Document:

ex10_1.htm

Exhibit 10.1

 

FIFTH AMENDMENT TO LEASE

 

THIS FIFTH AMENDMENT TO LEASE (the "Amendment") is made and entered into as of November 17, 2011, by and between GOLKAR ENTERPRISES, LTD., a California limited partnership ("Lessor"), and MOTORCAR PARTS OF AMERICA, INC., a New York corporation ("Lessee").  Lessor and Lessee entered into that certain Standard Industrial/Commercial Single Tenant Lease – Gross, dated as of September 19, 1995, and Addendum to Lease attached thereto, dated September 19, 1995, hereinafter collectively referred to as the "Original Lease", which was amended by the following:  that certain Amendment to Lease, dated as of October 3, 1996 (the "First Amendment"); that certain Second Amendment to Lease, dated as of March 15, 2002 (the "Second Amendment"); that certain Third Amendment to Lease, dated as of November 20, 2006 (the "Third Amendment"); and that certain Fourth Amendment to Lease, dated as of November 1, 2007 (the foregoing Original Lease and amendments are collectively hereinafter referred to as the "Lease"), for those certain premises currently described as 2929 California Street, Torrance, California, consisting of approximately 147,660 square feet and associated improvements thereon (the "Premises").  Lessor and Lessee desire to amend the terms of the Lease as hereinafter provided.  Unless otherwise defined herein, all capitalized terms used in this Amendment shall have the same meaning as are ascribed to such terms in the Lease.

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

	
  

	
1.

	
LEASE TERM  Lessor and Lessee acknowledge and agree that in accordance with the provisions of the Lease, the Expiration Date of the Original Term of the Lease, as previously extended in accordance with Paragraph 3 of the First Amendment, Paragraph 2 of the Second Amendment, and Paragraph 2 of the Third Amendment, is currently March 31, 2012.  The Original Term of the Lease is hereby further extended for an additional period of ten (10) years, and the Expiration Date will be March 31, 2022 (hereinafter for convenience referred to in this Amendment as the "New Expiration Date").  Lessor and Lessee acknowledge and agree that Addendum 49 of the Original Lease, Paragraph 10 of the First Amendment, Paragraph 8 of the Second Amendment, and Paragraph 9 of the Third Amendment are deleted in their entirety and shall have no further force or effect, and that Lessee has no right or option to extend or renew the Original Term beyond March 31, 2022.

	
  

	
2.

	
ADDITION TO PREMISES  Lessee desires to lease an additional 79,615 square feet of space effective November 1, 2012, commonly known as 2931 California Street, Torrance, California, together with parking for approximately 167 cars (the "Expansion Space"), as shown on Exhibit "A" attached hereto.  The Expansion Space is currently occupied by Classic Party Rents under a lease whose term will expire on October 31, 2012.  Until such time as Lessor is able to obtain possession of the Expansion Space from the existing tenant and deliver possession of the Expansion Space to Lessee as provided herein, the Expansion Space shall not be considered part of the Premises as defined in the Lease.  In the event Lessee’s rental of the Expansion Space is terminated as provided in Paragraph 4 of this Amendment, the Premises shall continue to be the Premises as defined in the Lease as of the date of this Amendment (without inclusion of the Expansion Space), and the Lease shall continue in full force and effect as if this Amendment had never been entered into.

 

  

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3.

	
DELIVERY OF EXPANSION SPACE.  Lessor shall deliver the Expansion Space to Lessee on November 1, 2012, broom clean and free of debris, and warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems ("HVAC"), loading doors, sump pumps, if any, and all other such elements in the Expansion Space, shall be in good operating condition on said date, and the actual date of delivery of the Expansion Space is hereinafter referred to as the "New Commencement Date".  If a non-compliance with such warranty exists as of the New Commencement Date, Lessor shall, as Lessor's sole obligation with respect to such matter, except as otherwise provided in this Amendment, promptly after receipt of written notice from Lessee setting forth with reasonable specificity the nature and extent of such non-compliance, malfunction or failure, rectify same at Lessor's expense.  If Lessee does not give Lessor the required notice within thirty (30) days after the New Commencement Date (but 180 days after the New Commencement Date as to any matter relating to the HVAC), correction of any such non-compliance, malfunction or failure shall be the obligation of Lessee at Lessee's sole cost and expense.  Lessee and Lessor acknowledge that delivery of the Expansion Space shall be upon the terms set forth in Sections 2.3 and 2.4 of the Original Lease.  Upon delivery of the Expansion Space to Lessee, the “Premises” as defined in the Lease or as referenced in this Amendment shall thereafter be deemed to include the Expansion Space, and the Expansion Space shall be subject to all of the terms and conditions of the Lease and this Amendment, except as otherwise set forth in this Amendment (such as where separate reference is made to the Premises and the Expansion Space in Sections 5.a and 5.b below).  Upon the addition of the Expansion Space to the Premises, the square footage of the Premises shall be 227,275 square feet, and Lessee's Share shall be increased to 63.1%.  In addition to the foregoing, Lessor agrees that prior to delivery of the Expansion Space to Lessee, Lessor shall, at its sole cost and expense, restore access between the Expansion Space and the current Premises to the condition that existed prior to the relinquishment of the Contraction Space as reflected in the Fourth Amendment.

	
  

	
4.

	
DELAY IN POSSESSION  Lessor agrees to use commercially reasonable efforts to deliver possession of the Expansion Space to Lessee by November 1, 2012.  If, despite said efforts, Lessor is unable to deliver possession as agreed, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Amendment or change the "New Expiration Date", it being understood, however that the New Commencement Date shall not occur until Lessor has delivered the Expansion Space to Lessee in the condition required herein.  If possession is not delivered by April 30, 2013, Lessee may, at its option, by notice in writing to Lessor within 30 days after such date, terminate the provisions of this Amendment relating to the Expansion Space effective as of Lessor’s receipt of such notice, in which event, effective as of such termination date the Parties shall be discharged from all obligations under this Amendment regarding the Expansion Space.  If such written notice is not delivered by Lessee within said 30 day period, such right to terminate shall have no further force or effect.  If possession of the Expansion Space is not delivered by June 30, 2013, and Lessee has not exercised its right to terminate as previously provided in this paragraph, the provisions of this Amendment relating to the Expansion Space shall have no further force or effect and the Parties shall be discharged from all obligations under this Amendment regarding the Expansion Space.

 

  

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5.

	
BASE RENT

	
  

	
a.

	
Lessor and Lessee acknowledge and agree that Base Rent for the Premises is currently $77,284.00 per month.  Commencing on April 1, 2012, Base Rent for the Premises shall be reduced to $48,728.00 per month.  Thereafter Base Rent shall be increased as follows:

	 	
i.

	
Effective on April 1, 2013, Base Rent shall be increased to $49,946.00 per month

	
  

	
ii.

	
Effective on April 1, 2014, Base Rent shall be increased to $51,195.00 per month

	
  

	
iii.

	
Effective on April 1, 2015, Base Rent shall be increased to $52,475.00 per month

	
  

	
iv.

	
Effective on April 1, 2016, Base Rent shall be increased to $53,786.00 per month

	
  

	
v.

	
Effective on April 1, 2017, Base Rent shall be increased to $55,131.00 per month

	
  

	
vi.

	
Effective on April 1, 2018, Base Rent shall be increased to $56,785.00 per month

	
  

	
vii.

	
Effective on April 1, 2019, Base Rent shall be increased to $58,489.00 per month

	
  

	
viii.

	
Effective on April 1, 2020, Base Rent shall be increased to $60,243.00 per month

	
  

	
ix.

	
Effective on April 1, 2021, Base Rent shall be increased to $62,050.00 per month.

	
  

	
b.

	
Notwithstanding the provisions of Paragraph 5.a above, effective on the New Commencement Date, Lessee shall commence paying additional Base Rent in accordance with the following schedule, which amounts reflect additional Base Rent applicable to the Expansion Space:

	
  

	
i.

	
Effective on the New Commencement Date, the Base Rent shall be increased by $19,904.00 per month

	
  

	
ii.

	
Effective on the 1st anniversary of the New Commencement Date, the Base Rent shall be increased by $20,401.00 per month

	
  

	
iii.

	
Effective on the 2nd anniversary of the New Commencement Date, the Base Rent shall be increased by $20,911.00 per month

	
  

	
iv.

	
Effective on the 3rd anniversary of the New Commencement Date, the Base Rent shall be increased by $21,434.00 per month

	
  

	
v.

	
Effective on the 4th anniversary of the New Commencement Date, the Base Rent shall be increased by $21,970.00 per month

	
  

	
vi.

	
Effective on the 5th anniversary of the New Commencement Date, the Base Rent shall be increased by $22,519.00 per month

	
  

	
vii.

	
Effective on the 6th anniversary of the New Commencement Date, the Base Rent shall be increased by $23,195.00 per month

	
  

	
viii.

	
Effective on the 7th anniversary of the New Commencement Date, the Base Rent shall be increased by $23,890.00 per month

	
  

	
ix.

	
Effective on the 8th anniversary of the New Commencement Date, the Base Rent shall be increased by $24,608.00 per month

	
  

	
x.

	
Effective on the 9th anniversary of the New Commencement Date, the Base Rent shall be increased by $25,346.00 per month.

	
  

	
6.

	
PARKING  In accordance with the Lease, Lessee is currently entitled to the exclusive use of the 201 parking spaces on those portions of the common areas as shown on Exhibit "B" attached hereto.  Commencing on the New Commencement Date, Lessee shall be further entitled to the exclusive use of the 167 additional parking spaces as shown on Exhibit "C".  Lessee shall not be entitled to use more parking spaces than allowed pursuant to this Paragraph.

 

  

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7.

	
PRO RATA SHARE  Lessee and Lessor acknowledge and agree that Lessee's liability for Insurance Cost Increases is a prorata share based on the square footage of the Premises divided by the square footage of the total project of which the Premises are a part, such square footage of the total project being 359,911 square feet.  Lessee and Lessor further acknowledge and agree that Lessee's pro rata share for the payment of Insurance Costs Increases, and for certain costs as provided in Paragraph 7.1 of the Addendum to the Original Lease, and as further described in Paragraph 5 of the Third Amendment is currently 41.0%.  Effective as of the New Commencement Date, such pro rata share shall be increased to 63.1%.  Lessee acknowledges and agrees that Tax Increases shall continue to be allocated in accordance with Section 10.3 of the Original Lease.

	
  

	
8.

	
BASE YEAR  Commencing on April 1, 2012, for the purposes of determining the Insurance Cost Increases and Tax Increases for which Lessee is responsible, the "Base Premium" for purposes of Paragraph 8.1 of the Original Lease shall be the premiums for the insurance specified in Paragraphs 8.2(b), 8.3(a) and 8.3(b) of the Original Lease for the calendar year 2012, and the base year for purposes of determining the Tax Increases shall be the 2011-2012 fiscal tax year.

	
  

	
9.

	
PAYMENT OF TAXES AND INSURANCE

a.  Effective immediately, Addendum 10.1(a) of the Original Lease shall be of no further force and effect, and the following shall be substituted in its place:

“Addendum 10.1(a).  Payment of Taxes.  Notwithstanding anything to the contrary contained in Paragraph 10.2 of the Lease, Lessor and not Lessee shall bear the cost of any increase in Real Property Taxes due to a change in ownership of Lessor’s interest in the Premises (or the total project) and/or improvements to the Premises or total project (except improvements made by or for Tenant).”

b.  Lessee specifically acknowledges and agrees that any increases in Real Property Taxes and insurance premiums which are a direct result of the performance of Lessor's Work and/or Tenant Improvements, including but not limited to the elevator, shall be at the sole expense of Lessee.

	
  

	
10.

	
SECURITY DEPOSIT  Lessor and Lessee acknowledge and agree that Lessor is currently holding the sum of $77,284.00 as a Security Deposit under the Lease.  Notwithstanding anything to the contrary contained in the Lease, the Security Deposit shall remain at $77,284.00 during the term of the Lease as extended by this Amendment.

	
  

	
11.

	
HVAC  Notwithstanding the provisions of Section 7.1 of the Original Lease, Lessor agrees that Lessor, at its sole cost and expense, will install new HVAC units as shown on the schedule at Exhibit "G" attached hereto.  Lessor will perform such installation on or before December 31, 2011 except as otherwise noted on Exhibit "G".

 

  

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12.

	
LESSOR’S WORK

	
  

	
a.

	
Lessor, at Lessor’s sole cost and expense except as provided in Paragraph 12.d below, shall cause its designated contractor to perform the following work ("Lessor's Work"):

	
  

	
i.

	
Repair the asphalt and slurry and stripe both the northeast parking area and the parking lot on the west side of the Premises to provide executive, handicap, visitor and other employee parking.

	
  

	
ii.

	
Design and install a mutually acceptable enhanced façade at the current entrance to the Premises on the south side of California Street, including ten new windows (Marked on Exhibit "D-1" as the "Lessor's Work Windows"), and any ADA required exterior handicapped ramp, in substantial conformance with the conceptual drawing attached hereto as Exhibit "D".

	
  

	
iii.

	
Incorporate windows into the above design to provide more natural light into the office area.

	
  

	
iv.

	
Repair exterior walls to reasonably minimize water intrusion.

	
  

	
v.

	
Provide for physical access at all times to any rooms at the total project containing equipment that provides electricity to portions of the Premises.

	
  

	
vi.

	
Install any exterior ADA alterations to the Premises and/or Common Area required as a result of Lessor's Work or the Tenant Improvements.  It is specifically understood and agreed that any interior ADA alterations to the Premises required as a result of Lessor's Work or the Tenant Improvements will be the sole responsibility of Lessee.

	
  

	
vii.

	
Install eight new windows (in addition to the ten windows referred to in Paragraph 12.a.ii above) marked as the "Window Work Windows") as shown on Exhibit "D-1" attached hereto (the "Window Work")  Window Work shall include, but not be limited to, :  saw cutting thru the walls, brick removal, structural steel application, temporary shoring of the windows and glazing.

	
  

	
b.

	
Lessor shall perform the Lessor's Work in accordance with all governmental requirements and applicable laws and the conceptual drawing which has been prepared by Lessor and approved by Lessee, and which is attached hereto as Exhibit "D".  Lessor shall prepare the final working drawings for building permit and construction purposes ("Plans and Specifications") in accordance with the conceptual drawing attached hereto as Exhibit "D".  Lessor shall not make any material deviations from the conceptual drawing in the preparation of or subsequent changes to the Plans and Specifications without the consent of Lessee, which consent shall not be unreasonably withheld.  Subject to extension for delays caused by Lessee and "Force Majeure", Lessor shall apply for building permits necessary to perform Lessor's Work no later than thirty (30) days after mutual execution of this Amendment, diligently pursue the issuance of such permits, use commercially reasonable efforts to substantially complete Lessor’s Work within 120 days after issuance of all necessary building permits, and in any event substantially complete Lessor’s Work within 240 days after mutual execution of this Amendment.  Lessee acknowledges that the performance of certain of Lessor's Work may result in the disruption of the Lessee's operations in the Premises, (provided that Lessor shall use commercially reasonable efforts to minimize such disruption), and may require Lessee to vacate areas of the Premises where work is to be performed so that such areas are available to Lessor to perform such work, and any delay in the performance of Lessor's Work resulting from the failure of Lessee to timely comply with such requirements may extend the time periods available to perform Lessor's Work.  Lessee agrees that it will not unreasonably withhold its consent to any changes to the Plans and Specifications required by governmental authority as a condition to issuance of building permits.  For purposes of this Amendment "Force Majeure" shall mean inclement weather, fire, earthquake, other acts of God, government action or inaction, and acts of war and civil disturbance, or any other cause, whether similar or dissimilar to the foregoing, not within the reasonable control of the respective party which prevents delays, retards or hinders the performance of the obligations of a party.

 

  

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c.

	
If the Lessee requests changes to the Plans and Specifications, Lessee shall submit to Lessor a written request for a change order ("Change Order Request") detailing the desired change.  Provided that Lessor has no reasonable objection to the Change Order Request, Lessor shall deliver the Change Order Request to Lessor's Contractor.  Lessor's Contractor shall notify Lessor in writing of the Work Cost of and time delay ("Change Order Statement"), if any, that would be necessitated by the adoption of the Change Order Request.  Lessor shall deliver to Lessee the Change Order Statement within three (3) business days after receipt of the same from Lessor's Contractor.  The Change Order Statement shall include estimated costs (including an administrative fee payable to Karney Management Company in an amount for each Change Order equal to the greater of $1,000.00 or 2.5% of the cost of such Change Order) and time delay required to revise the Plans and Specifications and secure additional permits, if required, for the desired changes.  Within three (3) business days after receipt of the Change Order Statement from Lessor, Lessee shall notify Lessor in writing if Lessee desires to incorporate the Change Order Request into the Plans and Specifications, and upon such notification the Change Order Request shall become a "Change Order".

	
  

	
d.

	
"Work Cost" means: with regard to Lessor's Work, without limitation, costs, fees, overhead and profit incurred or charged by any Lessor contractors ("Lessor's Contractor"), including architects and engineer, for the preparation of the Plans and Specifications, and all labor and material, direct job site supervision, transportation, storage charges, plan check and permit fees, building permits, temporary services, insurance premiums, and taxes for the purchase of materials pursuant to the Plans and Specifications, including structural, mechanical, electrical, plumbing, and fire sprinkler systems, as altered, if at all, by any change orders.  Lessor agrees to separately determine the Work Cost for the Window Work.  Lessor agrees that the Work Cost for the Window Work will be determined by Lessor using competitive bids, and Lessor shall use the lowest qualifying bid for the performance of the Window Work unless otherwise agreed by Lessor and Lessee.  Prior to obtaining bids for the Window Work, Lessor will notify Lessee of its intention to put the Window Work out to bid, and if within ten (10) days after Lessor giving such notice, Lessee provides Lessor with the identity of a subcontractor that Lessee wants included in the bidding process, and such subcontractor is reasonably approved by Lessor, Lessor shall include such subcontractor in the bidding process for the Window Work.  It is understood and agreed that Lessee shall be solely responsible for the Work Cost incurred by Lessor for the Window Work.

	
  

	
e.

	
Lessor will be solely responsible for the Work Cost of Lessor's Work except for the Work Cost for the Window Work and any Work Cost or increases in Work Cost directly resulting from Change Orders or delays caused by Lessee.  Lessor agrees to keep Lessee reasonably informed of the budget for the Work Cost of Lessor's Work, and further agrees to provide Lessee with the final Work Costs for Lessor's Work upon completion of Lessor's Work.  In the event of any Change Orders, Lessee shall pay to Lessor the cost therefor as set forth in the relevant Change Order Statement at the time Lessee approves the Change Order Request.  The actual Work Costs for the Window Work shall be deducted from the General Allowance as provided in Paragraph 13.b.

 

  

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f.

	
LESSEE HEREBY ACKNOWLEDGES THAT NO OTHER LESSOR’S WORK OR IMPROVEMENTS HAVE BEEN OFFERED BY THE LESSOR OR ITS BROKER EXCEPT AS PROVIDED IN THIS AMENDMENT.  LESSEE ACKNOWLEDGES THAT TO LESSEE'S ACTUAL KNOWLEDGE, AS OF THE DATE HEREOF, LESSOR IS NOT IN DEFAULT UNDER ANY OF THE TERMS, CONDITIONS OR COVENANTS OF THE LEASE, AND TO LESSEE'S ACTUAL KNOWLEDGE, AS OF THE DATE HEREOF, NO CIRCUMSTANCE EXISTS WHICH, WITH THE PASSAGE OF TIME OR THE GIVING OF NOTICE BY LESSEE, OR BOTH, WOULD CONSTITUTE A DEFAULT.  LESSOR ACKNOWLEDGES THAT TO LESSOR'S ACTUAL KNOWLEDGE, AS OF THE DATE HEREOF, LESSEE IS NOT IN DEFAULT UNDER ANY OF THE TERMS, CONDITIONS OR COVENANTS OF THE LEASE, AND, TO LESSOR'S ACTUAL KNOWLEDGE AS OF THE DATE HEREOF, NO CIRCUMSTANCE EXISTS WHICH, WITH THE PASSAGE OF TIME OR THE GIVING OF NOTICE BY LESSOR, OR BOTH, WOULD CONSTITUTE A DEFAULT.

	
  

	
g.

	
Notwithstanding anything to the foregoing contained in the Lease, including but not limited to Section 5 of the Third Amendment, in no event shall any Work Costs be included in Lessee’s share of any common area costs.

	
  

	
13.

	
LESSEE’S WORK AND TENANT IMPROVEMENT ALLOWANCE

	
  

	
a.

	
Lessor and Lessee anticipate that Lessee will make certain improvements (the "Tenant Improvements") to the Premises which shall include but are not limited to:

	
  

	
i.

	
upgrade Lessee’s current entry and lobby on the south side of 2929 California Street;

	 	
ii.

	
create approximately 9,000 square feet of additional office space that has dropped ceilings and is climate controlled;

	 	
iii.

	
add restrooms on the mezzanine floor; upgrade existing restrooms in the warehouse;

	 	
iv.

	
paint the inside walls and portions of the ceilings of the entire warehouse and production areas;

	 	
v.

	
repair concrete cracks in the floor of the warehouse and production areas;

	
  

	
vi.

	
install an elevator to access the mezzanine for handicapped access and light passenger traffic.  Following installation of the elevator, Lessee shall, at Lessee's sole cost and expense, repair and maintain the elevator in first class condition and repair, and Lessee shall, at Lessee's sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in, the maintenance of the elevator when installed at the Premises.  However, in the event that Lessee, following written notice to Lessee by Lessor, fails to provide evidence to Lessor's reasonable satisfaction that Lessee has and continues to properly service and maintain the elevator, Lessor shall have the right, upon notice to Lessee, to procure and maintain such service contracts, and Lessee shall reimburse Lessor, upon demand, for the cost thereof.  In connection with the installation of the elevator, it is specifically understood and agreed that Lessee shall be responsible for the following:  (a) the elevator itself (which shall be new, and a Schindler 330a or other elevator mutually reasonably approved by Lessor and Lessee (provided that if Lessor does not approve a different elevator proposed by Lessee, Lessor shall be required to provide the written specific reasons for such disapproval, and suggestions for the manner in which Lessor's reasons for disapproval can be resolved), and no larger than is necessary to meet ADA requirements for access to the mezzanine), configured to provide for 2,500 lb capacity for general passenger use with two stops, one car, front opening door, including minimum standard finishes; (b) construction of an elevator pit; (c) shaft construction; (d) machine room construction adjacent to the shaft; (e) ventilation to the shaft; (f) architectural and engineering drawings; (g) plumbing, including a sump pump, with water separator from the pit; (h) fire system interface; (i) obtaining building permits; (j) any additional electrical, water, fire security, HVAC or other building system capacity required because of installation of the elevator; (k) any improvements elsewhere at the Premises needed to comply with local codes or governmental regulations because of the installation of the elevator.

 

  

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vii.

	
Ensure the fire sprinkler system throughout the Premises is in good operating condition, including repair or replacement of any leaking pipes or sprinkler heads.  Following completion of such work, Lessee shall be responsible for upkeep and maintenance of the sprinkler system as provided in the Paragraph 14 of this Amendment.

	
  

	
viii.

	
Install any interior ADA alterations to the Premises required as a result of Lessor's Work or the Tenant Improvements.

	
  

	
b.

	
The foregoing work shall be completed by Lessee on or before December 31, 2013 (subject to extension by one (1) day for every day Lessee’s work is delayed by Force Majeure or Lessor), in accordance with all governmental requirements and in accordance with plans and specifications submitted to Lessor for Lessor’s approval as provided in Paragraph 7.3 of the Original Lease (such plans and specifications, once approved by Lessor, being hereafter referred to as the "Approved Plans").  Lessor shall approve or disapprove Lessee’s plans and specifications within fourteen (14) business days after complete submittal by Lessee to Lessor in accordance with the notice provisions of the Lease.  In the event that Lessor shall fail, neglect or refuse to approve or disapprove Lessee's plans and specifications within an additional fourteen (14) days after receipt of a second written notice so to do, Lessee's plans and specifications shall be deemed approved by Lessor, provided, such second notice includes the following legend in capitalized and bold type displayed prominently on the top of the first page of such notice:  "LESSOR HAS FAILED TO APPROVE OR DISAPPROVE LESSEE'S PLANS AND SPECIFICATIONS SUBMITTED FOR APPROVAL BY LESSEE TO LESSOR IN ACCORDANCE WITH THAT CERTAIN FIFTH AMENDMENT TO LEASE DATED __________ BETWEEN LESSOR AND LESSEE (THE "AMENDMENT ") PURSUANT TO THE TERMS OF THE AMENDMENT.  FAILURE OF LESSOR TO APPROVE OR DISAPPROVE LESSEE'S SUBMITTED PLANS AND SPECIFICATIONS WITHIN FOURTEEN (14) DAYS FOLLOWING THIS NOTICE SHALL RESULT IN LESSEE'S SUBMITTED PLANS AND SPECIFICATIONS BEING DEEMED APPROVED BY LESSOR IN ACCORDANCE WITH THE AMENDMENT."  Lessor will, at no charge to Lessee, cooperate and work with Lessee and any necessary governmental entity, to obtain governmental approvals for the Tenant Improvements and installation of the elevator.  It is specifically understood and agreed that installation of the elevator shall be performed by Lessee under the supervision and inspection of Lessor in accordance with the procedures set forth in Exhibit "E" attached hereto.  Following Lessee’s completion of the Tenant Improvements in accordance with the Approved Plans, and provided that Lessee is not in Default or Breach, beyond any applicable notice and cure periods, under the Lease and this Amendment, Lessor shall provide Lessee with an amount (the "Tenant Improvement Allowance"), consisting of the "General Allowance", the "Elevator Allowance" and the "Fire Sprinkler Allowance", for all costs, fees, overhead and profit reasonably incurred  by Lessee or reasonably charged by Lessee’s contractor and Lessee’s architect and engineers for the following: (i) design and redesign of the Approved Plans; and (ii) all reasonable costs for labor and material to construct the Tenant Improvements, direct job site supervision, transportation, storage charges, plan check and permit fees, costs of building permits, temporary services, costs of insurance premiums, and taxes for the purchase of materials, pursuant to the Approved Plans (collectively the "Tenant Work Costs").  It is specifically understood and agreed that Tenant Work Costs shall not include the cost of any of Lessee’s Trade Fixtures, nor any of its other furniture, fixtures or other personal property.  The General Allowance shall be for Tenant Work Costs associated with the Tenant Improvements set forth in Subsections 13.a.(i) through 13.a.(v), and shall not exceed $600,000.  The Elevator Allowance shall be for Tenant Work Costs associated with the Tenant Improvements set forth in Subsection 13.a.(vi), and shall not exceed an additional $125,000.  The Fire Sprinkler Allowance shall be for Tenant Work Costs associated with the Tenant Improvements set forth in Subsection 13.a.(vii), and shall not exceed an additional $12,000.00.

 

  

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c.

	
Lessor shall make payments to Lessee of the General Allowance, Elevator Allowance and the Fire Sprinkler Allowance in the same manner as set forth in the fourth sentence of Section 7 of the Third Amendment, with the exception that requests for payment shall be in the minimum amount of Ten Thousand Dollars ($10,000.00).  In addition, Lessee shall cooperate with reasonable requests by Lessor for copies of additional information (such as invoices and contracts and subcontracts) which Lessor is legally required to provide for tax purposes, it being agreed that such information may be redacted as Lessee deems reasonably necessary.:

	
  

	
d.

	
Any portion of either the General Allowance, Elevator Allowance or the Fire Sprinkler Allowance which exceeds the Tenant Work Costs of the applicable Tenant Improvements or is otherwise remaining undisbursed as of June 30, 2014 (subject to extension by one (1) day for every day Lessee’s work is delayed by Force Majeure or Lessor) shall thereafter belong to Lessor and shall no longer be disbursable to Lessee, it being agreed that Lessee shall not be entitled to any credit, abatement or payment with respect to such undisbursed component of the Tenant Improvement Allowance.

	
  

	
e.

	
It is specifically understood and agreed that the Work Costs for Change Orders shall be deducted by Lessor from the General Allowance prior to payment to Lessee.

 

  

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f.

	
The amount of the General Allowance actually disbursed by Lessor, plus the amounts deducted from the General Allowance under Subsection 13.e, along with interest on the amount outstanding from time to time from the date of Lessor's disbursement (including the date of disbursement of Lessor's payment of the Work Cost for the Window Work) until payment at the rate of six and one-half percent (6.5%) per annum, shall be repaid by Lessee to Lessor over the remaining course of the Term as additional rent, payable in consecutive equal monthly installments concurrently with Lessee’s monthly payment of Base Rent.  Attached hereto as Exhibit "F" is a sample amortization schedule of the General Allowance, showing the allocation between principal and interest over the remainder of the Original Term, it being understood, however, that Exhibit "F" is an example only, and that upon Lessor’s actual disbursement(s) of the General Allowance, Lessor shall deliver to Tenant an actual payment schedule, showing the amortization calculated in the same manner as shown on Exhibit "F".  Such monthly installments shall commence to be payable on the first day of the calendar month next following the first payment of the General Allowance, and shall be deemed to be Rent for all purposes of the Lease and this Amendment.  In the event of any early termination of the Original Term for any reason, any accrued but unpaid interest on the General Allowance, and the unpaid principal amount of the General Allowance, shall become immediately due and payable to Lessor in a lump sum.  In no event shall the interest payable hereunder by Lessee to Lessor exceed the maximum lawful rate of interest that can be charged in a business-related transaction by a non-exempt lender.  It is specifically understood and agreed that no repayment of the Elevator Allowance or Fire Sprinkler Allowance shall be required.

	
  

	
14.

	
REPAIRS AND MAINTENANCE  Notwithstanding anything to the contrary in Section 7.1 of the Lease, Lessor shall have the right to approve (which approval shall not be unreasonably withheld, conditioned or delayed) Lessee’s service vendors used for HVAC, fire sprinkler systems and elevator maintenance.  Lessee shall provide evidence satisfactory to Lessor within ten (10) days after Lessor’s request from time to time that regular service is being performed to the HVAC, fire sprinkler systems and elevator.

	
  

	
15.

	
EARLY TERMINATION  Provided that Lessee is not otherwise in Default or Breach of Lessee's obligations under the Lease or this Amendment past any applicable cure periods, Lessee shall have the one time right to terminate the Lease provided that:

	
  

	
a.

	
Lessee delivers to Lessor written notice of such termination no later than April 1, 2017, together with written notice that Lessee is concurrently terminating that certain Standard Industrial/Commercial Multi-Tenant Lease – Gross, dated as of June 16, 2004, as amended (the "Adjacent Lease"), by and between Lessor and Lessee for premises commonly known as 530 Maple Ave., Torrance California (the "Adjacent Premises") in accordance with the terms and conditions of the Adjacent Lease;

	
  

	
b.

	
The effective date of termination shall be April 1, 2018;

	
  

	
c.

	
Lessee delivers to Lessor good funds in an amount (the "Termination Fee") which is equal to the total of the following:  (i) six (6) times the amount of the average monthly Base Rent payable on March 1 2018 and April 1, 2018; (ii) any accrued but unpaid interest on the General Allowance, and the unpaid principal amount of the General Allowance; (iii) the unamortized amount (amortized on a straight-line basis from the date originally paid by Lessor until the New Expiration Date) of the out-of-pocket costs incurred by Lessor in the design and performance of that portion of Lessor's Work described in Subparagraphs 12(a)(ii), and (iii) above; (iv) the unamortized amount (amortized evenly from the date originally paid by Lessor until the New Expiration Date) of the Elevator Allowance and Fire Sprinkler Allowance; and (v) the unamortized amount (amortized evenly from the date originally paid by Lessor until the New Expiration Date) of the amount paid by Lessor to Lessee's Broker in accordance with Paragraph 19 of this Amendment.  One-half of the Termination Fee shall be paid by Lessee to Lessor no later than May 1, 2017, and the remaining one-half of the Termination Fee shall be paid by Lessee to Lessor no later than November 1, 2017; no portion of the Termination Fee shall be credited to rent that is then or thereafter payable by Lessee; and

 

  

10

  

 

	
  

	
d.

	
No later than April 1, 2018, Lessee surrenders the Premises to Lessor in compliance with the requirements of the Lease and this Amendment, including but not limited to Section 7.4(c) of the Original Lease.  Lessor agrees that it shall provide Lessee with a written statement of the amounts due Lessor under Subparagraphs 15(c)(ii), (iii), (iv) and (v), together with reasonable backup documentation, within ten (10) days after delivery of Lessee's notice of termination.

	
  

	
e.

	
It is understood and agreed that in the event Lessee does not exercise its right to terminate the Lease prior to April 1, 2017, Lessee’s right to terminate the Lease pursuant to this section of the Amendment shall be of no further force and effect, and Lessee shall have no further right to terminate the Lease under this section.  It is specifically understood and agreed that even though Lessee may have properly exercised its right to terminate the Lease in accordance with Paragraph 15(a) above, if Lessee fails to pay the amount due Lessor within the time periods set forth in Section 15(c), or if Lessee fails to strictly comply with the provisions of the Adjacent Lease regarding the concurrent termination of the Adjacent Lease (including payment of all amounts due under the Adjacent Lease in connection with such termination), then at Lessor's option, either:

	
  

	
i.

	
no holdover shall occur, the Lease shall not terminate in accordance with this section, and the Original Term of the Lease and the Adjacent Lease shall continue until the New Expiration Date as set forth in Paragraph 1 of this Amendment; or

	 	
ii.

	
Lessee shall be deemed to have held over pursuant to Addendum 26 of the Original Lease, and holdover rent shall accrue until such time as Lessee has fully satisfied the requirements of Section 15(e).

Notwithstanding anything to the contrary contained in this Amendment, if Lessee has paid the amount due Lessor within the time periods set forth in Section 15(c), complied with the provisions of the Adjacent Lease regarding the concurrent termination of the Adjacent Lease and payment of all amounts due under the Adjacent Lease in connection with such termination, but fails to surrender the Premises or Adjacent Premises to Lessor in the condition and within the time period set forth in Section 15(d) above and the Adjacent Lease, then Lessee shall be deemed to have held over pursuant to Addendum 26 of the Original Lease, and holdover rent shall accrue until such time as Lessee surrenders the Premises and Adjacent Premises to Lessor in compliance with the requirements of the Lease and this Amendment.

	
  

	
16.

	
INTENTIONALLY DELETED

 

  

11

  

 

	
  

	
17.

	
INTENTIONALLY DELETED

+

	
  

	
18.

	
REPRESENTATIONS  Each party represents to the other that it has full power and authority to execute this Amendment.  Each party represents to the other that it has not made any assignment, sublease, transfer, conveyance or other disposition of the Lease or any interest in the Lease or the Premises.  This Amendment shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns

	
  

	
19.

	
NO OFFER  This Amendment shall not be binding until executed and delivered by both parties.  This Amendment shall not be relied upon by any other party, individual, corporation, partnership or other entity as a basis for terminating its Lease with Lessor.

	
  

	
20.

	
BROKERS  Lessee and Lessor each represent and warrant to the other that, other than Lesmark (“Lessee's Broker”), it has had no dealings with any person, firm, broker or finder in connection with this Amendment, and that no one is entitled to any commission or finder's fee in connection herewith other than Lessee's Broker.  Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys' fees reasonably incurred with respect thereto.  Lessor acknowledges and agrees that Lessor shall pay a commission to Lessee's Broker in accordance with the terms of a separate written agreement with Lessee’s Broker.

	
  

	
21.

	
WHOLE AGREEMENT  The mutual obligations of the parties as provided herein are the sole consideration for this Amendment and no representations, promises or inducements have been made by the parties other than as appear in this Amendment  This Amendment may not be amended except in writing signed by all parties.

	
  

	
22.

	
ATTORNEY’S FEES  In the event either party hereto commences an action or arbitration against the other party arising out of or in connection with this Amendment, the prevailing party shall be entitled to recover from the losing party reasonable attorney’s fees and costs.

	
  

	
23.

	
INCORPORATION  Except as otherwise expressly set forth herein, and to the extent necessary to give effect to the provisions hereof, all terms and conditions of the Lease shall remain unmodified and in full force and effect; provided, however, except as expressly provided in this Amendment, Lessee shall not be entitled to any free rent, additional Lessor Work, tenant improvement allowances, or additional options to extend the Original Term except as specifically provided in this Amendment, and any such terms contained in the Lease prior to this Amendment are hereby deleted and are of no further force and effect.

	
  

	
24.

	
CROSS DEFAULT  Lessee is the tenant under the Adjacent Lease.  Lessor and Lessee agree that a Default or Breach by Lessee under the Adjacent Lease shall constitute a Default or Breach by Lessee under the Lease and this Amendment.  Likewise, a Default or Breach by Lessee under the Lease or this Amendment shall constitute a Default or Breach by Lessee under the Adjacent Lease.  Delivery of a single notice of default to Lessee under either the Lease and the Amendment or the Adjacent Lease shall constitute the only notice required to be given under this subsection, and no additional notice shall be required to be given to Lessee for a default under the Lease and this Amendment arising because of a default under the Adjacent Lease, and vice versa.

 

  

12

  

 

	
  

	
25.

	
SEPARATE COUNTERPARTS  This document may be executed in one or more separate counterparts, each of which, when so executed, shall be deemed to be an original.  Such counterparts shall together constitute and be one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have entered in this Amendment as of the date set forth above.

 

[SEE SIGNATURES ON FOLLOWING PAGE >>>]

 

  

13

  

 

LESSEE:

MOTORCAR PARTS OF AMERICA, INC.,

a New York corporation

BY: ____________________________________

Printed:__________________________________

Its: Chairman/President/Vice President (circle one)

BY: _____________________________________

Printed:__________________________________

Its: Secretary/Asst. Secretary/CFO (circle one)

Dated: ____________________

LESSOR:

GOLKAR ENTERPRISES, LTD.,

a California limited partnership

By its general partner:

KAR3 Properties Limited Partnership,

a Delaware limited partnership,

By its general partner:

AKG3 Properties, LLC,

a California limited liability company

By: ___________________________

Aliza Karney Guren, Manager

Dated: _____________________

 

  

14

  

 

EXHIBIT "A"

Expansion Space

 

  

15

  

 

EXHIBIT "B"

Existing Parking

  

16

  

 

EXHIBIT "C"

Additional Parking

  

17

  

 

EXHIBIT "D"

Conceptual Drawing for Lessor's Work

 

  

18

  

 

EXHIBIT "D-1"

Conceptual Drawing for Windows

  

19

  

 

EXHIBIT "E"

Elevator Installation Procedures

1.        Pre-Planning Meeting.  In connection with development of its overall tenant improvement plan, Lessee’s and Lessor’s construction representative(s) will be available to meet (or conference call) with the design/construction team (“TDCT”) on reasonable prior notice to coordinate preliminary locations for the elevator which meet both Lessee’s need and are viable in light of structural integrity and future building use issues.  At that time, Lessor’s structural engineer will be available to hear and follow-up on any questions and issues that affect the structure.  Nothing that Lessor agrees as being conceptually viable will be deemed “approved” by Lessor for purposes of Section 13 of the Fifth Amendment.  The purpose of the meeting is for strictly for guidance and to assist the TDCT in the efficiency of their work.

2.        Elevator Plan Coordination and Approval Process.

a.          Ongoing Coordination:  Lessor’s representative will be available for a reasonable number of consultative calls from the TDCT as Lessee’s plans are being developed.  Lessor’s representative will be responsive within the bounds of reasonable commercial practices.

b.          Approval of Plan:  When final shaft placement location is determined by Lessee, Lessee will submit an annotated floor plan (or similar document) indicating placement of the shaft and elevator service room relative to a block-out diagram of Lessee’s interior space use and including a brief description of key structural and mechanical components and how it will be constructed.  Lessor will provide further guidance regarding this location within 5 business days after this is submitted.  At this time, the basic specifications of the elevator, related construction, and its installation will be reviewed for final approval subject to: (a)  incorporation into delivery of final plans and specifications for the Tenant Improvements, (b) the elevator bid and its related supporting improvements bids, and (c) confirmation by Lessee that any amount above the $125,000 Elevator Allowance provided by Lessor will be covered by Lessee or submitted as a part of the $600,000 Tenant Improvement Allowance provided by Lessor.

3.        Installation Oversight.  After construction begins, Lessee shall notify Lessor or Lessor’s representative in advance of key construction milestones identified by Lessor at the time of approval so that Lessor may inspect same.

 

  

20

  

 

EXHIBIT "F"

General Allowance – Sample Amortization

 

	
Pmt

	
Principal

	
Interest

	
Cum Prin

	
Cum Int

	
Prin Bal

	
1

	
3,562.88

	
3,250.00

	
3,562.88

	
3,250.00

	
596,437.12

	
2

	
3,582.18

	
3,230.70

	
7,145.06

	
6,480.70

	
592,854.94

	
3

	
3,601.58

	
3,211.30

	
10,746.64

	
9,692.00

	
589,253.36

	
4

	
3,621.09

	
3,191.79

	
14,367.73

	
12,883.79

	
585,632.27

	
5

	
3,640.71

	
3,172.17

	
18,008.44

	
16,055.96

	
581,991.56

	
6

	
3,660.43

	
3,152.45

	
21,668.87

	
19,208.41

	
578,331.13

	
7

	
3,680.25

	
3,132.63

	
25,349.12

	
22,341.04

	
574,650.88

	
8

	
3,700.19

	
3,112.69

	
29,049.31

	
25,453.73

	
570,950.69

	
9

	
3,720.23

	
3,092.65

	
32,769.54

	
28,546.38

	
567,230.46

	
10

	
3,740.38

	
3,072.50

	
36,509.92

	
31,618.88

	
563,490.08

	
11

	
3,760.64

	
3,052.24

	
40,270.56

	
34,671.12

	
559,729.44

	
12

	
3,781.01

	
3,031.87

	
44,051.57

	
37,702.99

	
555,948.43

	
 

	
13

	
3,801.49

	
3,011.39

	
47,853.06

	
40,714.38

	
552,146.94

	
14

	
3,822.08

	
2,990.80

	
51,675.14

	
43,705.18

	
548,324.86

	
15

	
3,842.79

	
2,970.09

	
55,517.93

	
46,675.27

	
544,482.07

	
16

	
3,863.60

	
2,949.28

	
59,381.53

	
49,624.55

	
540,618.47

	
17

	
3,884.53

	
2,928.35

	
63,266.06

	
52,552.90

	
536,733.94

	
18

	
3,905.57

	
2,907.31

	
67,171.63

	
55,460.21

	
532,828.37

	
19

	
3,926.73

	
2,886.15

	
71,098.36

	
58,346.36

	
528,901.64

	
20

	
3,948.00

	
2,864.88

	
75,046.36

	
61,211.24

	
524,953.64

	
21

	
3,969.38

	
2,843.50

	
79,015.74

	
64,054.74

	
520,984.26

	
22

	
3,990.88

	
2,822.00

	
83,006.62

	
66,876.74

	
516,993.38

	
23

	
4,012.50

	
2,800.38

	
87,019.12

	
69,677.12

	
512,980.88

	
24

	
4,034.23

	
2,778.65

	
91,053.35

	
72,455.77

	
508,946.65

	
 

	
25

	
4,056.09

	
2,756.79

	
95,109.44

	
75,212.56

	
504,890.56

	
26

	
4,078.06

	
2,734.82

	
99,187.50

	
77,947.38

	
500,812.50

	
27

	
4,100.15

	
2,712.73

	
103,287.65

	
80,660.11

	
496,712.35

	
28

	
4,122.35

	
2,690.53

	
107,410.00

	
83,350.64

	
492,590.00

	
29

	
4,144.68

	
2,668.20

	
111,554.68

	
86,018.84

	
488,445.32

	
30

	
4,167.13

	
2,645.75

	
115,721.81

	
88,664.59

	
484,278.19

	
31

	
4,189.71

	
2,623.17

	
119,911.52

	
91,287.76

	
480,088.48

	
32

	
4,212.40

	
2,600.48

	
124,123.92

	
93,888.24

	
475,876.08

	
33

	
4,235.22

	
2,577.66

	
128,359.14

	
96,465.90

	
471,640.86

	
34

	
4,258.16

	
2,554.72

	
132,617.30

	
99,020.62

	
467,382.70

	
35

	
4,281.22

	
2,531.66

	
136,898.52

	
101,552.28

	
463,101.48

	
36

	
4,304.41

	
2,508.47

	
141,202.93

	
104,060.75

	
458,797.07

	
 

	
37

	
4,327.73

	
2,485.15

	
145,530.66

	
106,545.90

	
454,469.34

	
38

	
4,351.17

	
2,461.71

	
149,881.83

	
109,007.61

	
450,118.17

	
39

	
4,374.74

	
2,438.14

	
154,256.57

	
111,445.75

	
445,743.43

 

  

21

  

 

	
Pmt

	
Principal

	
Interest

	
Cum Prin

	
Cum Int

	
Prin Bal

	
40

	
4,398.44

	
2,414.44

	
158,655.01

	
113,860.19

	
441,344.99

	
41

	
4,422.26

	
2,390.62

	
163,077.27

	
116,250.81

	
436,922.73

	
42

	
4,446.22

	
2,366.66

	
167,523.49

	
118,617.47

	
432,476.51

	
43

	
4,470.30

	
2,342.58

	
171,993.79

	
120,960.05

	
428,006.21

	
44

	
4,494.51

	
2,318.37

	
176,488.30

	
123,278.42

	
423,511.70

	
45

	
4,518.86

	
2,294.02

	
181,007.16

	
125,572.44

	
418,992.84

	
46

	
4,543.34

	
2,269.54

	
185,550.50

	
127,841.98

	
414,449.50

	
47

	
4,567.95

	
2,244.93

	
190,118.45

	
130,086.91

	
409,881.55

	
48

	
4,592.69

	
2,220.19

	
194,711.14

	
132,307.10

	
405,288.86

	
 

	
49

	
4,617.57

	
2,195.31

	
199,328.71

	
134,502.41

	
400,671.29

	
50

	
4,642.58

	
2,170.30

	
203,971.29

	
136,672.71

	
396,028.71

	
51

	
4,667.72

	
2,145.16

	
208,639.01

	
138,817.87

	
391,360.99

	
52

	
4,693.01

	
2,119.87

	
213,332.02

	
140,937.74

	
386,667.98

	
53

	
4,718.43

	
2,094.45

	
218,050.45

	
143,032.19

	
381,949.55

	
54

	
4,743.99

	
2,068.89

	
222,794.44

	
145,101.08

	
377,205.56

	
55

	
4,769.68

	
2,043.20

	
227,564.12

	
147,144.28

	
372,435.88

	
56

	
4,795.52

	
2,017.36

	
232,359.64

	
149,161.64

	
367,640.36

	
57

	
4,821.49

	
1,991.39

	
237,181.13

	
151,153.03

	
362,818.87

	
58

	
4,847.61

	
1,965.27

	
242,028.74

	
153,118.30

	
357,971.26

	
59

	
4,873.87

	
1,939.01

	
246,902.61

	
155,057.31

	
353,097.39

	
60

	
4,900.27

	
1,912.61

	
251,802.88

	
156,969.92

	
348,197.12

	
 

	
61

	
4,926.81

	
1,886.07

	
256,729.69

	
158,855.99

	
343,270.31

	
62

	
4,953.50

	
1,859.38

	
261,683.19

	
160,715.37

	
338,316.81

	
63

	
4,980.33

	
1,832.55

	
266,663.52

	
162,547.92

	
333,336.48

	
64

	
5,007.31

	
1,805.57

	
271,670.83

	
164,353.49

	
328,329.17

	
65

	
5,034.43

	
1,778.45

	
276,705.26

	
166,131.94

	
323,294.74

	
66

	
5,061.70

	
1,751.18

	
281,766.96

	
167,883.12

	
318,233.04

	
67

	
5,089.12

	
1,723.76

	
286,856.08

	
169,606.88

	
313,143.92

	
68

	
5,116.68

	
1,696.20

	
291,972.76

	
171,303.08

	
308,027.24

	
69

	
5,144.40

	
1,668.48

	
297,117.16

	
172,971.56

	
302,882.84

	
70

	
5,172.26

	
1,640.62

	
302,289.42

	
174,612.18

	
297,710.58

	
71

	
5,200.28

	
1,612.60

	
307,489.70

	
176,224.78

	
292,510.30

	
72

	
5,228.45

	
1,584.43

	
312,718.15

	
177,809.21

	
287,281.85

	
 

	
73

	
5,256.77

	
1,556.11

	
317,974.92

	
179,365.32

	
282,025.08

	
74

	
5,285.24

	
1,527.64

	
323,260.16

	
180,892.96

	
276,739.84

	
75

	
5,313.87

	
1,499.01

	
328,574.03

	
182,391.97

	
271,425.97

	
76

	
5,342.66

	
1,470.22

	
333,916.69

	
183,862.19

	
266,083.31

	
77

	
5,371.60

	
1,441.28

	
339,288.29

	
185,303.47

	
260,711.71

	
78

	
5,400.69

	
1,412.19

	
344,688.98

	
186,715.66

	
255,311.02

	
79

	
5,429.95

	
1,382.93

	
350,118.93

	
188,098.59

	
249,881.07

	
80

	
5,459.36

	
1,353.52

	
355,578.29

	
189,452.11

	
244,421.71

	
81

	
5,488.93

	
1,323.95

	
361,067.22

	
190,776.06

	
238,932.78

 

  

22

  

 

	
Pmt

	
Principal

	
Interest

	
Cum Prin

	
Cum Int

	
Prin Bal

	
82

	
5,518.66

	
1,294.22

	
366,585.88

	
192,070.28

	
233,414.12

	
83

	
5,548.55

	
1,264.33

	
372,134.43

	
193,334.61

	
227,865.57

	
84

	
5,578.61

	
1,234.27

	
377,713.04

	
194,568.88

	
222,286.96

	
 

	
85

	
5,608.83

	
1,204.05

	
383,321.87

	
195,772.93

	
216,678.13

	
86

	
5,639.21

	
1,173.67

	
388,961.08

	
196,946.60

	
211,038.92

	
87

	
5,669.75

	
1,143.13

	
394,630.83

	
198,089.73

	
205,369.17

	
88

	
5,700.46

	
1,112.42

	
400,331.29

	
199,202.15

	
199,668.71

	
89

	
5,731.34

	
1,081.54

	
406,062.63

	
200,283.69

	
193,937.37

	
90

	
5,762.39

	
1,050.49

	
411,825.02

	
201,334.18

	
188,174.98

	
91

	
5,793.60

	
1,019.28

	
417,618.62

	
202,353.46

	
182,381.38

	
92

	
5,824.98

	
987.90

	
423,443.60

	
203,341.36

	
176,556.40

	
93

	
5,856.53

	
956.35

	
429,300.13

	
204,297.71

	
170,699.87

	
94

	
5,888.26

	
924.62

	
435,188.39

	
205,222.33

	
164,811.61

	
95

	
5,920.15

	
892.73

	
441,108.54

	
206,115.06

	
158,891.46

	
96

	
5,952.22

	
860.66

	
447,060.76

	
206,975.72

	
152,939.24

	
 

	
97

	
5,984.46

	
828.42

	
453,045.22

	
207,804.14

	
146,954.78

	
98

	
6,016.87

	
796.01

	
459,062.09

	
208,600.15

	
140,937.91

	
99

	
6,049.47

	
763.41

	
465,111.56

	
209,363.56

	
134,888.44

	
100

	
6,082.23

	
730.65

	
471,193.79

	
210,094.21

	
128,806.21

	
101

	
6,115.18

	
697.70

	
477,308.97

	
210,791.91

	
122,691.03

	
102

	
6,148.30

	
664.58

	
483,457.27

	
211,456.49

	
116,542.73

	
103

	
6,181.61

	
631.27

	
489,638.88

	
212,087.76

	
110,361.12

	
104

	
6,215.09

	
597.79

	
495,853.97

	
212,685.55

	
104,146.03

	
105

	
6,248.76

	
564.12

	
502,102.73

	
213,249.67

	
97,897.27

	
106

	
6,282.60

	
530.28

	
508,385.33

	
213,779.95

	
91,614.67

	
107

	
6,316.63

	
496.25

	
514,701.96

	
214,276.20

	
85,298.04

	
108

	
6,350.85

	
462.03

	
521,052.81

	
214,738.23

	
78,947.19

	
 

	
109

	
6,385.25

	
427.63

	
527,438.06

	
215,165.86

	
72,561.94

	
110

	
6,419.84

	
393.04

	
533,857.90

	
215,558.90

	
66,142.10

	
111

	
6,454.61

	
358.27

	
540,312.51

	
215,917.17

	
59,687.49

	
112

	
6,489.57

	
323.31

	
546,802.08

	
216,240.48

	
53,197.92

	
113

	
6,524.72

	
288.16

	
553,326.80

	
216,528.64

	
46,673.20

	
114

	
6,560.07

	
252.81

	
559,886.87

	
216,781.45

	
40,113.13

	
115

	
6,595.60

	
217.28

	
566,482.47

	
216,998.73

	
33,517.53

	
116

	
6,631.33

	
181.55

	
573,113.80

	
217,180.28

	
26,886.20

	
117

	
6,667.25

	
145.63

	
579,781.05

	
217,325.91

	
20,218.95

	
118

	
6,703.36

	
109.52

	
586,484.41

	
217,435.43

	
13,515.59

	
119

	
6,739.67

	
73.21

	
593,224.08

	
217,508.64

	
6,775.92

	
120

	
*6,775.92

	
36.70

	
600,000.00

	
217,545.34

	
0.00

	
 

	 
	
*The final payment has been adjusted to account for payments having been rounded to the nearest cent.

 

  

23

  

 

EXHIBIT "G"

HVAC Schedule

 

2929 BUILDING

	
#

	
Tons 

	
Serial #

	
Manufacture #

	
Unit Age (YRS)

	
(H.)

	
Type

	
Area Feeds

	
U/L Level

	
Comments

	
19

	
a

	
1680048698

	
S42E048

	
25

	
H/P

	
D/Night

	
Ricardo Morenos Office

	
Upperlevel

	
Replace

	
20

	
4

	
1680048699

	
S42E048

	
25

	
H/P

	
D/Night

	
Selwyns Office

	
Upperlevel

	
Replace

	
22

	
4

	
1680048700

	
S42E048

	
25

	
H/P

	
D/Night

	
Executives

	
Upperlevel

	
Replace

	
24

	
5

	
UNREADABLE

	
UNREADABLE

	
25

	
G/Elect

	
D/Night

	
Lunchroom

	
Upperlevel

	
Replace

	
25

	
10

	
NNFM143186

	
DIEG120N16546JSE

	
14

	
G/Elect

	
York

	
Engineering

	
Upperlevel

	
*Ltd Warr

	
16

	
3

	
4398G20216

	
54BDEX036000AAAB

	
13

	
H/P

	
Carrier

	
Maintaiance offices

	
Lowerlevel

	
Replace

	
18

	
3

	
1898G20123

	
548DEX0360GAAAB

	
13

	
H/P

	
Carrier

	
Production offices

	
Lowerlevel

	
Replace

	
17

	
3

	
129BG40493

	
655AEX036000AACF

	
13

	
H/P

	
Carrier

	
Dougs office

	
Lowerleve1

	
Replace

	
23

	
4

	
5578F190117067

	
RIKA-A048DM

	
10

	
H/P

	
Rheem

	
Executives

	
Upperlevel

	
Replace

	
13

	
10

	
2005G20677

	
580FEV121180AAGA

	
6

	
G/Elect

	
Bryant

	
Accounting

	
Upperlevel

	
n/a

	
3

	
5

	
G072011811

	
GPCM60L100K

	
4

	
G/Elect

	
ICP

	
Hallway

	
Upperlevel

	
n/a

	
2

	
5

	
G062732000

	
PAE060

	
4

	  	
ICP

	
Server Room

	
Upperlevel

	
n/a

	
1

	
7.5

	
G061220618

	
PGE090L224AA

	
4

	
G/Elect

	
ICP

	
Hallways

	
Upperlevel

	
n/a

	
21

	
5

	
G081630771

	
HPFM60L00E

	
3

	
H/P

	
ICP

	
Michael Umansky

	
Upperlevel

	
n/a

	
5

	
5

	
G0S2611478

	
PGME60F100E

	
2

	
G/Elect

	
Heil

	
Green Room

	
Upperievel

	
n/a

	
4

	
5

	
G052611480

	
PGME60F100E

	
2

	
G/Elect

	
ICP

	
Large conference Room

	
Upperlevel

	
n/a

 

MAPLE ST BUILDING

	
#

	
Tons

	
Serial #

	
Manufacture #

	
Unit Age (YRS)

	
(H.)

	
Type

	
Area Feeds

	
U/L Level

	
Comments

	
1A

	
5

	
NA

	
50RQ006510

	
25

	
H/P

	
Carrier

	
Maple BLDG

	  	
Replace

	
IB

	
5

	
NA

	
50RQ006510

	
25

	
H/P

	
Carrier

	
Maple BLDG

	  	
Replace

 

2931 BUILDING

	
#

	
Tons

	
Serial #

	
Manufacture #

	
Unit Age (YRS)

	
(H.)

	
Type

	
Area Feeds

	
U/L Level

	
Comments

	
14

	
5

	
N0F802420B

	
B3HP060A46A

	
3

	
H/P

	
York

	
NA

	  	
n/a

	
15

	
5

	
N0F802420B

	
B3HP060A46A

	
3

	
H/P

	
York

	
NA

	  	
n/a

 

* Unit will stay In place; Landlord will replace If it ceases to function before 12/31/2013.

 

2410.54

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

The indebtedness evidenced by this instrument is subordinated to the prior payment in full of the Senior Debt (as defined in the Subordination Agreement hereinafter referred to) pursuant to, and to the extent provided in, the Subordination Agreement, dated as of September 30, 2011, by and among the maker hereof, GR Match, LLC, and Sean P. Downes.

Original Issue Date: September 30, 2011

Conversion Price (subject to adjustment herein): $0.30 USD

$1,000,000.00

 10.5% SUBORDINATED CONVERTIBLE PROMISSORY NOTE

DUE THIRTEEN MONTHS FROM ORIGINAL ISSUE DATE

THIS 10.5% SUBORDINATED CONVERTIBLE PROMISSORY NOTE (this “Note”) is one of a series of duly authorized and issued 10.5% Subordinated Convertible Promissory Notes of CyberDefender Corporation, a Delaware corporation, having a principal place of business at 617 West 7th Street, Suite 1000, Los Angeles, CA 90017 (the “Company”), designated as its 10.5% Subordinated Convertible Promissory Note due thirteen months from the Original Issue Date (the “Note”).

FOR VALUE RECEIVED, the Company promises to pay to Sean P. Downes, or his registered assigns (the “Holder”), the principal sum of $1,000,000 on the date that is thirteen months from the Original Issue Date set forth above or such earlier date as this Note is required or permitted to be repaid as provided hereunder (the “Maturity Date”), and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Note in accordance with the provisions hereof.  This Note is subject to the following additional provisions:

  

1

  

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

“Bankruptcy Event” means any of the following events: (i) the Company or any Significant Subsidiary (as such term is defined in Rule 1.02(s) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company; (ii) there is commenced against the Company any such case or proceeding that is not dismissed within 60 days after commencement; (iii) the Company is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered; (iv) the Company suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 days; (v) the Company makes a general assignment for the benefit of creditors; (vi) the Company calls a meeting of substantially all of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or (vii) the Company, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

  

“Business Day” means any day except Saturday, Sunday, any day which shall be a federal legal holiday in the United States or a day on which banking institutions in the State of New York are authorized or required by law or other government action to close and any day that the Common Stock is not traded on the Trading Market.

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

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

“Event of Default” shall have the meaning set forth in Section 6 hereof.

“Exempt Issuance” means the issuance of (a) shares of Common Stock, options or warrants to employees, officers, directors or consultants of the Company, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors, provided any such issuance shall only be to a Person which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Company and in which the Company receives benefits in addition to the investment of funds.

  

2

  

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

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

“Original Issue Date” shall mean the date of the first issuance of this Note as provided on the cover page hereof, regardless of the number of transfers of this Note and regardless of the number of instruments which may be issued to evidence this Note.

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

“Purchase Agreement” means the Securities Purchase Agreement between the Holder and the Company, pursuant to which this Note is initially purchased, as amended, modified or supplemented from time to time in accordance with its terms.

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

“Secured Parties” means any federal, state or local governmental or quasi-governmental agencies or divisions and any lender or creditor holding a security interest under the Uniform Commercial Code in assets and other property of the Company.

“Subordination Agreement” means that certain Subordination Agreement dated as of September 30, 2011, by and among the Company, GR Match, LLC, and Holder.

“Senior Debt” shall have the meaning set forth in the Subordination Agreement.

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

“Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board.

  

3

  

Section 2.             Interest.

a)           Payment of Interest. The Company shall pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Note at the rate of  10.5% per annum payable on the Maturity Date (except that, if any such date is not a Business Day, then such payment shall be due on the next succeeding Business Day) (the “Interest Payment Date”) and on each Conversion Date (as to that principal amount then being converted), payable, at the Company’s election, in (a) cash or (b) the number of Note Shares equal to the aggregate unpaid and accrued interest divided by the Conversion Price.

b)           Interest Calculations. Interest shall be calculated on the basis of a 360-day year and shall accrue commencing on the Original Issue Date until payment in full of the principal sum, together with all accrued and unpaid interest and other amounts which may become due hereunder, has been made.  Interest shall cease to accrue with respect to any principal amount converted, provided that the Company in fact delivers the Note Shares within the time period required by Section 4(c).  Interest hereunder will be paid to the Person in whose name this Note is registered on the records of the Company regarding registration and transfers of Notes (the “Note Register”).

 

c)           Late Fee.  All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at the rate of 10.50% per annum (or such lower maximum amount of interest permitted to be charged under applicable law) (“Late Fee”), which will accrue from the date such interest is due hereunder through and including the date of payment and shall be in lieu of interest rate set forth in this Section 2.

d)           Prepayment.  The Company has the right to prepay this Note any time with 14 days notice (the “Prepayment Notice Period”). The right to convert by the Holder remains active during the Prepayment Notice Period.

Section 3.             Registration of Transfers and Exchanges.

 

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

 

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

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

  

4

  

Section 4.             Conversion.

a)      Voluntary Conversion. At any time after the Original Issue Date and until payment hereof in full (including interest), this Note shall be convertible into Note Shares at the option of the Holder, in whole or in part at any time and from time to time.  The Holder shall effect conversions by delivering to the Company the form of Notice of Conversion attached hereto as Annex A (a “Notice of Conversion”), specifying therein the principal amount of Notes and interest thereon to be converted and the date on which such conversion is to be effected (a “Conversion Date”).  If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is received hereunder.  To effect conversions hereunder, the Holder shall not be required to physically surrender Notes to the Company unless the entire principal amount of this Note plus all accrued and unpaid interest thereon has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Note in an amount equal to the applicable conversion.  The Holder and the Company shall maintain records showing the principal amount converted and the date of such conversions.  The Company shall deliver any objection to any Notice of Conversion promptly, but in no event later than 2 Business Days of receipt of such notice.  In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note may be less than the amount stated on the face hereof.  Conversion Notices shall be irrevocable, except as provided in Section 4.20 of the Purchase Agreement.

 

b)      Conversion Price.  The Conversion Price on any Conversion Date shall be $0.30 (the “Conversion Price”).

	
  

	
c)

	
Mechanics of Conversion.

 

i.           Note Shares Issuable Upon Conversion.  The number of shares of Note Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Note to be converted plus all accrued and unpaid interest thereon by (y) the Conversion Price.

  

5

  

ii.           Delivery of Certificate Upon Conversion.  Not later than 7 Business Days after any Conversion Date, the Company will deliver to the Holder a certificate or certificates representing the Note Shares representing the number of shares of Note Shares being acquired upon the conversion of this Note or a portion of this Note. 

iii.           Reservation of Certificates. Certificates for the Note Shares on conversion of this Note shall be made without charge to the Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificate, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Note so converted and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

d)           Conversion Limitation. If the number of Note Shares issuable to Holder upon the conversion of this Note would cause the stockholder approval requirements of Rule 5635 of the Nasdaq Marketplace Rules to apply to such issuance (a “Rule 5635 Issuance”), the Company shall seek, and the Company’s Board of Directors shall recommend, stockholder approval of Holder’s rights to convert this Note, exclusive of this Conversion Limitation, at the Company’s annual meeting of stockholders to be conducted in 2012 or at any special meeting conducted prior to the Maturity Date of this Note. Until such stockholder approval is obtained, Holder’s right to convert shall be limited to conversions resulting in the issuance of a total number of shares which shall not result in a Rule 5635 Issuance. Until such stockholder approval is obtained, any unconverted portion of this Note shall remain due and payable as non-convertible debt in accordance with the terms and conditions of this Note.

e)           Forced Conversion.  Notwithstanding anything herein to the contrary, if, at any time following the Original Issue Date, the 10-day VWAP exceeds 250% of the then applicable Conversion Price, the Company, subject to the provisions of Section 4(d) above, may, within five (5) Trading Days, deliver a written notice to the Holder (a “Forced Conversion Notice” and the date such notice is delivered to the Holder, the “Forced Conversion Notice Date”) to cause the Holder to convert all or part of the then outstanding principal amount of Note plus, if so specified in the Forced Conversion Notice, accrued but unpaid interest owing to the Holder pursuant to Section 2, it being agreed that the “Conversion Date” for purposes of Section 2 shall be deemed to occur on the third Trading Day following the Forced Conversion Notice Date (such third Trading Day, the “Forced Conversion Date”).  The Company may not deliver a Forced Conversion Notice, and any Forced Conversion Notice delivered by the Company shall not be effective, if there is an uncured Event of Default.

  

6

  

 

Section 5.             Certain Adjustments; Fundamental Transaction.

 

a)           Stock Dividends and Stock Splits.  If the Company, at any time while this Note is outstanding: (A) shall pay a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company pursuant to this Note), (B) subdivide outstanding shares of Common Stock into a larger number of shares, (C) combine (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (D) issue by reclassification of shares of the Common Stock any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding before such event and of which the denominator shall be the number of shares of Common Stock outstanding after such event.  Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

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

c)           Notice to Holders.

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

  

7

  

ii.           Notice to Allow Conversion by Holder.  If (A) the Company shall declare a dividend (or any other distribution) on the Common Stock; (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Note, and shall cause to be mailed to the Holder at the Holder’s last address appearing on the  stock books of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided, that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice.  The Holder is entitled to convert this Note during the 20-day period commencing the date of such notice to the effective date of the event triggering such notice.

 

iii.           Fundamental Transaction. If, at any time while this Note is outstanding, (A) the Company effects any merger or consolidation of the Company with or into another Person where the Company is not the surviving corporation, (B) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (C) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (D) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then upon any subsequent conversion of this Note, the Holder shall have the right to receive, for each Note Share that would have been issuable upon such conversion absent such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of one share of Common Stock (the “Alternate Consideration”).  For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Note following such Fundamental Transaction.  To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new Note consistent with the foregoing provisions and evidencing the Holder's right to convert such Note into Alternate Consideration. The Company will utilize its best efforts to ensure that terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (c) and insuring that this Note (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.  Failure to obtain such terms by the Company shall not cause an Event of Default and the Holder shall then be required to convert in accordance with the terms of the Fundamental Transaction.

  

8

  

Section 6.             Events of Default.

a)           “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):

i.           any default in the payment of (A) the principal amount of this Note, or (B) interest (including Late Fees) on, or liquidated damages in respect of, this Note, in each case free of any claim of subordination, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of an interest payment or other default under clause (B) above, is not cured, within 15 Business Days;

ii.           the Company shall fail to deliver certificates representing Note Shares issuable upon a conversion or redemption hereunder that comply with the provisions hereof prior to the 15th Business Day after such shares are required to be delivered hereunder, or the Company shall provide written notice to the Holder, including by way of public announcement, at any time, of its intention not to comply with requests for conversion or redemption of this Note  in accordance with the terms hereof;

iii.           the Company shall fail to have available a sufficient number of authorized and unreserved shares of Common Stock to issue to the Holder upon a conversion hereunder;

  

9

  

iv.           the Company shall materially fail to observe or perform any other covenant, agreement or warranty contained in, or otherwise commit any breach of the Transaction Documents to which the Holder is a party, and such failure or breach shall not, if subject to the possibility of a cure by the Company, have been remedied within 30 calendar days after the date on which written notice of such failure or breach shall have been given;

v.           the Company shall purchase more than a de minimis number of  Common Stock Equivalents (not including a redemption of this Note hereunder); or

vi.           there shall have occurred a Bankruptcy Event.

b)           Remedies Upon Event of Default. If any Event of Default occurs and is continuing, the full principal amount of this Note, together with interest and other amounts owing in respect thereof, to the date of acceleration shall become, at the Holder’s election, immediately due and payable in cash. Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Note, any overdue unpaid interest on this Note shall accrue interest at the rate of 10.5% per annum in accordance with Section 2(c) hereof, or such lower maximum amount of interest permitted to be charged under applicable law.  When this Note shall have been paid in full in accordance herewith, the Holder shall promptly surrender this Note to or as directed by the Company.  The Holder need not provide and the Company hereby waives any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law.  Such declaration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a Note holder until such time, if any, as the full payment under this Section shall have been received by it.  No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

  

10

  

Section 7.             Miscellaneous.

a)           Notices.  Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered either personally, by facsimile or sent by a nationally recognized overnight courier service, addressed to the Company at the address set forth above, facsimile number  213.689.8640, Attn: Chief Financial Officer or such other address or facsimile number as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section, with any fax delivery followed up by overnight delivery service.  Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile or sent by a nationally recognized overnight courier service addressed to the Holder at the facsimile telephone number or address of the Holder appearing on the books of the Company, or if no such facsimile telephone number or address appears, then at the principal place of business of the Holder, if any.  Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section prior to 5:30 p.m. (New York City time), (ii) the date after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section later than 5:30 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City time) on such date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) if personally delivered, upon actual receipt by the party to whom such notice is required to be given.

 

b)           Absolute Obligation. Except as expressly provided herein, no provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal and interest of this Note at the time, place, and rate, and in the coin or currency, herein prescribed.  This Note is a direct debt obligation of the Company.  This Note ranks pari passu with all other Notes now or hereafter issued under the terms set forth herein.

c)           Subordinated Obligation.  This Note is a subordinated general obligation of the Company and, pursuant to the terms and conditions of the Subordination Agreement, is specifically subordinate in all ways to any Senior Debt now or hereafter created, issued made or outstanding, to or held by any Secured Parties.  The Holder specifically agrees to provide such additional documentation as any of such Secured Parties shall reasonably believe may be necessary to protect, defend or perfect such secured status.

 

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

e)           Governing Law.  Any and all actions brought by the Company or Holder under this Note shall be brought in the state or federal courts located in the City of Los Angeles, California  If either party shall commence an action to enforce any provisions of the Transaction Documents, then the prevailing party in such action after obtaining a final, non-appealable judgment 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 proceeding.

  

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

 

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

 

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

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

j)           Amendment.  This Note may be modified or amended or provisions hereof waived with the written consent of the Company and the Holder, provided that, if any of the Notes are assigned, then any such modification or amendment may be made with the written consent of the Company and the holder(s) of at least 51% of the then outstanding principal amount of all of the Notes.

  

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IN WITNESS WHEREOF, the Company has caused this 10.5% Subordinated Convertible Promissory Note to be duly executed by a duly authorized officer as of the date first above indicated.

CYBERDEFENDER CORPORATION

	
By:

	
/S/ Kevin Harris

	  
	  	
Kevin Harris

	  	
Interim Chief Executive Officer, Chief Financial Officer and Secretary

 

  

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ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the 10.5% Subordinated Convertible Promissory Note of CyberDefender Corporation, a Delaware corporation (the “Company”), due thirteen months from the Original Issue Date thereof, into ________ Note Shares, $0.001 par value  per share (the “Note Shares”), of the Company according to the conditions hereof, as of the date written below.  If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith.  No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

Conversion calculations:

Date to Effect Conversion:              _______________________

Principal Amount of Note(s) to be converted:  $  ___________

Note Shares issuable:___________

Interest Payment shares issuable:_______

Total shares issuable:________________

Signature:            ___________________________

Name:

Address:

 

  

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