the Company's Common
Stock certificates representing the Conversion Shares issuable upon conversion of this Debenture to the Holder via express courier
for receipt by such Holder on or before the Delivery Date (as defined above). In the event the Conversion Shares are electronically
transferable, then delivery of the Conversion Shares must be made by electronic transfer provided request for such electronic
transfer has been made by the Holder and the Holder has complied with all applicable securities laws in connection with the sale
of the Common Stock, including, without limitation, the prospectus delivery requirements. A Debenture representing the balance
of this Debenture not so converted will be provided by the Company to the Holder if requested by Holder, provided the Holder delivers
the original Debenture to the Company.

 

(c)        The Company understands
and agrees that a delay in the delivery of the Conversion Shares in the form required pursuant to Section 2.5(a) hereof, after
the Delivery Date (as hereinafter defined) could result in economic loss to the Holder. As compensation to the Holder for such
loss, the Company agrees to pay (as liquidated damages and not as a penalty) to the Holder for late issuance of Conversion Shares
upon Conversion of the Debenture in the amount of $500 per business day after the Delivery Date for each $10,000 of Debenture principal
amount being converted of the corresponding Conversion Shares which are not timely delivered. The Company shall pay any payments
incurred under this Section in immediately available funds upon demand. Furthermore, in addition to any other remedies which may
be available to the Holder, in the event that the Company fails for any reason to effect delivery of the Conversion Shares by the
Delivery Date the Holder will be entitled to revoke all or part of the relevant Notice of Conversion by delivery of a notice to
such effect to the Company whereupon the Company and the Holder shall each be restored to their respective positions immediately
prior to the delivery of such notice, except that the liquidated damages described above shall be payable through the date notice
of revocation or rescission is given to the Company.

 

    	 	6	 

     

    

 

(d)        Nothing
contained herein or in any document referred to herein or delivered in connection herewith shall be deemed to establish or require
the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event that the
rate of interest or dividends required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments
in excess of such maximum shall be credited against amounts owed by the Company to the Holder and thus refunded to the Company.

 

2.6        Injunction
Posting of Bond. In the event a Holder shall elect to convert a Debenture or part thereof in whole or in part, the Company may
not refuse conversion based on any claim that such Holder or any one associated or affiliated with such Holder has been engaged
in any violation of law, or for any other reason, unless an injunction from a court, on notice, restraining and or enjoining conversion
of all or part of such Debenture shall have been sought and obtained by the Company and the Company has posted a surety bond for
the benefit of such Holder in the amount of 120% of the amount of the Debenture, which bond shall remain in effect until the completion
of arbitration/litigation of the dispute and the proceeds of which shall be payable to such Holder to the extent Holder obtains
judgment.

 

2.7        No Optional Redemption.

 

(a)        The Company may not
prepay this Debenture in whole or in part without the prior written consent of the Holder.

 

2.8        Mandatory Redemption
at Holder’s Election. In the event the Company is prohibited from issuing Conversion Shares, or fails to timely deliver
Shares on a Delivery Date, or upon the occurrence of any other Event of Default (as defined in this Debenture or in the Purchase
Agreement) or for any reason other than pursuant to the limitations set forth in Section 2.3 hereof, then at the Holder's election,
the Company must pay to the Holder ten (10) business days after request by the Holder, at the Holder's election, a sum of money
in immediately available terms equal to the greater of (i) the product of the outstanding principal amount of the Debenture designated
by the Holder multiplied by 150%, or (ii) the product of the number of Conversion Shares otherwise deliverable upon conversion
of an amount of Debenture principal and/or interest designated by the Holder (with the date of giving of such designation being
a “Deemed Conversion Date”) at the then Conversion Price that would be in effect on the Deemed Conversion Date
multiplied by the average of the closing bid prices for the Common Stock for the five consecutive trading days preceding either:
(1) the date the Company becomes obligated to pay the Mandatory Redemption Payment, or (2) the date on which the Mandatory Redemption
Payment is made in full, whichever is greater, together with accrued but unpaid interest thereon and any liquidated damages then
payable (“Mandatory Redemption Payment”). The Mandatory Redemption Payment must be received by the Holder on
the same date as the Company Shares otherwise deliverable or within ten (10) business days after request, whichever is sooner (“Mandatory
Redemption Payment Date”). Upon receipt of the Mandatory Redemption Payment, the corresponding Debenture principal and
interest will be deemed paid and no longer outstanding. Liquidated damages calculated pursuant to Section 2.5(c) hereof, that have
been paid or accrued for the twenty (20) day period prior to the actual receipt of the Mandatory Redemption Payment by the Holder
shall be credited against the Mandatory Redemption Payment.

 

    	 	7	 

     

    

 

2.9        Buy-In.
In addition to any other rights available to the Holder, but without any duplicative recovery by the Holder, if the Company
fails to deliver to the Holder the Conversion Shares issuable upon conversion of this Debenture by the Delivery Date and if
after five (5) business days after the Delivery Date the Holder purchases (in an open market transaction or otherwise) shares
of Common Stock to deliver in satisfaction of a sale by such Holder of the Common Stock which the Holder was entitled to
receive upon such conversion (a “Buy-In”), then the Company shall pay in cash to the Holder (in addition
to any remedies available to or elected by the Holder) the amount by which (A) the Holder's total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (B) the aggregate principal and/or
interest amount of the Debenture for which such conversion was not timely honored, together with interest thereon at a rate
of 15% per annum, accruing until such amount and any accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if the Holder purchases shares of Common Stock having a total purchase
price of $11,000 to cover a Buy-In with respect to an attempted conversion of $10,000 of note principal and/or interest, the
Company shall be required to pay the Holder $1,000, plus interest. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In.

 

2.10      Reservation.
Upon the Borrower increasing the number of shares of common stock available for issuance and during the period the conversion
right exists, Borrower will reserve and instruct its Transfer Agent to reserve from its authorized and unissued Common Stock a
number of shares of Common Stock equal to the greater of (1) 2,117,647,059 or (2) 200% of the amount of Common Stock issuable upon
the full conversion of this Debenture (plus accrued interest to the Maturity Date). Borrower represents that upon issuance, such
shares will be duly and validly issued, fully paid and non-assessable. Borrower agrees that its issuance of this Debenture shall
constitute full authority to its officers, agents, and transfer agents who are charged with the duty of executing and issuing stock
certificates to execute and issue the necessary certificates for shares of Common Stock upon the conversion of this Debenture.

 

2.11      Maximum Conversion

 

(a)        Notwithstanding anything
to the contrary contained herein, the number of Conversion Shares that may be acquired by the Holder upon conversion of this Debenture
(or otherwise in respect hereof) shall be limited to the extent necessary to ensure that, following such conversion (or other issuance),
the total number of shares of Common Stock then beneficially owned by such Holder and its affiliates and any other persons whose
beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the 1934 Act,
does not exceed 4.99% of the total number of issued and outstanding shares of Common Stock (including for such purpose the shares
of Common Stock issuable upon such conversion). For such purposes, beneficial ownership shall be determined in accordance with
Section 13(d) of the 1934 Act and the rules and regulations promulgated thereunder. For purposes of the foregoing sentence,
the number of shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number of shares of
Common Stock issuable upon conversion of the Debentures with respect to which the determination of such sentence is being made,
but shall exclude the number of shares of Common Stock which would be issuable upon (A) conversion of the remaining, non-converted
portion of the Debentures beneficially owned by the Holder or any of its affiliates and (B) exercise or conversion of the unexercised
or non-converted portion of any other securities of the Company (including, without limitation, any other Debentures) subject to
a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of
its affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 2.11, beneficial ownership shall
be calculated in accordance with Section 13(d) of the Exchange Act.  To the extent that the limitation contained in this Section
2.11 applies, the determination of whether the Debentures are convertible and of which a portion of the Debenture is convertible
shall be in the sole discretion of such Holder. To ensure compliance with this restriction, the Holder will be deemed to represent
to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set
forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination. 
For purposes of this Section 2.11, in determining the number of outstanding shares of Common Stock, the Holder may rely on the
number of outstanding shares of Common Stock as reflected in (x) the Company’s most recent Form 10-Q or Form 10-K (or such
related form), as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company
or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the written or
oral request of the Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of
shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined
after giving effect to the conversion or exercise of securities of the Company, including the Debentures, by the Holder or its
affiliates since the date as of which such number of outstanding shares of Common Stock was reported.  The provisions of this
Section 2.11 may be waived by the Holder upon, at the election of the Holder, not less than 61 days’ prior notice to the
Company, and the provisions of this Section 2.11 shall continue to apply until such 61st day (or such later date, as determined
by the Holder, as may be specified in such notice of waiver).

 

    	 	8	 

     

    

 

2.12      Short sales.
The Holder shall not sell short the common shares of the Company without first having sent a conversion request to the Company
or having such shares available to cover such short sale prior to entering into such short sale.

 

ARTICLE III

 

NEGATIVE COVENANTS

 

3.1        Negative Covenants.
So long as any portion of this Debenture is outstanding, the Company will not and will not permit any of its Subsidiaries to directly
or indirectly:

 

a)          enter into, create, incur, assume or suffer to exist any indebtedness or liens of any kind, on or with respect to any of its property
or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom that is senior to, subordinated
to or paripassu with, in any respect, the Company’s obligations under the debentures;

 

b)         
amend its certificate of incorporation, bylaws or to her charter documents so as to adversely affect any rights of the
Holder;

 

c)           repay, repurchase or offer to repay, repurchase, make any payment in respect of or otherwise acquire any of its
Common Stock, Preferred Stock, other equity securities or other debt securities other than as to the conversion shares to the
extent permitted or required under the Transaction Documents or as otherwise permitted by the Transaction Documents;
provided, that the foregoing shall not prevent the Company from repaying debt securities with cash or securities raised from
third parties (other than the Holder) to the extent such debt securities were raised in accordance with the terms hereof;

 

d)          engage in any transactions with any officer, director, employee 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 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, trustee or partner,
in each case in excess of $10,000 other than (i) for payment of salary or consulting fees for services rendered, (ii) reimbursement
for expenses incurred on behalf of the Company and (iii) for other employee benefits, including stock option agreements under any
stock option plan of the Company. Notwithstanding the foregoing, so long as any of the Debentures are outstanding, no cash payments
shall be made to affiliates of or related parties to the Company on account of accrued amounts owing to such parties;

 

    	 	9	 

     

    

 

e)          create or acquire any Subsidiary after the date hereof unless (i) such Subsidiary is a wholly-owned Subsidiary of the Company
and (ii) such Subsidiary secures and guarantees the obligations under the Transaction Documents pursuant to an agreement satisfactory
in all respects to the Holder, to the extent required by the Holder, satisfied each condition of this Agreement and the Transaction
Documents as if such Subsidiary were a Subsidiary on the Closing Date;

 

(f)          enter into any agreement not involving the payment of cash or the issuance of securities with any holder of the Company’s
securities without the prior written consent of the Holder;

 

(g)        authorize or approve any reverse stock split of the Common Stock; or

 

(h)        enter into any agreement with respect to any of the foregoing.

 

ARTICLE IV

 

EVENTS OF DEFAULT

 

An “Event of Default,”
wherever used herein, means any one of the following events (whatever the reason and whether it 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):

 

4.1        Failure to Pay
Principal or Interest. The Borrower fails to pay any installment of Principal, Interest or other sum due under this Debenture
when due and payable provided that such Event of Default is not cured within Five (5) Days.

 

4.2        Breach of Covenant.
The Borrower breaches any other covenant or other term or condition of the Purchase Agreement, or this Debenture or any other Transaction
Document in any material respect and such breach, if subject to cure, continues for a period of ten (10) business days after written
notice to the Borrower from the Holder.

 

4.3        Breach of Representations
and Warranties. Any representation or warranty of the Borrower made herein, in the Purchase Agreement or in any other Transaction
Document, or in any agreement, statement or certificate given in writing pursuant hereto or in connection therewith shall be false
or misleading in any material respect as of the date made and the Closing Date.

 

4.4        Receiver or Trustee.
The Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or
trustee for it or for a substantial part of its property or business; or such a receiver or trustee shall otherwise be appointed.

 

4.5        Judgments.
Any money judgment, writ or similar final process shall be entered or filed against Borrower or any of its property or other assets
for more than $500,000, and shall remain unvacated, unbonded or unstayed for a period of thirty (30) days.

 

    	 	10	 

     

    

 

4.6        Bankruptcy.
Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings or relief under any bankruptcy law or any
law, or the issuance of any notice in relation to such event, for the relief of debtors shall be instituted by or against the Borrower
and if instituted against Borrower are not dismissed within thirty (60) days of initiation.

 

4.7        Non-Payment.
A default by the Borrower under any one or more obligations in an aggregate monetary amount in excess of $200,000 for more than
forty-five (45) days after the due date; provided, that, if an obligation was in default prior to the date hereof, such obligation
shall not constitute and “Event of Default” hereunder.

 

4.8        Stop Trade.
An SEC or judicial stop trade order or trading suspension on any trading market on which such Common Stock may be listed or quoted,
that lasts for five or more consecutive trading days.

 

4.9        Failure to Deliver
Common Stock or Replacement Debenture. Borrower's failure to timely deliver Common Stock to the Holder pursuant to and in the
time required by this Debenture.

 

4.10      Failure to Maintain
Current Public Information. The Company’s failure to maintain current public information as defined in Rule 144 of the
Securities Act of 1933 or failure to timely file its reports as required by Securities Exchange Act of 1934; provided, that the
Company shall have 180 days subsequent to the date hereof to meet such obligations prior to such failure constituting an “Event
of Default” hereunder.

 

4.11      Reverse Splits.
The Borrower effectuates a reverse split of its Common Stock without the prior written consent of the Holder.

 

4.12      Reservation Default.
Failure by the Borrower to have reserve for issuance upon conversion of the Debenture the amount of Common stock as set forth herein
or in the Purchase Agreement.

 

4.13      Cross Default.
A default by the Borrower of a material term, covenant, warranty or undertaking of any other agreement to which the Borrower and
Holder are parties which obligation was not in default on the date hereof

 

4.14      Change
in Control. A change in control of the Company without at least fourteen (14) days prior written notice to Holder. A
change in control shall mean that more than 30% of the shares of common stock are consolidated in one person or entity so
that the person or entity (other than any one or more of the Holders) may control the election of the board of directors or
the passage of a proposal that would normally require a shareholder vote without such shareholder vote and that such person
or entity was not a holder of shares of the Company at the date of execution hereof.

 

4.15      Asset Sales.
Any instance, undertaken without written consent of the Holder, whereby the Company or any of its subsidiaries, sells, transfers,
leases or otherwise disposes (including pursuant to a merger) of substantially all of the Company’s assets, including any
asset constituting an equity interest in any other person, except sales, transfers, leases and other dispositions of inventory,
used, obsolete or surplus equipment or other property, in each case in the ordinary course of the Company’s business and
consistent with past practice.

 

4.16      Delisting. 
Delisting of the Common Stock from on any trading market on which such Common Stock may be listed or quoted.

 

    	 	11	 

     

    

 

During the time that any
portion of this Debenture is outstanding, if any Event of Default has occurred, the remaining principal amount of this Debenture,
together with interest and other amounts owing in respect hereof, to the date of payment shall become, at the Holder's election,
immediately due and payable in cash, in an amount equal to 150% of the amount then due and owing: provided however, the Holder
may request (but shall have no obligation to request) payment of such amounts in Common Stock of the Borrower. In addition to any
other remedies, the Holder shall have the right (but not the obligation) to convert this Debenture at any time after (x) an Event
of Default or (y) the Maturity Date at the Conversion Price then in effect. For an Event of Default to be deemed to have occurred,
the Holder must provide written notice notifying the Holder when an Event of Default occurs or at the Maturity Date of the Debenture.
Such declaration may be rescinded and annulled by Holder at any time prior to payment hereunder. No such rescission or annulment
shall affect any subsequent Event of Default or impair any right consequent thereon. Upon an Event of Default, notwithstanding
any other provision of this Debenture or any Transaction Document, the Holder shall have no obligation to comply with or adhere
to any limitations, if any, on the conversion of this Debenture or the sale of the Conversion Shares, Shares or Other Securities.

 

ARTICLE V

 

MISCELLANEOUS

 

5.1        Failure or Indulgence
Not Waiver. No failure or delay on the part of Holder hereof in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and remedies existing hereunder are cumulative to, and not
exclusive of, any rights or remedies otherwise available.

 

5.2        Notices.
All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or
certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid,
or (iv) transmitted by hand delivery, telegram, email or facsimile, addressed as set forth below or to such other address as
such party shall have specified most recently by written notice. Any notice or other communication required or permitted to
be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation
generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day
during normal business hours where such notice is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be: (i) if to the
Borrower to: Thinspace Technology, Inc.,1925 E. Belt Line Road Suite 349, Carrollton, Texas 75006 and (ii) if to the Holder,
to Rockwell Capital Partners, Inc. 919 N Market St Ste 1401, Wilmington, DE 19801

 

5.3        Amendment Provision.
The term "Debenture" and all reference thereto, as used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or supplemented.

 

5.4        Assignability.
This Debenture shall be binding upon the Borrower and its successors and assigns, and shall inure to the benefit of the Holder
and its successors and assigns. The Borrower shall not assign its obligations hereunder without the consent of the Holder.

 

5.5        Cost of Collection.
If default is made in the payment of this Debenture, Borrower shall pay the Holder hereof reasonable costs of collection, including
reasonable attorneys' fees.

 

    	 	12	 

     

    

 

5.6        Governing Law.
This Agreement and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance
with the laws of the State of New York, without giving effect to principles or conflicts of law and any proceedings arising among
the parties in any manner pertaining or relating to this Agreement shall be heard solely in the state and/or federal courts located
in New York. Each party agrees that all legal proceedings concerning the transactions contemplated hereby shall be commenced in
the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party
hereto irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees
not to assert in any suit, action or proceeding, any claim that is not personally subject to the jurisdiction of any court, or
such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service
of process and consents to process being served in any 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 hereunder 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 hereto. If either party shall commence an action or proceeding to enforce any provisions hereof, then the prevailing party
in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses
incurred with the investigation, preparation and prosecution of such action or proceeding.

 

5.7        Maximum Payments.
Nothing contained herein shall be deemed to establish or require the payment of a rate of interest or other charges in excess of
the maximum permitted by applicable law. In the event that the rate of interest required to be paid or other charges hereunder
exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the
Borrower to the Holder and thus refunded to the Borrower.

 

5.8        Shareholder Status.
The Holder shall not have rights as a shareholder of the Borrower with respect to unconverted portions of this Debenture. However,
the Holder will have all the rights of a shareholder of the Borrower with respect to the shares of Common Stock to be received
by Holder after delivery by the Holder of a Conversion Notice to the Borrower.

 

[REMAINDER OF PAGE INTENTIONALLY
LEFT BLANK

 

SIGNATURE PAGE FOLLOWS]

 

    	 	13	 

     

    

 

IN WITNESS WHEREOF,
Borrower has caused this Debenture to be signed in its name by an authorized officer as of the 2nd day of May, 2016.

 

	 	THINSPACE TECHNOLOGY, INC.
	 	 
	 	By:	/s/      
	 	 	Name: 
	 	 	Title:     

 

 

14

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