EXHIBIT 10.1

 

NOTE EXCHANGE AGREEMENT

 

THIS NOTE EXCHANGE AGREEMENT (this “ Agreement ”), is made and entered into effective as of February 25, 2014, by and between TX Holdings, Inc., a Georgia corporation (“ Company ”), and William L. Shrewsbury (“ Note Holder ”).

 

WITNESSETH:

 

WHEREAS , Company and Note Holder, the Chairman and Chief Executive Officer of Company, are executing and delivering this Agreement in reliance upon an exemption from the registration requirements under the Securities Act of 1933, as amended (the “ Securities Act ”), afforded by the provisions of Section 4(a)(2 under the Securities Act and/or Rule 506 of Regulation D promulgated under the Securities Act; and

 

WHEREAS , the parties desire that, upon the terms and subject to the conditions contained herein, Company shall issue to Note Holder, as provided herein, and Note Holder shall acquire from Company a Consolidated Secured Promissory Note of Company in the principal amount of $2,000,000 (the “ Exchange Note ”) in the form attached as Exhibit A hereto in replacement of, and to effect the consolidation of, the following indebtedness due from Company to Note Holder: (i) the principal due under the Revolving Promissory Demand Note issued by Company to Note Holder on April 30, 2012 (the “ Revolving Note ”), in the amount of $1,062,000 and accrued but unpaid interest thereunder as of January 31, 2014, in the amount of $168,904.51, (ii) the principal due under the 10% Promissory Note issued by Company to Note Holder effective February 27, 2009 (the “ 10% Note ”), in the amount of $289,997 and accrued but unpaid interest thereunder as of January 31, 2014, in the amount of $93,252.33, and (iii) $385,845.88 of the non-interest bearing advances previously made by Note Holder to  Company and outstanding as of January 31, 2014 (the “ Exchange ”).

 

NOW, THEREFORE , in consideration of the mutual covenants and other agreements contained in this Agreement and other good and valuable consideration, receipt of which is hereby acknowledged by the parties, Company and Note Holder hereby agree as follows:

 

1.            Closing .   The “ Closing ” of the Exchange and issuance of the Exchange Note shall occur contemporaneously with the execution of this Agreement or such later date as the parties shall mutually agree in writing (the date of such Closing, the “ Closing Date ”).  At Closing and as a condition thereto and the issuance of the Exchange Note, Note Holder shall deliver to Company the original Revolving Note and 10% Note whereupon such notes shall be cancelled and of no further force and effect.  As soon as practicable following the Closing Date, Company shall use its best efforts to purchase, obtain and secure (subject to Note Holder being able to meet applicable insurance underwriting requirements) one or more key man life insurance policies in the aggregate amount of $2,000,000 (or such lesser amount as the parties shall mutually agree) on the life of Note Holder (“ Key Man Policy ”) to cover repayment by Company of amounts due under the Exchange Note in the event of Note Holder’s death.  Further, following the Closing Date and immediately following Company’s purchase of the Key Man Policy, Company and Note Holder shall promptly enter into a security agreement or other appropriate agreement (“ Security Agreement ”) pursuant to which the death benefit proceeds to be received by Company under such Key Man Policy upon the death of Note Holder shall be subject to a first priority security interest of Note Holder and his estate or otherwise exclusively designated or set aside for the purpose of repaying the Exchange Note.

 

2.            Note Holder Representations, Warranties and Agreements .   Note Holder hereby represents, warrants and agrees with the Company that:

 

 (a)            Authorization and Power .       Note Holder has the requisite power and authority to enter into and perform this Agreement and to acquire the Exchange Note.   This Agreement, the Exchange Note, and the Security Agreement (the Exchange Note and the Security Agreement, the “ Transaction Documents ”) have been or will be duly authorized and executed and when delivered by Note Holder will constitute valid and binding obligations of Note Holder, enforceable against Note Holder in accordance with the terms thereof.

 

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 (b)            No Conflicts .       The execution, delivery and performance of this Agreement and the Transaction Documents and the consummation by Note Holder of the transactions contemplated hereby and thereby or relating hereto do not and will not (i) conflict with nor constitute a default (or an event which with notice or lapse of time or both would become a default) under any agreement to which Note Holder is a party, or (ii) result in a violation of any law, rule, or regulation, or any order, judgment or decree of any court or governmental agency applicable to Note Holder or his properties (except for such conflicts, defaults and violations as would not, individually or in the aggregate, have a material adverse effect on Note Holder).  Note Holder is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for him to execute, deliver or perform any of his obligations under this Agreement or the Transaction Documents nor to acquire the Exchange Note in accordance with the terms hereof and thereof, provided that for purposes of the representation made in this sentence, Note Holder is assuming and relying upon the accuracy of the relevant representations and agreements of Company herein.

 

 (c)            Information Regarding Company .   Note Holder has been furnished with or has had access at the EDGAR Website of the Securities and Exchange Commission (“ SEC ”) to Company’s Form 10-K for the fiscal year ended September 30, 2013, and to Company's other filings made with the SEC which are available at the Edgar Website.  In addition, Note Holder may have received in writing from Company such other information concerning its operations, financial condition and other matters as Note Holder has requested in writing and considered all factors Note Holder deems material in deciding on the advisability of investing in the Exchange Note.

 

 (d)            Information Regarding Note Holder .   Note Holder is an “ accredited investor ,” as such term is defined in Regulation D promulgated under the Securities Act, is experienced in investments and business matters, has made investments of a speculative nature and has purchased securities of United States publicly-owned companies in private placements in the past and has such knowledge and experience in financial, tax and other business matters as to enable Note Holder to utilize the information made available by Company to evaluate the merits and risks of and to make an informed investment decision with respect to the proposed Exchange, which represents a speculative investment.  Note Holder has the authority and is duly and legally qualified to purchase and own the Exchange Note.  Note Holder is able to bear the risk of such investment for an indefinite period and to afford a complete loss thereof.  Note Holder agrees to provide Company with such information reasonably required from time to time for Company to comply with Company’s regulatory filing requirements.

 

 (e)            Purchase of Exchange Note .   On the Closing Date, Note Holder will acquire the Exchange Note as principal for his own account for investment only and not with a view toward, or for resale in connection with, the public sale or any distribution thereof.

 

 (f)            Compliance with Securities Act .   Note Holder understands and agrees that the Exchange Note has not been registered under the Securities Act or any applicable state securities laws, by reason of its issuance by Company in a transaction that does not require registration under the Securities Act (based in part on the accuracy of the representations and warranties of Note Holder contained herein), and that the Exchange Note must be held indefinitely by Note Holder unless a subsequent disposition is registered under the Securities Act or any applicable state securities laws or is exempt from such registration.  

 

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                                  (g)            Exchange Note Legend .   The Exchange Note shall bear the following or similar legend:

 

“THIS CONSOLIDATED SECURED PROMISSORY NOTE HAS NOT BEEN THE SUBJECT OF REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE AND HAS BEEN ISSUED IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS.  THIS CONSOLIDATED SECURED PROMISSORY NOTE MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (II) AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH TRANSFER OR DISPOSITION DOES NOT VIOLATE THE ACT, THE RULES AND REGULATIONS THEREUNDER, OR APPLICABLE STATE SECURITIES LAWS.”

 

 (h)            No Governmental Review .   Note Holder understands that no United States federal or state agency or any other governmental or state agency has passed on or made recommendations or endorsement of the Exchange or the suitability of Note Holder’s investment in the Exchange Note, nor have such authorities passed upon or endorsed the merits of the offering of the Exchange Note.

 

 (i)             Waiver of Prior Defaults; Release of Claims . Effective through the date hereof, Note Holder hereby waives any and all prior events of default under the terms of the Revolving Note and 10% Note and releases Company from any and all claims related thereto or thereunder.

 

 (j)            Accuracy of Representations .   Note Holder represents that the foregoing representations and warranties are true and correct as of the date hereof and, unless Note Holder otherwise notifies Company prior to the Closing Date, shall be true and correct as of the Closing Date.

 

3.          Company Representations, Warranties and Agreements .   Company represents and warrants to and agrees with Note Holder that:

 

 (a)            Due Incorporation .    Company is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has the requisite corporate power to own its properties and to carry on its business as presently conducted.  Company is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction where the nature of the business conducted or property owned by it makes such qualification necessary, other than those jurisdictions in which the failure to so qualify would not have a material adverse effect.

 

 (b)            Authority; Enforceability .   This Agreement, the Transaction Documents and any and all other agreements delivered or required to be delivered together with or pursuant to this Agreement or in connection herewith (including but not limited to the Security Agreement) have been (or, with regard to the Security Agreement to be entered into by the parties, will be) duly authorized, executed and delivered by the Company and are (or will be) valid and binding agreements of Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights generally and to general principles of equity.  Company has full corporate power and authority necessary to enter into and deliver this Agreement and the Transaction Documents and to perform its obligations thereunder.

 

 (c)            Consents .   No consent, approval, authorization or order of any court, governmental agency or body or arbitrator having jurisdiction over Company, or any of its affiliates, or Company's shareholders is required for the execution by Company of this Agreement or the Transaction Documents and compliance and performance by Company of its obligations under this Agreement and under the Transaction Documents, including, without limitation, the issuance of the Exchange Note except as may be required under Company’s Business Loan Agreement, dated November 7, 2012, with Home Federal Savings and Loan Association (“ Home Federal Loan ”).   No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any governmental authority in the world, including without limitation, the United States, or elsewhere is required by Company in connection with the consummation of the transactions contemplated by this Agreement and the Transaction Documents. Any such qualifications and filings will, in the case of qualifications, be effective on the Closing Date and will, in the case of filings, be made within the time prescribed by law.

 

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 (d)            The Securities .   The Exchange Note upon issuance:

 

(i)           is, or will be, free and clear of any security interests, liens, claims or other encumbrances, subject only to restrictions upon transfer under the Securities Act and any applicable state securities laws; and

 

(ii)           has been, or will be, duly and validly authorized and on the date of issuance of the Exchange Note.

 

 (e)           Accuracy of Representations and Warranties .   Company represents that the foregoing representations and warranties are true and correct as of the date hereof in all material respects, and, unless Company otherwise notifies Note Holder prior to the Closing Date, shall be true and correct in all material respects as of the Closing Date; provided, that, if any such representation or warranty is made as of a different date, in which case such representation or warranty shall be true as of such date.

 

 (f)            Survival .   The foregoing representations and warranties shall survive the Closing Date.

 

4.          Covenants and Agreements of the Company .   Company covenants and agrees with Note Holder as follows:

 

 (a)            Negative Covenants .   So long as the Exchange Note is outstanding, without the consent of Note Holder, Company and its officers and directors will not, directly or indirectly:

 

(i)          amend its Articles of Incorporation, bylaws or its charter documents so as to materially and adversely affect any rights of Note Holder;

 

(ii)         repay, repurchase or offer to repay, repurchase or otherwise acquire or make any dividend or distribution in respect of any of its shares of common stock, no par value per share, or other equity securities other than to the extent permitted or required under this Agreement and the Transaction Documents;

 

(iii)        prepay or redeem any financing related debt or past due obligations or securities, or past due obligations (except (A) with respect to vendor obligations, or any such obligations which in management’s good faith, reasonable judgment must be repaid to avoid disruption of Company’s business and (B) with respect to amounts due pursuant to the Home Federal Loan);

 

(iv)        liquidate, merge, consolidate, or sell all or substantially all its assets with or to any other entity, except for a migratory merger with a wholly-owned subsidiary the result of which does not change the relative ownership or rights of the Note Holder under the Exchange Note; and

 

 (b)             Key Man Policy .       Following purchase of the Key Man Policy and at all times thereafter, Company shall promptly pay all premiums due to the insurance company issuer(s) of such policy.  In the event Company determines it is unable to pay such premiums at any time, Company shall immediately notify Note Holder whereupon Note Holder shall have the right (but not the obligation) to pay such premiums on behalf of Company and seek and obtain reimbursement thereof from Company.

 

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5.            Miscellaneous .

 

 (a)            Notices .   All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice.  Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be: (i) if to the Company, to: TX Holdings, Inc., 12080 Virginia Blvd., Ashland, Kentucky  41102, Attention:  Chief Executive Officer, facsimile number: (606) 929-5727, and (ii) if to the Note Holder, to: William L. Shrewsbury, _________________________, _________.

 

 (b)            Entire Agreement; Assignment .   This Agreement and the Transaction Documents and other documents delivered in connection herewith represent the entire agreement between the parties hereto with respect to the subject matter hereof and may be amended only by a writing executed by both parties.  Neither Company nor Note Holder has relied on any representations not contained or referred to in this Agreement, the Transaction Documents and the documents delivered herewith.  No right or obligation of the Company shall be assigned without prior notice to and the written consent of Note Holder.

 

 (c)            Counterparts/Execution .   This Agreement may be executed in any number of counterparts and by the different signatories hereto on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument.  This Agreement and the Transaction Documents may be executed by facsimile signature and delivered by electronic transmission.

 

 (d)            Law Governing this Agreement .   This Agreement shall be governed by and construed in accordance with the laws of the State of Kentucky without regard to principles of conflicts of laws of such state.  References in this Agreement and the Transaction Documents to laws, rules, regulations and forms shall also include successors to and functionally equivalent replacements of such laws, rules, regulations and forms.   The parties to this Agreement and the Transaction Documents hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens .   The parties executing this Agreement and Transaction Documents referred to herein or delivered in connection herewith on behalf of Company agree to submit to the in personam jurisdiction of such courts and hereby irrevocably waive trial by jury.   The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs.  In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law.  Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement.  Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

 

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 (e)            Captions: Certain Definitions .   The captions of the various sections and paragraphs of this Agreement have been inserted only for the purposes of convenience; such captions are not a part of this Agreement and shall not be deemed in any manner to modify, explain, enlarge or restrict any of the provisions of this Agreement.

 

 (h)            Severability .   In the event that any term or provision of this Agreement shall be finally determined to be superseded, invalid, illegal or otherwise unenforceable pursuant to applicable law by an authority having jurisdiction and venue, that determination shall not impair or otherwise affect the validity, legality or enforceability: (i) by or before that authority of the remaining terms and provisions of this Agreement, which shall be enforced as if the unenforceable term or provision were deleted, or (ii) by or before any other authority of any of the terms and provisions of this Agreement.

 

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

	TX HOLDINGS, INC.
	By:	/s/ Jose Fuentes
	Its:	Chief Financial Officer

 

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EXHIBIT-10.2

 

THIS CONSOLIDATED SECURED PROMISSORY NOTE HAS NOT BEEN THE SUBJECT OF REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE AND HAS BEEN ISSUED IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS.  THIS CONSOLIDATED SECURED PROMISSORY NOTE MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (II) AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH TRANSFER OR DISPOSITION DOES NOT VIOLATE THE ACT, THE RULES AND REGULATIONS THEREUNDER, OR APPLICABLE STATE SECURITIES LAWS.

 

TX HOLDINGS, INC.

 

CONSOLIDATED SECURED PROMISSORY NOTE

 

Principal Amount: $2,000,000

Dated: February 25, 2014

 

FOR VALUE RECEIVED , the undersigned, TX Holdings, Inc., a Georgia corporation, and its subsidiaries, if any (hereinafter referred to as “ Maker ”), hereby promises to pay to William L. Shrewsbury or permitted assigns (“ Payee ”), at such place as Payee hereof may from time to time designate in writing, the principal sum of Two Million Dollars ($2,000,000) in one installment due upon the earlier of:  (i) February 25, 2024; or (ii)  the date of an occurrence and continuance of an Event of Default as hereinafter defined (the “ Accelerated Maturity Date ”), together with interest from and after the date hereof on the unpaid principal balance.  Interest shall be accrued daily and paid in full on the Maturity Date or Accelerated Maturity Date, whichever shall first occur.  This Consolidated Secured Promissory Note is being issued pursuant to the terms of a Note Exchange Agreement by and between Maker and Payee, dated February 25, 2014 (the “ Exchange Agreement ”).  Each payment made on this Note shall be credited first to any interest then due and then to the outstanding principal amount hereof.  Defined terms used and not otherwise defined herein shall have the meaning set forth in the Exchange Agreement.

 

Upon acceptance of this Note by Payee, Maker and Payee represent, warrant, covenant and agree that they will abide by and be bound by its terms.

 

1.             Interest .           The unpaid principal amount of this Note shall bear interest at the rate of 5% per annum; provided that, if at any time the WSJ Prime Rate of interest exceeds 5% per annum, then the principal amount of this Note shall bear interest at the WSJ Prime Rate.  The “WSJ Prime Rate” shall mean the rate of interest that the Wall Street Journal publishes from time to time as its “U.S prime rate,” and any change in the WSJ Prime Rate shall be effective with respect to this Note immediately as of the date published by the Wall Street Journal.

 

2.    Presentment .           Except as set forth herein, Maker waives presentment, demand and presentation for payment, notice of nonpayment and dishonor, protest and notice of protest.

 

3.    Prepayment, Extension and Notices .           The unpaid principal amount of this Note and the accrued but unpaid interest hereunder may be prepaid in part or in full by the Maker without penalty upon five (5) days’ prior written notice to Payee stating the repayment amount and repayment date (the “ Repayment Date ”) and Payee expressly agrees that this Note or any payment hereunder may be extended from time to time by the Payee without in any way affecting the liability of Maker.

 

 

4.             Events of Default .           Each of the following shall constitute an event of default (an “ Event of Default ”) hereunder: (a) the failure to pay when due any principal or interest hereunder; (b) the violation by Maker of any covenant or agreement contained in this Note, the Exchange Agreement or the Transaction Documents (as defined in the Exchange Agreement); (c) an assignment for the benefit of creditors by Maker; (d) the application for the appointment of a receiver or liquidator for Maker or for property of Maker; (e) the filing of a petition in bankruptcy by or against Maker; (f) the issuance of an attachment or the entry of a judgment against Maker in excess of $250,000; (g) a default by Maker with respect to any other indebtedness or with respect to any installment debt whether or not owing to Payee; (h) the sale of all or substantially all of Maker’s assets or there shall be a transfer of more than 51% of Maker's equity interests to an person not currently a holder of equity interests of Maker; (i) the termination of existence or the dissolution of Maker; (j) the death of Payee; or (k) the failure to pay when due any premium under the Key Man Policy.

 

Upon the occurrence of any of the foregoing Events of Default other than subparagraph (j), above, the Holder shall give written notice to the Maker of such default, and Maker shall have ten (10) days within which to cure such default.  If the default is not cured within the ten (10) day cure period, then this Note shall be considered to be in default and the entire unpaid principal sum hereof, together with accrued interest, shall at the option of the holder hereof become immediately due and payable in full.  Upon the occurrence of an Event of Default which remains uncured as set forth herein, the Maker agrees to pay reasonable collection or enforcement costs and expenses, including reasonable attorneys’ fees and interest from the date of the default at the rate of fifteen percent (15%) per annum computed on the unpaid principal balance.

 

In addition, at any time before the Accelerated Maturity Date of this Note, Payee may waive any Event of Default hereunder.  Such waivers shall be evidenced by written notice or other document specifying the Events of Default being waived and shall be binding on all existing or subsequent holders of this Note.

 

5.             Governing Law .           The validity and construction of this Note and all matters pertaining hereto are to be determined in accordance with the laws of the State of Kentucky without reference to the conflicts of law principles of such state.

 

6.             Entire Agreement .           This Note is intended to and does contain and embody the entire understanding and agreement of Maker and Payee with respect to the subject matter hereof and there exists no oral agreement or understanding, express or implied whereby the absolute, final and unconditional character and nature of this Note shall be in any way invalidated, unempowered or affected.

 

7.             Security .           Immediately following Maker’s purchase of the Key Man Policy, Maker and Payee shall promptly enter into a security agreement or other appropriate agreement (“ Security Agreement ”) pursuant to which the death benefit proceeds to be received by Maker under the Key Man Policy upon the death of Payee shall be encumbered by Payee and his estate and shall grant Payee and his estate a first priority security interest in such proceeds or shall otherwise agree to exclusively designate or set aside such proceeds for the purpose of repaying the Exchange Note upon Payee’s death.

 

8.             Assignment .           This Note shall be binding upon the successors and assigns of the undersigned. Payee of this Note may assign or transfer this Note to any person or entity without notice to, or the consent of, Maker.  This Note shall not be assignable, in whole or in part, by Maker without the prior written consent of Payee.

 

9.             Usury Savings Clause .           Notwithstanding any other provision herein, in the event that the aggregate interest rate charged under this Note, including all charges or fees in connection therewith deemed in the nature of interest, exceeds the maximum legal rate, then Payee shall have the right to make such adjustments as are necessary to reduce the aggregate interest rate to the maximum legal rate.  Maker waives any right to prior notice of such adjustment and further agrees that such adjustment may be made by Payee subsequent to notification from Maker that the aggregate interest charged exceeds the maximum legal rate.

 

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10.           Enforceability of Agreement .           If any one or more of the provisions of this Note shall be determined to be illegal or unenforceable as to one or more of the parties, all other provisions nevertheless shall remain effective and binding on the parties hereto, to the fullest extent permitted by law.

 

11.           Notices .           All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice.  Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be: (i) if to Maker, to: TX Holdings, Inc., 12080 Virginia Blvd., Ashland, Kentucky  41102, Attention:  Chief Executive Officer, facsimile number: (606) 929-5727, and (ii) if to the Payee, to: William L. Shrewsbury, _________________________, _________.

 

No notice, consent, waiver or communication hereunder shall be valid unless signed by Payee of this Note or other holder giving such notice, consent, waiver or communication.

 

12.           Headings .           The headings of this Note are for convenience of reference only and are not part of this Note.

 

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IN WITNESS WHEREOF , Maker, by its appropriate officers thereunto duly authorized, has executed this Note and affixed its corporate seal effective as of this 25th day of February, 2014.

 

	TX HOLDINGS, INC.

 

	By:	/s/ Jose Fuentes
	Name:	Jose Fuentes
	Title:	Chief Financial Officer

 

EXHIBIT-10.3

 

NEITHER THIS NON-QUALIFIED STOCK OPTION (“OPTION”) NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN THE SUBJECT OF REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE AND THE SAME HAVE BEEN (OR WILL BE, WITH RESPECT TO THE SECURITIES ISSUABLE UPON EXERCISE HEREOF) ISSUED IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS. NEITHER THIS OPTION NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (II) AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH TRANSFER OR DISPOSITION DOES NOT VIOLATE THE ACT, THE RULES AND REGULATIONS THEREUNDER, OR APPLICABLE STATE SECURITIES LAWS.

		Number of Shares Purchasable
Issue Date: February 25, 2014		Upon Exercise of Option: 500,000

 

Void after 5:00 p.m. Eastern Standard Time on March 31, 2017

 

NON-QUALIFIED STOCK OPTION AGREEMENT

 

TX HOLDINGS, INC.

 

This is to certify that, subject to the provisions of this Non-Qualified Stock Option Agreement (“ Option Agreement ”) and for value received, William L. Shrewsbury (the " Holder "), is entitled to purchase five hundred thousand (500,000) shares of common stock, no par value per share (the " Common Stock ;" that option, the “ Option ”), subject to adjustment as set forth herein, of TX Holdings, Inc., a Georgia corporation (" Company "), at any time during the period beginning April 1, 2014 (“ Vesting Date ”), and ending March 31, 2017 (" Expiration Date "), but not later than 5:00 p.m. Eastern Standard Time on the Expiration Date, at an exercise price of $0.0924 per share, subject to adjustment as set forth herein  (" Exercise Price ").

 

1.             Exercise of Option .   Subject to the provisions of Section 8 below, this Option may be exercised in whole or in part at any time or from time to time on or after the Vesting Date and until the Expiration Date; provided, however, that if either of such days is a day on which banking institutions are authorized by law to close (a "Bank Holiday"), then on the next succeeding day which shall not be a Bank Holiday.

 

2.             Method of Exercise .   On or after the Vesting Date, the Options may be exercised in whole or in party by presentation and surrender of this Option Agreement to the Company at its principal office or at the office of its transfer agent, if any (the "Transfer Agent").  The presentation and surrender of this Option Agreement for exercise must be accompanied by: (i) the form of subscription which is attached hereto in Annex A (the " Form of Subscription ") duly executed with signature guaranteed; (ii) payment of the aggregate Exercise Price for the number of shares specified in such form; and (iii) execution and delivery to the Company of an investor representation letter in form acceptable to the Company.  If this Option should be exercised in part only, upon presentation and surrender of this Option Agreement to the Company or the Transfer Agent for cancellation, the Company shall execute and deliver a new Option Agreement evidencing the rights of the Holder to purchase the balance of the shares purchasable hereunder.  Upon receipt of this Option Agreement by the Company at its office or by the Transfer Agent at its office in proper form for exercise, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such exercise; provided, however, that if at the date of surrender of this Option Agreement and payment of the aggregate Exercise Price, the transfer books for the Common Stock shall be closed, the certificates representing the Common Stock or other securities subject to issuance upon such exercise shall be issuable as of the date on which the Company's transfer books shall next be opened.  Until such date, the Company shall be under no duty to deliver any certificate representing such Common Stock or other securities and the Holder shall not be deemed to have become a holder of record or owner of such Common Stock or such other securities.

 

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3.             Forms of Payment Authorized .                  Upon exercise of this Option, the Holder shall pay the Exercise Price with cash or by certified or banker’s check.

 

4.             Reservation of Shares .      There shall at all times be reserved for issuance upon exercise of this Option such number of shares of Common Stock as shall be subject hereto.

 

5.             Fractional Shares .     Notwithstanding any other provision hereof, the Company shall not be required to issue fractional shares of Common Stock upon the exercise of the Options.  If any fraction of a share would, except for the provisions hereof, be issuable upon the exercise of this Option, then: (a) if the fraction of a share otherwise issuable is equal to or less than one-half, the Company shall round down and issue only the largest whole number of shares of Common Stock to which the Holder is otherwise entitled, or (b) if the fraction of a share otherwise issuable is greater than one-half, the Company shall round up and issue one additional share of Common Stock in addition to the largest whole number of shares of Common Stock to which the Holder is otherwise entitled.

 

6.             Rights of the Holder .      Prior to the exercise of the Option, the Holder shall not be entitled by virtue hereof to any rights of a stockholder in the Company, either at law or equity.  The rights of the Holder are limited to those expressed in this Option Agreement and are enforceable against the Company only to the extent set forth herein.

 

7.             Anti-Dilution Provisions .    The Exercise Price and the number and kind of securities purchasable upon the exercise of this Option shall be subject to adjustment from time to time as hereinafter provided:

 

  (a)           In case the Company shall issue shares of Common Stock as a dividend upon shares of Common Stock or in payment of a dividend thereon, or shall subdivide the number of outstanding shares of its Common Stock into a greater number of shares or shall contract the number of outstanding shares of its Common Stock into a lesser number of shares, the Exercise Price then in effect shall be adjusted, effective at the close of business on the record date for the determination of stockholders entitled to receive the same, to the price (computed to the nearest cent) determined by dividing (i) the product obtained by multiplying the Exercise Price in effect immediately prior to the close of business on such record date by the number of shares of Common Stock outstanding prior to such dividend, subdivision or contraction, by (ii) the number of shares of Common Stock outstanding immediately after such dividend, subdivision, or contraction.

 

 (b)           If any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with or into another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provision shall be made whereby the Holder shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions specified in this Option Agreement and in lieu of the shares of Common Stock immediately theretofore purchasable and receivable upon the exercise of the rights represented by this Option Agreement, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock immediately theretofore purchasable and receivable upon the exercise of the rights represented by this Option Agreement had such reorganization, reclassification, consolidation, merger or sale not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of the Holder to the end that the provisions of this Option Agreement (including, without limitation, provisions for adjustment of the Exercise Price and of the number of shares of Common Stock or other securities issuable upon the exercise of this Option) shall thereafter be applicable as nearly as may be practicable in relation to any shares of stock, securities, or assets thereafter deliverable upon exercise of this Option.  The Company shall not effect any such consolidation, merger or sale unless prior to or simultaneously with the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing such assets shall assume, by written instrument, the obligation to deliver to the Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Holder may be entitled to purchase; and such successor corporation agrees to be bound by the provisions of Section 7 hereof with respect to any securities issued pursuant to such consolidation, merger or purchase of assets.

 

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  (c)           Upon each adjustment of the Exercise Price pursuant hereto, the number of shares of Common Stock specified in this Option shall thereupon evidence the right to purchase that number of shares of Common Stock (calculated to the nearest hundredth of a share of Common Stock) obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares of Common Stock purchasable immediately prior to such adjustment upon exercise of this Option and dividing the product so obtained by the Exercise Price in effect after such adjustment.

 

  (d)           Irrespective of any adjustments to the number or kind of securities issuable upon exercise of this Option or in the Exercise Price, any warrants thereafter issued may continue to express the same number of shares of Common Stock and Exercise Price as are stated in the warrants previously issued.

 

  (e)           The Company may, at its sole option, retain the independent public accounting firm regularly retained by the Company, or another firm of independent public accountants of recognized standing selected by the Company's board of directors (the " Board of Directors "), to make any computation required under this section and a certificate signed by such firm shall be conclusive evidence of any computation made under this section.

 

  (f)           Whenever there is an adjustment in the Exercise Price and/or in the number or kind of securities issuable upon exercise of this Option, as provided herein, the Company shall: (i) promptly file in the custody of its Secretary or Assistant Secretary a certificate signed by the Chairman of the Board of Directors or the Chief Executive Officer of the Company and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Company, showing in detail the facts requiring such adjustment and the number and kind of securities issuable upon exercise of this Option after such adjustment; and (ii) cause a notice to be sent to the Holder stating that such adjustment has been effected and stating the Exercise Price then in effect and the number and kind of securities issuable upon exercise of this Option.

 

  (g)           The Exercise Price and the number of shares issuable upon exercise of this Option shall only be adjusted in the manner and upon the conditions heretofore specifically referred to in Subsections 7(a) through 7(f) above.

 

8.             Transfer to Comply with the Securities Act and Other Applicable Securities Laws . Neither this Option nor the shares of Common Stock (or other securities) issuable upon exercise hereof have been registered under the Securities Act of 1933, as amended (“ Securities Act ”) or under state securities laws.  This Option may not be transferred, assigned, pledged, sold, or otherwise disposed of and the shares of Common Stock (or other securities) issuable upon exercise of this Option may not be transferred, assigned, pledged, sold or otherwise disposed of in the absence of registration under or exemption from the applicable provisions of the Securities Act unless the Holder provides the Company with an opinion of counsel in form and substance satisfactory to the Company (together with such other representations and warranties as the Company may request) that the shares of Common Stock issued or issuable, as applicable, upon exercise of this Option may be legally transferred without violating the Securities Act, and any other applicable securities law and then only against receipt of an agreement of the transferee (in form and substance satisfactory to the Company) to comply with the provisions of this section with respect to any resale or other disposition of such securities. Unless subsequently registered under the Securities Act and under applicable state securities laws, any shares issuable upon exercise of this Option shall bear a restrictive legend reflecting the foregoing restrictions on sale or transfer.

 

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9.             Notices .   Any notices, consents, waivers, or other communications required or permitted to be given hereunder must be in writing and will be deemed to have been delivered personally: (a) upon receipt, when delivered personally; (b) upon receipt, when sent by facsimile, provided a copy is mailed by U.S. certified mail, postage prepaid and return receipt requested; (c) three (3) days after being sent by U.S. certified mail, postage prepaid and return receipt requested; or (d) one (1) day after deposit with a nationally recognized overnight delivery service, postage prepaid, in each such case properly addressed to the party to receive the same.  The addresses and facsimile numbers for such communications shall be: if to the Holder, at the address and facsimile number of the Holder as shown on the registry books maintained by the Company; and if to the Company, to TX Holdings, Inc., 12080 Virginia Boulevard, Ashland, Kentucky  41102, attention: CFO, facsimile number (606) 929-5727.

 

10.          Amendments . The Company may, in its sole discretion, by supplemental agreement or pursuant to an amended option agreement issued in exchange for this Option Agreement make any changes or corrections to the terms and conditions hereof which it deems appropriate in order to (a) reduce the Exercise Price; (b) extend the Expiration Date; or (c) modify such other terms and conditions hereof which modification, in the judgment of the Board of Directors of the Company, provides, when considered under the totality of the circumstances, a net benefit to or which, in the exercise of such judgment, the Board of Directors reasonably determines would not be contrary to the interests of the Holder; provided, however, that no adverse change in the number or nature of the securities purchasable upon the exercise of this Option, or the Exercise Price, or acceleration of the Option Expiration Date, shall be made without the consent in writing of the Holder.

 

11.          Agreement of Option Holder .   The Holder, by his acceptance thereof, acknowledges that:

 

  (a)           The Company may deem and treat the person or entity in whose name this Option Agreement is registered as the Holder and as the absolute, true and lawful owner of the Option for all purposes, and the Company shall not be affected by any notice or knowledge to the contrary; and

 

  (b)           Holder shall execute all such further instruments and documents and take such further action as the Company may reasonably require in order to effectuate the terms and purposes of this Option Agreement.

 

12.          Severability .   The provisions of this Option Agreement shall be considered severable in the event that any of such provisions are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable.  Such invalid, void or otherwise unenforceable provisions shall be automatically replaced by other provisions which are valid and enforceable and which are as similar as possible in term and intent to those provisions deemed to be invalid, void or otherwise unenforceable.  Notwithstanding the foregoing, the remaining provisions hereof shall remain enforceable to the fullest extent permitted by law.

 

13.          Governing Law .   The validity and construction of this Option Agreement and all matters pertaining hereto are to be determined in accordance with the laws of the State of Georgia without reference to the conflict of law principles of that state.

 

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14.          Entire Agreement .     This Option Agreement is intended to and does contain and embody the entire understanding and agreement of the Company and the Holder with respect to the subject matter hereof and there exists no oral agreement or understanding, express or implied, whereby the absolute, final and unconditional character and nature of this Option Agreement shall be in any way invalidated, unempowered or affected.

 

15.          Headings .     The headings in this Option Agreement are for convenience of reference only and are not part of this Option Agreement.

 

16.          Assignment .        Except pursuant to the laws of descent and distribution, this Option Agreement may not be assigned by Holder without the prior written consent of the Company.

 

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IN WITNESS WHEREOF, the Company has caused this Option Agreement to be signed in its name and on its behalf and its corporate seal to be affixed hereon by its duly authorized officers as of the date of issuance first above written.

 

 

	TX HOLDINGS, INC.

	By:	/s/ Jose Fuentes
	Name:	Jose Fuentes
		Chief Financial Officer

 

 

Annex A to Option Agreement

 

FORM OF SUBSCRIPTION

 

(Complete and sign only upon exercise of the Option Agreement in whole or in part.)

 

To:           TX Holdings, Inc.

 

The undersigned, the holder of the attached Option Agreement to which this Form of Subscription applies, hereby irrevocably elects to exercise the purchase rights represented by such Options for and to purchase thereunder _______________ shares of common stock, no par value per share (the " Common Stock "), from TX Holdings, Inc. (or such other securities issuable pursuant to the terms of the Option Agreement) and herewith makes payment of $____________________________ therefor in cash or by certified or official bank check. The undersigned hereby requests that the certificate(s) representing such securities be issued in the name(s) and delivered to the address(es) as follows:

 

Name: _______________________________________________________________________________

Address: _____________________________________________________________________________

Social Security or Taxpayer Identification Number: __________________________________________

Deliver to: ___________________________________________________________________________

Address: _____________________________________________________________________________

 

If the foregoing subscription evidences an exercise of the Options to purchase fewer than all of the shares of Common Stock (or other securities issuable pursuant to the terms of the Option Agreement) to which the undersigned is entitled under such Option, please issue a new Option, of like tenor, relating to the remaining portion of the securities issuable upon exercise of such Option Agreement (or other securities issuable pursuant to the terms of such Option) in the name(s), and deliver the same to the address(es), as follows:

 

Name: _______________________________________________________________________________        
Address: _____________________________________________________________________________

Dated: _______________________________________________________________________________

 

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