UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 10
 
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934

Global Digital Solutions, Inc.
(Exact name of registrant as specified in its charter)
 
New Jersey
22-3392051
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
   
777 South Flagler Drive, Suite 800 West, West Palm Beach, FL
33410
(Address of principal executive offices)
(Zip Code)
 
561-515-6000
(Registrant's Telephone Number, Including Area Code)
 
Copy to:
Owen Naccarato
Naccarato & Associates
1100 Quail Street, Suite 100
Newport Beach, CA 92660
Office: 949-851-9261
Fax: 949-851-9262
 
Securities to be registered pursuant to Section 12(b) of the Act:
     
Title of each class
to be so registered
 
Name of each exchange on which
Each class is to be registered
 
Securities to be registered pursuant to Section 12(g) of the Act:
 
Common
(Title of Class)
 
 
(Title of Class)
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company þ

 
 

 

FORM 10
 
GLOBAL DIGITAL SOLUTIONS, INC
 
TABLE OF CONTENTS
 
   
Page
     
Item 1.
Business.
2
     
Item 1A.
Risk Factors.
5
     
Item 2.
Financial Information.
14
     
Item 3.
Properties.
21
     
Item 4.
Security Ownership of Certain Beneficial Owners and Management
21
     
Item 5.
Directors and Executive Officers.
22
     
Item 6.
Executive Compensation.
22
     
Item 7.
Certain Relationships and Related Transactions, and Director Independence.
23
     
Item 8.
Legal Proceedings.
23
     
Item 9.
Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.
23
     
Item 10.
Recent Sales of Unregistered Securities.
24
     
Item 11.
Description of the Registrant’s Securities to be Registered.
27
     
Item 12.
Indemnification of Directors and Officers.
28
     
Item 13.
Financial Statements and Supplementary Data.
29
     
Item 14.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
29
     
Item 15.
Financial Statements and Exhibits.
29

 
 

 
 
Item 1.
Business.
 
History
Effective as of March 23, 2004, Creative Beauty Supply, Inc., ("Creative"), a New Jersey corporation that was incorporated on August 23, 1995, acquired Global Digital Solutions, Inc., a Delaware corporation ("Global”). The merger was treated as a recapitalization of Global. Creative changed its name to Global Digital Solutions, Inc. (“We” or the “Company). We disposed of our pre-merger assets and liabilities and succeeded to the business of Global. Although Creative was the legal acquiror, Global became the accounting acquiror of the Company for financial statement purposes. On January 8, 2004, Global had acquired Pacific ComTel, Inc., a company that provided structured cabling design, installation and maintenance for leading information technology companies, federal, state and local government, major businesses, educational institutions, and telecommunication companies.

Our mission was to target the United States government contract marketplace for audio and video services. The U.S. government and commercial marketplaces have budgeted over the long term to upgrade existing telephony, computer, and outsourcing systems across the spectrum of communications, security, and services marketplace segments. Due to significant capital constraints, we wound down the majority of our operations in June of 2005, but continued to operate a small operations team in Northern California.

We changed our fiscal year end from June 30 to December 31, in June, 2009.

On August 6, 2013, we filed a Certificate of Amendment to Certificate of Incorporation to increase the number of our authorized shares of capital stock from 110,000,000 shares to 185,000,000 shares, divided into two classes: 175,000,000 shares of common stock, par value $.001 per share (the “common stock”), and 10,000,000 shares of preferred stock, par value $.001 per share (the “Preferred Stock”).  The foregoing description of the amendment to our certificate of incorporation does not purport to be complete and is qualified in its entirety by reference to the complete text of the Certificate of Amendment to Certificate of Incorporation, which is filed as Exhibit 3.3 hereto, and which is incorporated herein by reference.
 
Acquisition and Disposition of Bronco Communications, LLC
On January 1, 2012, we acquired a 51% stake in Bronco Communications, LLC, (“Bronco”) a Nevada-California regional telecommunications subcontractor located in Folsom, CA in consideration for 4,289,029 shares of our restricted common stock valued at $0.035 per share, or $150,116, the fair market value of our common stock on the date the agreement was made. Our sole director and officer owns a 10% membership interest in Bronco. On October 15, 2012, we entered into an Amendment to the Purchase Agreement, we agreed to relinquish control of Bronco to its minority shareholders effective as of January 1, 2013 in consideration  for the assumption of Bronco’s liabilities. The foregoing description of the acquisition and disposition of Bronco does not purport to be complete and is qualified in its entirety by reference to the complete text of the (i) Purchase Agreement, which is filed as Exhibit 2.1 hereto, and (ii) the Amendment to Purchase Agreement, which is filed as Exhibit 2.2 hereto, each of which is incorporated herein by reference.
 
Formation of subsidiaries
In December 2012 we incorporated GDSI Florida LLC, and in January 2013 we incorporated Global Digital Solutions, LLC, both Florida limited liability companies.

Change in business direction
On May 1, 2012, with support from our major shareholders, we made the decision to wind down our operations in the telecommunications area and refocus our efforts in the area of small arms manufacturing, knowledge-based and culturally attuned social consulting and security-related solutions in unsettled areas. Upon completion of the acquisition of Airtronic, discussed below, and until we make further acquisitions, we intend to carry on the business of Airtronic as our sole line of business.

Acquisition of Airtronic USA, Inc.
On August 13, 2012, we entered into a Letter of Intent (“LOI”) to acquire 70% of Airtronic USA, Inc. (“Airtronic”), a debtor in possession under chapter 11 of the Bankruptcy Code in a case pending in the US Bankruptcy Court for the Northern District of Illinois, Eastern Division (the Bankruptcy Court”). Airtronic, founded in 1990 and based in Elk Grove Village, Illinois, is an electro-mechanical engineering design and manufacturing company that provides small arms and small arms spare parts to the U.S. Department of Defense, foreign militaries, and the law enforcement market. Airtronic’s products include grenade launchers, rocket propelled grenade launchers, grenade launcher guns, flex machine guns, grenade machine guns, rifles, and magazines.
 
 
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On October 22, 2012, we memorialized the terms of the LOI and entered into an Agreement of Merger and Plan of Reorganization (“Merger Agreement”) to acquire 70% of Airtronic (the “Merger”).  On or after the effective date that Airtronic’s bankruptcy case is discharged by the Bankruptcy Court we will merge Airtonic with and into a to be formed subsidiary that we will own 70% of. We may acquire the remaining 30% of Airtronic two years after the closing of the Merger based upon a 4 times EBITDA valuation of Airtronic as set forth in the Merger Agreement. We agreed to contribute to Airtronic, at the closing of the Merger, $2 million less any amounts then outstanding on the Bridge Loan discussed below. We also agreed to issue to the employees of Airtronic options to acquire 4,960,852 shares of our common stock an exercise price of $0.04, the fair market value of our common stock on the date we entered into the LOI, exercisable for a period of ten years.  On June 26, 2013 we agreed to enter into a First Amendment to Agreement of Merger and Plan of Reorganization (“Modification Agreement”), which was approved by the Bankruptcy Court on June 28, 2013. The Modification Agreement provides that, contemporaneously with the closing of the Merger, we will contribute a noninterest bearing note to Airtronic in lieu of the $2,000,000 cash contribution set forth in the Merger Agreement (the “Parent Note”).  The initial principal balance of the Parent Note shall be equal to $2,000,000 less the following amounts to be funded or previously funded by the Company:

1.
The outstanding balance of principal, accrued interest and other amounts then due and owing under the terms of Original Note, as defined below.
2.
The total amount of cash and the value of the Company’s shares of common stock that we shall make available for the settlement of any class of claim or claim pursuant to Airtronic’s approved Plan of Reorganization in its bankruptcy proceeding, as discussed below; and
3.
All other amounts funded or advanced by the Company to or for the benefit of Airtronic prior to the closing date of the Merger.

Contemporaneously with the closing of the Merger, the Original Note shall be cancelled; however, the New Note (defined below) shall remain in full force and effect in accordance with its terms, as shall all security agreements, loan agreements and related documents to the extent they secure, supplement, are incorporated in or relate to the New Note.

The foregoing description of the acquisition of Airtronic does not purport to be complete and is qualified in its entirety by reference to the complete text of the (i) Agreement of Merger and Plan of Reorganization, which is filed as Exhibit 2.3 hereto, and (ii) the First Amendment to Agreement of Merger and Plan of Reorganization, which is filed as Exhibit 2.4 hereto, each of which is incorporated herein by reference.

On October 22, 2012, we entered into a Debtor In Possession Note Purchase Agreement (“Bridge Loan”) with Airtronic. We agreed to lend Airtronic up to a maximum of $2,000,000, with an initial advance of $750,000 evidenced by an 8¼% Secured Promissory Note with an original principal amount of $750,000 made by Airtronic in favor of the Company (the “Original Note”), due and payable on the date the Bankruptcy Court has discharged the Airtronic bankruptcy case, and a security agreement (the “Security Agreement”) securing all of Airtronic’s assets. As of December 31, 2012 we had not advanced any funds to Airtronic under the Bridge Loan and Original Note.

In March 2013, the Company and Airtronic amended the Bridge Loan to provide for a maximum advance of up to $700,000 under the Bridge Loan and Original Note (the “First Amendment”).  On June 26, 2013, we agreed to a second modification of the Bridge Loan agreement with Airtronic, and agreed to loan Airtronic up to an additional $550,000 under the Bridge Loan.  On August 5, 2013, we entered into the Second Bridge Loan Modification and Ratification Agreement (the “Second Amendment”), a new 8¼% secured promissory note for $550,000 (the “New Note”), and a security agreement with the CEO of Airtronic, securing certain intellectual property for patent-pending applications and trademarks that were registered in her name (the “Kett Security Agreement”).
 
As of August 5, 2013, we had advanced Airtronic $683,640 under the Bridge Loan.
 
The foregoing description of the Bridge loan to Airtronic does not purport to be complete and is qualified in its entirety by reference to the complete text of (i) the Debtor In Possession Note Purchase Agreement, which is filed as Exhibit 10.1 hereto, (ii) the Original Note, which is filed as Exhibit 10.2 hereto, (iii) the Security Agreement, which is filed as Exhibit 10.3 hereto, (iv) the First Amendment, which is filed as Exhibit 10.4 hereto, (v) the Second Amendment, which is filed as Exhibit 10.5 hereto, the New Note, which is filed as Exhibit 10.6 hereto, and (vi) the Kett Security Agreement, which is filed as Exhibit 10.7 hereto, each of which is incorporated herein by reference.
 
 
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On June 10, 2013, Airtronic, with our consent, filed a Plan of Reorganization with the Bankruptcy Court. The Plan provides, among other things, that Airtronic’s secured and unsecured creditors may elect to take shares of our common stock, valued at $0.50 per share, saleable after twelve months with “Price Protection”.  Price Protection shall mean that if a holder of our common stock issued pursuant to the Amended Plan sells its shares in whole or in part in an arm’s-length transaction for a fair market value less than $0.50 per share after twelve months from the effective date of the Plan, but before twenty-four months from the effective date of the Plan, then the shareholder shall be provided with an amount of new shares of our common stock equal to the result of the following formula: (x) the sales price the shareholder would have received if its shares of our common stock had sold for $0.50 per share minus   the actual sales price received by the shareholder for our common stock; divided by (y) the actual price per share received by the shareholder.

Convertible Note Payable
In December 2012, we entered into a Promissory Note Purchase Agreement, a Secured Promissory Note (“Note”) and Security Agreement with an Investor (“Investor”) to lend us $750,000. The Note bears interest at 8¼%, is secured by all of our assets and is due on May 1, 2013.  In connection with the transaction, we issued to the Investor a warrant to acquire 3,000,00 shares of our common stock at an exercise price of $0.15, exercisable for a period of three years (the “Warrant”).
 
On May 6, 2013, the Company and the Investor entered into an amendment (the “Amendment”) to the Promissory Note Purchase Agreement and the related Secured Promissory Note, Security Agreement and Warrant to:

(1)
Extend the Note’s maturity date to July 1, 2013;
(2)
Provide that on or before the maturity date, we may elect to convert the Note into 3,000,000 shares of our common stock at a conversion price of $.25; and
(3)
Reduce the exercise price of the Warrant from $0.15 to $0.10.

On July 1, 2013, the Investor converted the Note into 3,000,000 shares of our common stock

The foregoing description of the Convertible Note loan to the Company does not purport to be complete and is qualified in its entirety by reference to the complete text of (i) the Promissory Note Purchase Agreement, which is filed as Exhibit 10.8 hereto, (ii) the Note, which is filed as Exhibit 10.9 hereto, (iii) the Security Agreement, which is filed as Exhibit 10.10 hereto, (iv) the Warrant, which is filed as Exhibit 10.11 hereto, and (v) the Amendment, which is filed as Exhibit 10.12 hereto, each of which is incorporated herein by reference.

Private Placements
Between January 1, 2013 and June 30, 2013, we sold 3,268,000 shares of our common stock in private placements to accredited investors for gross proceeds of $926,100. The foregoing description of the private placements does not purport to be complete and is qualified in its entirety by reference to the complete text of the Form of Subscription Agreement, which is filed as Exhibit 10.13 hereto, and which is incorporated herein by reference.

Changes to the Board of Directors and Executive Officers
Upon the closing of the merger/acquisition of Airtronic, Richard J. Sullivan, Jennifer Carroll, Arthur Noterman and Stuart Russo are expected to be appointed as directors of the Company. William J. Delgado, our sole director will continue to serve as a director.  In addition, upon the closing of the acquisition of Airtronic, Richard J. Sullivan, Jennifer Carroll, David A. Loppert, Mathew Kelley and Gary Grey are expected to be appointed as the officers of the Company.

Our board of directors presently consists of one person.  The number may be fixed from time to time by the board or our stockholders, and after the acquisition of Airtronic it is expected to consist of 5 persons. A vacancy on our board of directors may be filled by the vote of a majority of the directors holding office. All directors hold office for one-year terms until the election and qualification of their successors. Officers are appointed by the board of directors and serve at the discretion of the board.
 
 
4

 
 
Executive Offices
 
Our executive officers are located at 777 South Flagler Drive, Suite 800 West, West Palm Beach, FL 33410 and our telephone number is 561-515-6000.
 
Description of Our Business

Products, Services and Markets Served
We originally provided telecom and data engineering services to Fortune 500 companies, National Telco wireless and wireline service providers, and Federal, State, and Local governments including the Department of Defense. In May 2012 we made a decision to exit this line of business and refocus our efforts in the area of small arms manufacturing, knowledge-based and culturally attuned social consulting and security-related solutions in unsettled areas. As discussed above, we have made an offer to acquire Airtronic and we expect to operate in the areas of business that Airtronic operates in upon the consummation of the Airtronic acquisition.

Airtronic, founded in 1990 and based in Elk Grove Village, Illinois, is an electro-mechanical engineering design and manufacturing company that provides small arms and small arms spare parts to the U.S. Department of Defense, foreign militaries, and the law enforcement market. Airtronic’s products include grenade launchers, rocket propelled grenade launchers, grenade launcher guns, flex machine guns, grenade machine guns, rifles, and magazines.
 
Patents, Trademarks, and Licenses
We do not own any patents or trademarks and we have not entered into any license agreements.

Employees
As of July 31, 2013, we employed one full-time employee and two part-time employees.  We also use professionals on an as-needed basis. We have no collective bargaining agreements and believe our relations with our employees are good.
 
Item 1A.
Risk Factors.
 
There are numerous and varied risks, known and unknown, that may prevent us from achieving our goals.  If any of these risks actually occur, our business, financial condition or results of operation may be materially adversely affected.  In such case, the trading price of our common stock could decline and investors could lose all or part of their investment.
 
Risks Relating to Our Business

We have a limited operating history and past performance is no guarantee of future performance.
We generated net loss of $491,091 for the year ended December 31, 2012 and a net loss for the six-month period ended June 30, 2013 of $3,014,794.  At June 30, 2013 we had cash and cash equivalents of $609,431 and a working capital deficit was $174,238, which is insufficient to sustain our operations.  There can be no assurance that our business will be profitable in the future and that losses and negative cash flows from operations will not be incurred.  If these situations occur in the future, it could have a material adverse affect on our financial condition.

There is substantial doubt about our ability to continue as a going concern.
Our independent registered public accounting firm has issued an opinion on our December 31, 2012 financial statements that states that the financial statements were prepared assuming we will continue as a going concern.  As discussed in Note 1 to the financial statements, we had a net loss of $491,091 for the year ended December 31, 2012, and used net cash of $215,627 for operating activities. Additionally, at December 31, 2012, we had a stockholders’ deficit of $67,108, an accumulated deficit of $7,561,122 and a working capital deficit of $462,241.  These matters raise substantial doubt about our ability to continue as a going concern.  Our plan in regards to these matters is also described in Note 1 to our financial statements.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 
5

 
 
Our future is dependent on our ability to meet our financing requirements, complete the acquisition of Airtronic and successfully implement new lines of business for Airtronic, and complete other, as yet, unidentified acquisitions. If we fail for any reason, we might not be able to continue as a going concern.
 
We will need additional financing to fully implement our business plan, and we cannot assure you that we will be successful in obtaining such financing or in continuing our operations.
We had focused our efforts on developing our business in the communications sector. We are now focusing our efforts on developing our business in the areas of small arms manufacturing, knowledge-based and culturally attuned social consulting and security-related solutions in unsettled areas. Airtronic is an electro-mechanical engineering design and manufacturing company that provides small arms and small arms spare parts to the U.S. Department of Defense, foreign militaries, and the law enforcement market. Airtronic’s products include grenade launchers, rocket propelled grenade launchers, grenade launcher guns, flex machine guns, grenade machine guns, rifles, and magazines and we will continue with this line of business upon the closing of the merger. We will need to raise additional capital to continue to develop and improve Airtronic’s product line, and to establish adequate marketing, sales, and customer support operations. There can be no assurance that additional public or private financing, including debt or equity financing, will be available as needed, or, if available, on terms favorable to us. Any additional equity financing may be dilutive to our stockholders and such additional equity securities may have rights, preferences or privileges that are senior to those of our existing common or preferred stock. Furthermore, debt financing, if available, will require payment of interest and may involve restrictive covenants that could impose limitations on our operating flexibility. Our failure to successfully obtain additional future funding may jeopardize our ability to continue our business and operations.

We depend upon our senior management and our business may be adversely affected if we cannot retain them.
Our success depends upon our ability to attract and retain experienced senior management with specialized industry and technical knowledge and/or industry relationships. We expect that upon the closing of the acquisition of Airtronic, our major shareholder, Richard J Sullivan, will be appointed CEO of the Company, that Jennifer Carroll will be appointed COO, and that David Loppert, CFO.  Mr. Sullivan and Mr. Loppert have significant experience as CEO and CFO, respectively, of public companies. Ms. Carroll was until recently the Lt. Governor of the State of Florida, has served in the military, and has significant managerial experience. We might not be able to find or replace qualified individuals to fill the slots of senior management that we anticipate if their services do not become available to us or are no longer available to us; accordingly the inability to fill, or the loss of critical members of our anticipated senior management team could have a material adverse effect on our ability to effectively pursue our business and acquisition strategy. We do not have key-man life insurance covering any of our employees at this time.
 
If we are unable to manage future growth, our business may be negatively affected.
We are continuing to pursue a strategy of rapid growth, and plan to expand significantly our capability and devote substantial resources to our marketing, sales, administrative, operational, financial and other systems and resources. Such expansion will place significant demands on our marketing, sales, administrative, operational, financial and management information systems, controls and procedures. Accordingly, our performance and profitability will depend on the ability of our officers and key employees to:
 
manage our business and our subsidiaries as a cohesive enterprise;
manage expansion through the timely implementation and maintenance of appropriate administrative, operational, financial and management information systems, controls and  procedures;
add internal capacity, facilities and third-party sourcing arrangements as and when needed;
maintain service quality controls; and
attract, train, retain, motivate and manage effectively our employees.

There can be no assurance that we will integrate and manage successfully new systems, controls and procedures for our business, or that our systems, controls, procedures, facilities and personnel, even if successfully integrated, will be adequate to support our projected future operations. Any failure to implement and maintain such systems, controls and procedures, add internal capacity, facilities and third-party sourcing arrangements or attract, train, retain, motivate and manage effectively our employees could have a material adverse effect on our business, financial condition and results of operations.  In addition, we may incur substantial expenses identifying, investigating and developing appropriate products and services in the small arms business markets, plus there can be no assurance that any expenditures incurred in identifying, investigating and developing such products and services will ever be recouped.
 
 
6

 

We will need additional capital to fund ongoing operations and to respond to business opportunities, challenges, acquisitions or unforeseen circumstances.  If such capital is not available to us, our business, operating results and financial condition may be harmed.
At June 30 2013, we had $609,431 of cash on hand and a working capital deficit of $174,238.  Our limited operating history makes it difficult to accurately forecast revenues and expenses, and in conjunction with other Risk Factors, raises substantial doubt about our ability to continue as a going concern.  Since January 1, 2013, we have closed on various private placements and received gross proceeds of $926,100.  We will continue to seek equity financing to provide funding for operations but the current market for equity financing is very weak.  If we are not successful in raising additional equity capital to generate sufficient cash flows to meet our obligations as they come due, we will have to reduce our overhead expenses by the reduction of headcount and other available measures.
 
We may require additional capital to expand our business or acquire complementary businesses although we have not identified any specific acquisition candidates.  However, additional funds may not be available when we need them, on terms that are acceptable to us, or at all.  For example, any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions.  In addition, if we do not have funds available to make strategic acquisitions, we may not be able to expand our business.  The inability to raise additional capital could have an adverse effect on our business, operating results and financial condition.
 
We may face strong competition from larger, established companies.
We likely will face intense competition from other companies that provide the same or similar small arms manufacturing services, knowledge-based and culturally attuned social consulting and security-related solutions we expect to provide, virtually all of whom can be expected to have longer operating histories, greater name recognition, larger installed customer bases and significantly more financial resources, R&D facilities and manufacturing and marketing experience than we have. There can be no assurance that developments by our potential competitors will not render Airtronic’s existing and future products or services obsolete.  In addition, we expect to face competition from new entrants into the arms business and knowledge-based and culturally attuned social consulting and security-related solutions businesses. As the demand for products and services grows and new markets are exploited, we expect that competition will become more intense, as current and future competitors begin to offer an increasing number of diversified products and services. We may not have sufficient resources to maintain our research and development, marketing, sales and customer support efforts on a competitive basis. Additionally, we may not be able to make the technological advances necessary to maintain a competitive advantage with respect to our products and services. Increased competition could result in price reductions, fewer product orders, obsolete technology and reduced operating margins, any of which could materially and adversely affect our business, financial condition and results of operations.

If we are unable to keep up with technological developments, our business could be negatively affected.
If we are successful in acquiring Airtronic, the markets for our anticipated products and services are generally characterized by rapid technological change and are highly competitive with respect to timely innovations. Accordingly, we believe that our ability to succeed in the sale of our products and services will depend significantly upon the technological quality of our products and services relative to those of our competitors, and our ability to continue to develop and introduce new and enhanced products and services at competitive prices and in a timely and cost-effective manner.  In order to develop such new products and services, we will depend upon close relationships with Aitronic’s existing customers and our ability to continue to develop and introduce new and enhanced products and services at competitive prices and in a timely and cost-effective manner. There can be no assurance that our future customers will provide us with timely access to such information or that we will be able to develop and market our new products and services successfully or respond effectively to technological changes or new product and service offerings of our potential competitors in the arms business. We may not be able to develop the required technologies, products and services on a cost-effective and timely basis, and any inability to do so could have a material adverse effect on our business, financial condition and results of operations.

 
7

 
 
We may not be able to protect intellectual property that we expect to acquire, which could adversely affect our business.
The companies that we expect to acquire rely on patent, trademark, trade secret and copyright protection to protect their technology. We believe that technological leadership will be achieved through additional factors such as the technological and creative skills of our personnel, new product developments, frequent product enhancements, name recognition and reliable product maintenance. Nevertheless, our ability to compete effectively depends in part on our ability to develop and maintain proprietary aspects of our technology, such as patents. We may not secure future patents and patents become invalid and may not provide meaningful protection for our product innovations. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as do the laws of the United States. Furthermore, there can be no assurance that competitors will not independently develop similar products, "reverse engineer" our products, or, if patents are issued to us, design around such patents.  We also rely upon a combination of copyright, trademark, trade secret and other intellectual property laws to protect our proprietary rights by entering into confidentiality agreements with our employees, consultants and vendors, and by controlling access to and distribution of our technology, documentation and other proprietary information. There can be no assurance, however, that the steps taken by us will not be challenged, invalidated or circumvented, or that the rights granted there under will provide a competitive advantage to us. Any such circumstance could have a material adverse effect on our business, financial condition and results of operations.  While we are not currently engaged in any intellectual property litigation or proceedings, there can be no assurance that we will not become so involved in the future or that our products do not infringe any intellectual property or other proprietary right of any third party. Such litigation could result in substantial costs, the diversion of resources and personnel, and subject us to significant liabilities to third parties, any of which could have a material adverse effect on our business.

We may not be able to protect our trade names and domain names.
We may not be able to protect our trade names and domain names against all infringers, which could decrease the value of our brand name and proprietary rights. We currently hold the Internet domain name "www.gdso.co" and we use GDSI as a trade name. Domain names generally are regulated by Internet regulatory bodies and are subject to change and may be superseded, in some cases, by laws, rules and regulations governing the registration of trade names and trademarks with the United States Patent and Trademark Office and certain other common law rights. If the domain registrars are changed, new ones are created or we are deemed to be infringing upon another's trade name or trademark. In such event, we could be unable to prevent third parties from acquiring or using, as the case may be, our domain name, trade names or trademarks, which could adversely affect our brand name and other proprietary rights.

The effects of the sequester may adversely impact our business, operating results or financial condition.
The sequester and its associated cutbacks in the military and support services has resulted in furloughs, further delaying processing and approval of foreign military orders that are approved by the department of defense. This, coupled with continuing changes in economic conditions, including declining consumer confidence, concerns about inflation or deflation, the threat of a continuing recession, increases in the rates of default and bankruptcy and extreme volatility in the credit and equity markets, may lead our customers to cease doing business with us or to reduce or delay that business or their payments to us, and our results of operations and financial condition could be adversely affected by these actions.  These challenging economic conditions also may result in:
 
increased competition for less spending;
pricing pressure that may adversely affect revenue;
difficulty forecasting, budgeting and planning due to limited visibility into the spending plans of current or prospective customers; or
customer financial difficulty and increased risk of doubtful accounts receivable.

We are unable to predict the duration and severity of the sequester and its adverse economic impact on conditions in the U.S. and other countries.
 
 
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We expect a number of factors to cause our operating results to fluctuate on a quarterly and annual basis, which may make it difficult to predict our future performance.
Our revenues and operating results could vary significantly from quarter to quarter and year to year because of a variety of factors, many of which are outside of our control.  As a result, comparing our operating results on a period-to-period basis may not be meaningful.  In addition to other risk factors discussed in this section, factors that may contribute to the variability of our quarterly and annual results include:
 
our ability to accurately forecast revenues and appropriately plan our expenses;
the impact of worldwide economic conditions, including the resulting effect on consumer spending;
our ability to maintain an adequate rate of growth;
our ability to effectively manage our growth;
our ability to attract new customers;
our ability to successfully enter new markets and manage our international expansion;
the effects of increased competition in our business;
our ability to keep pace with changes in technology and our competitors;
our ability to successfully manage any future acquisitions of businesses, solutions or technologies;
the success of our marketing efforts;
changes in consumer behavior and any related impact on the advertising industry;
interruptions in service and any related impact on our reputation;
the attraction and retention of qualified employees and key personnel;
our ability to protect our intellectual property;
costs associated with defending intellectual property infringement and other claims;
the effects of natural or man-made catastrophic events;
the effectiveness of our internal controls; and
changes in government regulation affecting our business.

As a result of these and other factors, the results of any prior quarterly or annual periods should not be relied upon as indications of our future operating performance, and any unfavorable changes in these or other factors could have a material adverse effect on our business, financial condition and results of operation.

Growth may place significant demands on our management and our infrastructure.
We have forecasted substantial growth in our business. This growth will place significant demands on our management and our operational and financial infrastructure.  As our operations grow in size, scope and complexity, we will need to improve and upgrade our systems and infrastructure to meet customer demand. The expansion of our systems and infrastructure will require us to commit substantial financial, operational and technical resources in advance of an increase in the volume of business, with no assurance that the volume of business will increase.  Continued growth could also strain our ability to maintain reliable service levels for our customers and meet their expected delivery schedules, develop and improve our operational, financial and management controls, enhance our reporting systems and procedures and recruit, train and retain highly skilled personnel.
 
Managing our growth will require significant expenditures and allocation of valuable management resources. If we fail to achieve the necessary level of efficiency in our organization as it grows, our business, operating results and financial condition would be harmed.
 
Future acquisitions could disrupt our business and harm our financial condition and operating results.
Our success will depend, in part, on our ability to expand our offerings and markets and grow our business in response to changing technologies, customer demands and competitive pressures.  In some circumstances, we may determine to do so through the acquisition of complementary businesses, solutions or technologies rather than through internal development.  The identification of suitable acquisition candidates can be difficult, time-consuming and costly, and we may not be able to successfully complete identified acquisitions.  Furthermore, even if we successfully complete an acquisition, we may not be able to successfully assimilate and integrate the business, technologies, solutions, personnel or operations of the company that we acquired, particularly if key personnel of an acquired company decide not to work for us.  In addition, we may issue equity securities to complete an acquisition, which would dilute our stockholders' ownership and could adversely affect the price of our common stock.  Acquisitions may also involve the entry into geographic or business markets in which we have little or no prior experience.  Consequently, we may not achieve the anticipated benefits of acquisitions which could harm our operating results.
 
 
9

 
 
Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.
In order to protect our proprietary technology and processes, we will rely in part on confidentiality agreements with our employees, customers, potential customers, independent contractors and other advisors.  These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information.  In addition, others may independently discover trade secrets and proprietary information, and in such cases we could not assert any trade secret rights against such parties.  Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
 
We will incur increased costs as a result of being a public reporting company, which may adversely affect our operating results and financial condition.
As a public reporting company, we will incur significant accounting, legal and other expenses that we did not incur as a non-reporting public company.  We will incur costs associated with our public company reporting requirements.  We also anticipate that we will incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, as well as rules implemented by the SEC.  We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly.  Furthermore, these laws and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.  The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.  We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements.  We are currently evaluating the costs with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.  New laws and regulations as well as changes to existing laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002 and rules adopted by the SEC would likely result in increased costs to us as we respond to their requirements.
 
If we fail to establish and maintain an effective system of internal control, we may not be able to report our financial results accurately or to prevent fraud.  Any inability to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading price of our common stock.
Effective internal control is necessary for us to provide reliable financial reports and prevent fraud.  If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed.  As a result, our small size and any current internal control deficiencies may adversely affect our financial condition, results of operation and access to capital.  We have not performed an in-depth analysis to determine if historical un-discovered failures of internal controls exist, and may in the future discover areas of our internal control that need improvement.
 
Risks Related to our Common and Preferred Stock

We may be unable to register for resale all of the shares of common stock sold in private placements, in which case purchasers in the private placements will need to rely on an exemption from the registration requirements in order to sell such shares.
In connection with our various private placements we are obligated to include all such common stock sold in our next “resale” registration statement with the SEC. Nevertheless, it is possible that the SEC may not permit us to register all of such shares of common stock for resale. In certain circumstances, the SEC may take the view that the private placements require us to register the resale of the securities as a primary offering. Investors should be aware of the existence of risks that interpretive positions taken with respect to Rule 415, or similar rules or regulations including those that may be adopted subsequent to the date of this registration statement on Form 10, that could impede the manner in which the common stock may be registered or our ability to register the common stock for resale at all or the trading in our securities. If we are unable to register some or all of the common stock, or if shares previously registered are not deemed to be freely tradeable, such shares would only be able to be sold pursuant to an exemption from registration under the Securities Act, such as Rule 144, that currently permits the resale of securities by holders who are not affiliated with the issuer following twelve months from the filing of this Form 10.
 
 
10

 
 
Our stock price may be volatile.
The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:
 
changes in our industry;
competitive pricing pressures;
our ability to obtain working capital financing;
additions or departures of key personnel;
limited "public float”, in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price for our common stock;
sales of our common stock (particularly following effectiveness of the resale registration statement filed in connection with the private placements);
our ability to execute our business plan;
operating results that fall below expectations;
loss of any strategic relationship;
regulatory developments;
economic and other external factors;
period-to-period fluctuations in our financial results; and
inability to develop or acquire new or needed technology.

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies.  These market fluctuations may also materially and adversely affect the market price of our common stock.
 
We have not paid dividends in the past and do not expect to pay dividends in the future.  Any return on investment may be limited to the value of our common stock.
We have never paid cash dividends on our common stock and do not anticipate doing so in the foreseeable future.  The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant.  If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if our stock price appreciates.
 
There is currently a limited liquid trading market for our common stock and we cannot ensure that one will ever develop or be sustained.
To date there has been a nominal liquid trading market for our common stock.  We cannot predict how liquid the market for our common stock might become.  Our common stock is quoted for trading on the OTCQB Marketplace (“Pink OTC”) or pink sheets.  As soon as is practicable, we anticipate applying for listing of our common stock on either the American Stock Exchange, The Nasdaq Capital Market or other national securities exchange, assuming that we can satisfy the initial listing standards for such exchange.  We currently do not satisfy the initial listing standards, and cannot ensure that we will be able to satisfy such listing standards or that our common stock will be accepted for listing on any such exchange.  Should we fail to satisfy the initial listing standards of such exchanges, or our common stock is otherwise rejected for listing and remains listed on the Pink OTC or suspended from the Pink OTC, the trading price of our common stock could suffer and the trading market for our common stock may be less liquid and our common stock price may be subject to increased volatility.
 
Furthermore, for companies whose securities are traded in the OTC Bulletin Board, it is more difficult (1) to obtain accurate quotations, (2) to obtain coverage for significant news events because major wire services generally do not publish press releases about such companies, and (3) to obtain needed capital.
 
 
11

 
 
Our common stock may be deemed a "penny stock," which would make it more difficult for our investors to sell their shares.
Our common stock may be subject to the "penny stock" rules adopted under Section 15(g) of the Exchange Act.  The penny stock rules generally apply to companies whose common stock is not listed on The Nasdaq Stock Market or other national securities exchange and trades at less than $4.00 per share, other than companies that have had average revenue of at least $6,000,000 for the last three years or that have tangible net worth of at least $5,000,000 ($2,000,000 if the company has been operating for three or more years).  These rules require, among other things, that brokers who trade penny stock to persons other than "established customers" complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances.  Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited.  If we remain subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities.  If our securities are subject to the penny stock rules, investors will find it more difficult to dispose of our securities.
 
Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
If our stockholders sell substantial amounts of our common stock in the public market, including shares issued in our private placements upon the effectiveness of the registration statement we expect to file, or upon the expiration of any statutory holding period, under Rule 144, or issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an "overhang" and in anticipation of which the market price of our common stock could fall.  The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate. The shares of common stock sold in our private placements will be freely tradable upon the earlier of: (i) effectiveness of a registration statement covering such shares, or (ii) the date on which such shares may be sold without registration pursuant to Rule 144 (or other applicable exemption) under the Securities Act.
 
Investor Relations Activities, Nominal “Float” and Supply and Demand Factors May Affect the Price of our Stock.
We expect to utilize various techniques such as non-deal road shows and investor relations campaigns in order to create investor awareness for the Company.  These campaigns may include personal, video and telephone conferences with investors and prospective investors in which our business practices are described.  We have and we will continue to provide compensation to investor relations firms and pay for newsletters, websites, mailings and email campaigns that are produced by third-parties based upon publicly-available information concerning the Company.  We will not be responsible for the content of analyst reports and other writings and communications by investor relations firms not authored by the Company or from publicly available information.  We do not intend to review or approve the content of such analysts’ reports or other materials based upon analysts’ own research or methods.  Investor relations firms should generally disclose when they are compensated for their efforts, but whether such disclosure is made or complete is not under our control.  We have issued in the past 2,595,000 shares of restricted common stock, and such amounts may be increased in the future.  In addition, investors in the Company may be willing, from time to time, to encourage investor awareness through similar activities.  Investor awareness activities may also be suspended or discontinued which may impact the trading market our common stock.

The SEC and FINRA enforce various statutes and regulations intended to prevent manipulative or deceptive devices in connection with the purchase or sale of any security and carefully scrutinize trading patterns and company news and other communications for false or misleading information, particularly in cases where the hallmarks of “pump and dump” activities may exist, such as rapid share price increases or decreases.  The Company and its shareholders may be subjected to enhanced regulatory scrutiny due to the relatively small number of holders who own the registered shares of the Company’s common stock publicly available for resale, and the limited trading markets in which such shares may be offered or sold which have often been associated with improper activities concerning penny-stocks, such as the OTC Bulletin Board or the OTCQB Marketplace (Pink OTC) or pink sheets.  Until such time as the common stock sold in the private placements are registered and until such time as the restricted shares of the Company are registered or available for resale under Rule 144, there will continue to be a small percentage of shares held by a relatively small number of investors, many of whom acquired such shares in privately negotiated purchase and sale transactions, that will constitute the entire available trading market.  The Supreme Court has stated that manipulative action is a term of art connoting intentional or willful conduct designed to deceive or defraud investors by controlling or artificially affecting the price of securities.  Often times, manipulation is associated by regulators with forces that upset the supply and demand factors that would normally determine trading prices. The supply of Company common stock for sale has been and may continue to be limited for an indeterminate amount of time, which could result in higher bids, asks or sales prices than would otherwise exist.  Securities regulators have often cited thinly-traded markets, small numbers of holders, and awareness campaigns as components of their claims of price manipulation and other violations of law when combined with manipulative trading, such as wash sales, matched orders or other manipulative trading timed to coincide with false or touting press releases.  There can be no assurance that the Company’s or third-parties’ activities, or the small number of potential sellers or small percentage of stock in the “float,” or determinations by purchasers or holders as to when or under what circumstances or at what prices they may be willing to buy or sell stock will not artificially impact (or would be claimed by regulators to have affected) the normal supply and demand factors that determine the price of the stock.

 
12

 
 
We may apply the proceeds of private placements to uses that ultimately do not improve our operating results or increase the value of your investment.
We have used and intend to use the net proceeds from private placements for general working capital purposes. Our management has and will have broad discretion in how we use these proceeds. These proceeds could be applied in ways that do not ultimately improve our operating results or otherwise increase the value of the investment in shares of our common stock sold in the private placements.
 
Because our current and future directors and executive officers are among our largest stockholders, they can exert significant control over our business and affairs and have actual or potential interests that may depart from those of subscribers in our private placements.
Our current and future directors and executive officers own or control a significant percentage of our common stock.  Additionally, the holdings of our directors and executive officers may increase in the future upon vesting or other maturation of exercise rights under any of the restricted stock grants, options or warrants they may hold or in the future be granted or if they otherwise acquire additional shares of our common stock.  The interests of such persons may differ from the interests of our other stockholders, including purchasers of our common stock in our private placements.  As a result, in addition to their board seats and offices, such persons will have significant influence over and control all corporate actions requiring stockholder approval, irrespective of how the Company's other stockholders, including purchasers in the private placements, may vote, including the following actions:
 
to elect or defeat the election of our directors;
to amend or prevent amendment of our Certificate of Incorporation or By-laws;
to effect or prevent a Transaction, sale of assets or other corporate transaction; and
to control the outcome of any other matter submitted to our stockholders for vote.

Such persons' stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.
 
Exercise of options or warrants may have a dilutive effect on our common stock.
If the price per share of our common stock at the time of exercise of any options, or any other convertible securities is in excess of the various exercise or conversion prices of such convertible securities, exercise or conversion of such convertible securities would have a dilutive effect on our common stock. As of June 30, 2013 we had outstanding warrants to acquire 4,500,000 shares of our common stock at exercise prices ranging from $.10 to $.50. In connection with the acquisition of Airtronic, we have agreed to grant approximately 4.9 million options to acquire shares of our common stock at $.04 per share, the fair market value of our common stock in August 2012 when the letter of intent to acquire Airtronic was signed. Further, any additional financing that we secure may require the granting of rights, preferences or privileges senior to those of our common stock and which result in additional dilution of the existing ownership interests of our common stockholders.

Our certificate of incorporation allows for our board to create new series of preferred stock without further approval by our stockholders, which could adversely affect the rights of the holders of our common stock.
Our board of directors has the authority to fix and determine the relative rights and preferences of preferred stock. Our board of directors also has the authority to issue preferred stock without further stockholder approval. As a result, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock. In addition, our board of directors could authorize the issuance of a series of preferred stock that has greater voting power than our common stock or that is convertible into our common stock, which could decrease the relative voting power of our common stock or result in dilution to our existing stockholders.
 
 
13

 
 
Item 2.
Financial Information.
 
Forward Looking Statements
This registration statement on Form 10 and other written and oral statements made from time to time by us may contain so-called “forward-looking statements,” all of which are subject to risks and uncertainties. Forward-looking statements can be identified by the use of words such as “expects,” “plans,” “will,” “forecasts,” “projects,” “intends,” “estimates,” and other words of similar meaning. One can identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address our growth strategy, financial results and product and development programs. One must carefully consider any such statement and should understand that many factors could cause actual results to differ from our forward looking statements. These factors may include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward looking statement can be guaranteed and actual future results may vary materially. We do not assume any obligation to update any forward-looking statement. As a result, investors should not place undue reliance on these forward-looking statements.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion should be read in conjunction with the other sections of this registration statement on Form 10, including “Risk Factors,” “Description of Our Business” and the accompanying consolidated financial statements and related notes in Item 13 – "Financial Statements and Supplementary Data". As discussed in Note 1 to our annual consolidated financial statements, our ability to continue as a going concern is dependent upon our ability to meet our financing requirements, and the future success of our operations.  Our plans concerning these matters are also discussed in Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The various sections of this discussion contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this Report as well as other matters over which we have no control. See “Forward-Looking Statements.” Our actual results may differ materially.
 
Overview
 
Results of Operations
 
The following table sets forth our results of operations for the years ended December 31, 2012 and 2011 and for the three and six-month periods ended June 30, 2013 and 2012.
 
   
For the Three Months Ended
   
For the Six Months Ended
   
For the Year Ended
 
   
June 30,
   
June 30,
   
December 31,
 
   
2013
   
2012
   
2013
   
2012
   
2012
   
2011
 
Revenue
  $ -     $ -     $ -     $ -     $ -     $ 1,415  
Cost of revenue
    -       -       -       300       300       500  
Gross profit (loss)
    -       -       -       (300 )     (300 )     915  
Operating expenses
                                               
Selling, general and administrative expenses
    1,368,497       109,280       2,047,696       144,260       301,284       95,720  
Other (income)/expense
                                               
Interest income
    (10,416 )     -       (12,321 )     -       -       -  
Other income
    -       -       -       -       (600 )     -  
Interest expense
    662,302       -       708,198       -       10,000       -  
Total costs and expenses
    2,020,383       109,280       2,743,573       144,260       310,684       95,720  
Loss from continuing operations before provision for income taxes
    (2,020,383 )     (109,280 )     (2,743,573 )     (144,560 )     (310,984 )     (94,805 )
Provision for income taxes
    -       -       -       -       -       -  
Loss from continuing operations
    (2,020,383 )     (109,280 )     (2,743,573 )     (144,560 )     (310,984 )     (94,805 )
Loss from discontinued operations
    (25,477 )     (61,458 )     (271,221 )     (229,674 )     (208,922 )     -  
Net loss
    (2,045,860 )     (170,738 )     (3,014,794 )     (374,234 )     (519,906 )     (94,805 )
Loss attributable to the noncontrolling interest
    -       (30,114 )     -       (38,983 )     (28,815 )     -  
Net loss attributable to Global Digital Solutions, Inc.
  $ (2,045,860 )   $ (140,624 )   $ (3,014,794 )   $ (335,251 )   $ (491,091 )   $ (94,805 )
Loss per common share attributable to Global Digital Solutions, Inc. common stockholders - basic and diluted:
                                               
                                               
Loss from continuing operations
  $ (0.03 )   $ (0.00 )   $ (0.05 )   $ (0.00 )   $ (0.01 )   $ (0.00 )
Loss from discontinued operations
    -       -       -       (0.01 )     -       -  
Loss attributable to the noncontrolling interest
    -       -       -       -       -       -  
Net loss
  $ (0.03 )   $ (0.00 )   $ (0.05 )   $ (0.01 )   $ (0.01 )   $ (0.00 )
Shares used in computing net loss per share:
Basic and diluted
                                               
    63,943,788       43,095,893       58,598,393       40,421,599       45,302,055       30,331,670  
 
 
14

 
 
Year ended December 31, 2012 and 2011
 
We had no revenue from continuing operations in 2012, compared to $1,415 in 2011. Cost of revenue from continuing operations was $300 in 2012 compared to $500 in 2011.  Selling, general and administrative expenses (“S,G & A”) were $301,284 in 2012 compared to $95,720 in 2011, a $205,564 increase, or 214.8%.  S,G & A was comprised of:
 
   
2012
   
2011
   
Increase/
(decrease)
   
% Change
 
Compensation and benefits
  $ 200,000     $ 51,900     $ 148,100       285.4 %
Investor relations and marketing expense
    81,125       21,622       59,503       275.2 %
Professional and filing fees
    11,075       19,587       (8,512 )     -43.5 %
Communications
    1,226       -       1,226       100.0 %
Office supply and support
    3,205       2,611       594       22.7 %
Travel and entertainment
    4,653       -       4,653       100.0 %
    $ 301,284     $ 95,720     $ 205,564       214.8 %
 
Compensation and benefits increased by $148,100, or 285.4%.  In 2011 our chief executive officer received $51,900 in salary, compared to $200,000 in 2012.
 
Investor relations and marketing expense increased by $59,503 or 275.2% and was primarily for services rendered paid in shares of our common stock.
 
Professional and filing fees declined $8,512 or 43.5% and were for OTC filings and legal fees.
 
Other income was $600 in 2102.  We had no other income in 2011.
 
Interest expense was $10,000 on 2012 compared to $0 in 2011.  Interest expense related to notes payable.
 
There is no income tax benefit for the losses for the years ended December 31, 2012 and 2011, since we determined that the realization of the net deferred tax asset is not more likely than not to be realized and we created a valuation allowance for the entire amount of such benefit.
 
Loss from discontinued operations in 2012 was comprised as follows, and related to the operations of Bronco:
 
   
2012
 
Net sales
  $ 144,337  
Cost of goods sold
    114,071  
Gross profit
    30,266  
Selling, general and administrative expenses
    236,564  
Interest expense
    7,000  
Other income
    (4,376 )
Loss before provision for income taxes
    (208,922 )
Provision for income taxes
    -  
Loss from discontinued operations
  $ (208,922 )
 
 
15

 
 
Three-month periods ended June 30 2013 and 2012
 
We had no revenue, or cost of revenue, from continuing operations in the three-month periods ended June 30, 2013 and 2012. S,G & A were $1,368,497 and $109,280 in three-month periods ended June 30, 2013 and 2012, respectively.  S,G &A was comprised of:
 
   
Three-Months Ended
June 30,
    Increase/          
   
2013
   
2012
   
(decrease)
   
% Change
 
Compensation and benefits
  $ 996,134     $ 56,080     $ 940,054       1,676.3 %
Professional and filing fees
    156,876       2,399       154,477       6,439.2 %
Loan and private placement fees
    121,610       -       121,610       100.0 %
Investor relations and marketing
    84,933       49,790       35,143       70.6 %
Communications
    1,283       -       1,283       100.0 %
Office supply and support
    1,669       475       1,194       251.4 %
Travel and entertainment
    5,256       536       4,720       880.6 %
Facility costs
    736       -       736       100.0 %
    $ 1,368,497     $ 109,280     $ 1,259,217       1,152.3 %
 
Compensation and benefits increased by $940,054, or 1,676.3%.  In the three-month period ended June 30, 2012 compensation and benefits comprised $56,080 of salary for our CEO.  In the three-month period ended June 30, 2013 compensation and benefits comprised $996,134 of stock-based compensation to our CEO, consultants and advisors.
 
Professional and filing fees increased by $154,477, or 6,439.2%.  In the three-month period ended June 30, 2012 they consisted primarily of legal fees and OTC filing fees. In the three-month period ended June 30, 2013 they consisted of:
 
Accounting and auditing fees of $16,000
Consulting fees of $73,173
Legal fees of $67,173; and
Transfer agent fees of $530

Loan and private placement fees were $121,610 in the three-month period ended June 30, 2013 and were paid to third parties in connection with our various private placements.  We had no such expense in the corresponding period in 2012.
 
Investor relations and marketing expense increased by $35,143, or 70.6%, and in both the three-month period ended June 30, 2013 and the three-month period ended June 30, 2012 were primarily for services rendered paid in shares of our common stock.
 
Interest income was $10,416 in the three-month period ended June 30, 2013 and is the interest accrued on the bridge loan we made to Airtronic. We had no such expense in the corresponding period in 2012.
 
Interest expense was $662,302 in the three-month period ended June 30, 2013 and is comprised as follows:
 
Interest on notes payable and convertible notes payable of $15,816; and
The beneficial conversion feature of convertible notes payable of $646,486

We had no such expense in the corresponding period in 2012.

There is no income tax benefit for the losses for the three-month periods ended June 30, 2013 and 2012, since we determined that the realization of the net deferred tax asset is not more likely than not to be realized and we created a valuation allowance for the entire amount of such benefit.
 
Loss from discontinued operations in the three-month periods ended June 30, 2013 and 2012 was comprised as follows:
 
   
2013
   
2012
 
Net sales
  $ -     $ 50,319  
Cost of goods sold
    -       45,019  
Gross profit
    -       5,301  
Selling, general and administrative expenses
    25,477       59,759  
Interest expense
    -       7,000  
Loss before provision for income taxes
    (25,477 )     (61,458 )
Provision for income taxes
    -       -  
Loss from discontinued operations
  $ (25,477 )   $ (61,458 )
 
 
16

 
 
Our results of operations for the three-month periods ended June 30, 2013 and 2012 did not contain any unusual gains or losses from transactions not in our ordinary course of business.
 
Six-month periods ended June 30, 2013 and 2012
 
We had no revenue, or cost of revenue, from continuing operations in the six-month periods ended June 30, 2013 and 2012. S,G & A were $2,047,696 and $144,260 in six-month periods ended June 30, 2013 and 2012, respectively.  S,G &A was comprised of:
 
   
Six-Months Ended
June 30,
    Increase/         
   
2013
   
2012
   
(decrease)
   
% Change
 
Compensation and benefits
  $ 1,421,958     $ 107,480     $ 1,314,478       1,223.0 %
Professional and filing fees
    252,323       4,639       247,684       5,339.2 %
Loan fees
    196,610       -       196,610       0.0 %
Investor relations and marketing
    154,057       29,615       124,442       420.2 %
Office supply and support
    8,507       1,262       7,245       574.1 %
Facility costs
    6,587       -       6,587       0.0 %
Travel and entertainment
    6,217       1,264       4,953       391.9 %
Communications
    1,437       -       1,437       0.0 %
    $ 2,047,696     $ 144,260     $ 1,903,436       1,319.4 %
 
Compensation and benefits increased by $1,314,478, or 1,223.0%.  In the six-month period ended June 30, 2012 compensation and benefits comprised $107,480 of salary for our CEO.  In the six-month period ended June 30, 2013 compensation and benefits comprised $1,371,958 of stock-based compensation to our CEO, consultants and advisors, and salary of $50,000 for our CEO.
 
Professional and filing fees increased by $247,684, or 5,339.2%.  In the six-month period ended June 30, 2012 professional and filing fees comprised legal fees and OTC filing fees.  In the six-month period ended June 30, 2013 professional and filing fees consisted of:
 
Accounting and auditing fees of $30,500
Consulting fees of $117,173
Legal fees of $104,120; and
Transfer agent fees of $530
 
Loan and private placement fees were $196,610 in the six-month period ended June 30, 2013 and were paid to third parties in connection with our loan and various private placements as follows:
 
Loan fees of $125,000; and
Private placement fees of $96,610.
 
We had no such expense in the corresponding period in 2012.
 
Investor relations and marketing expense increased by $124,442, or 420.22%, and were primarily for services rendered paid in shares of our common stock. We had no such expense in the corresponding period in 2012.
 
Interest income was $12,321 in the six-month period ended June 30, 2013 and is the interest accrued on the bridge loan we made to Airtronic. We had no such expense in the corresponding period in 2012.
 
Interest expense was $708,198 in the six-month period ended June 30, 2013 and is comprised as follows:
 
Interest on notes payable and convertible notes payable of $31,712; and
The beneficial conversion feature of convertible notes payable of $676,486
 
We had no such expense in the corresponding period in 2012.
 
 
17

 
 
There is no income tax benefit for the losses for the six-month periods ended June 30, 2013 and 2012, since we determined that the realization of the net deferred tax asset is not more likely than not to be realized and we created a valuation allowance for the entire amount of such benefit.
 
Loss from discontinued operations in the six-month periods ended June 30, 2013 and 2012 was comprised as follows:
 
   
2013
   
2012
 
Net sales
  $ -     $ 149,917  
Cost of goods sold
    -       104,725  
Gross profit
    -       45,191  
Selling, general and administrative expenses
    25,477       267,865  
Loss on sale of assets of discontinued operations
    245,744       -  
Interest expense
    -       7,000  
Loss before provision for income taxes
    (271,221 )     (229,674 )
Provision for income taxes
    -       -  
Loss from discontinued operations
  $ (271,221 )   $ (229,674 )
 
Our results of operations for the six-month periods ended June 30, 2013 and 2012 did not contain any unusual gains or losses from transactions not in our ordinary course of business.
 
Liquidity and Capital Resources
 
December 31, 2012
 
As of December 31, 2012, we had cash and cash equivalents totaling $385,141 and a working capital deficit of $428,267. For the year ended December 31, 2012 we incurred a net loss of $491,091, and at December 31, 2012, we had an accumulated deficit of $7,561,122 and a total stockholders’ deficit of $67,108. We expect to incur losses in fiscal 2013. There is no guarantee that we will ultimately be able to generate sufficient revenue or reduce our costs in the anticipated time frame to achieve and maintain profitability and have sustainable cash flows.  
 
June 30, 2013
 
As of June 30, 2013, we had cash and cash equivalents totaling $609,431 and a working capital deficit of $174,238. For the six-month period ended June 30, 2013, we incurred a net loss of $3,014,794, and at June 30,2013, we had an accumulated deficit of $10,575,916 and a total stockholders’ deficit of $174,238. We expect to incur losses for the remainder of fiscal 2013. There is no guarantee that we will ultimately be able to generate sufficient revenue or reduce our costs in the anticipated time frame to achieve and maintain profitability and have sustainable cash flows.  
 
Other than the Bridge Loan to, and acquisition of, Airtronic, we do not have any material commitments for capital expenditures during the next twelve months.  Any required expenditure will be completed through internally generated funding or from proceeds from the sale of common or preferred stock, or borrowings.
 
Cash Flows
 
December 31, 2012 and 2011
 
Cash used in operating activities   
 
Net cash used in operating activities totaled $215,627 for the year ended December 31, 2012 compared to $18,736 for the year ended December 31, 2011. In the year ended December 31, 2012, cash was used to fund a net loss of $519,906, reduced by non-cash common stock based payments for rent and services of $66,500, amortization of warrant expense of $10,000, changes in operating assets and liabilities of $114,485 and cash provided by discontinued operations of $113,294.
 
In the year ended December 31, 2011, cash was used to fund a net loss of $94,805, reduced changes in operating assets and liabilities totaling $76,069.
 
Cash used in investing activities
 
We had no investing activities in either of the years ended December 31, 2012 or 2011.
 
 
18

 
 
Cash from financing activities
 
Net cash provided by financing activities totaled $600,100 for the year ended December 31, 2012 compared to $17,500 for the year ended December 31, 2011. In the year ended December 31, 2012, we received proceeds from short-term debt of $572,600 and proceeds from the sale of common stock of $150,000, reduced by repayments of short-term debt of $122,500.  In the year ended December 31, 2011, we received proceeds of $17,500 from short-term debt.
 
June 30, 2013 and 2012
 
Cash used in operating activities   
 
Net cash used in operating activities totaled $343,249 for the six-month period ended June 30, 2013 compared to $124,222 for the six-month period ended June 30, 2012. In the six-month period ended June 30, 2013, cash was used to fund a net loss of $3,014,794, reduced by non-cash stock-based compensation of $1,371,958, common stock based payments for services of $375,533, amortization of debt discount of $676,487, changes in operating assets and liabilities of $1,822 and cash provided by discontinued operations of $245,745.
 
In the six-month period ended June 30, 2012, cash was used to fund a net loss of $335,251, reduced by non-cash common stock based payments for services of $15,000, changes in operating assets and liabilities totaling $72,987 and cash provided by discontinued operations of $123,042.
 
Cash used in investing activities
 
Net cash used in investing activities for the six-month period ended June 30, 2013 totaled $695,561 and were for advances to Airtronic under the bridge loan.  We had no investing activities in the six-month period ended June 30, 2012.
 
Cash from financing activities
 
Net cash provided by financing activities totaled $1,263,500 for the six-month period ended June 30, 2013 compared to $125,000 for the six-month period ended June 30, 2012. In the six-month period ended June 30, 2013, we received proceeds from the sale of common stock of $926,100 and proceeds from short-term debt of $374,900, reduced by repayments of short-term debt of $37,500.  In the six-month period ended June 30, 2012, we received proceeds of $75,000 from the sale of common stock and proceeds of $85,000 from short-term debt, reduced by repayments of short-term debt of $35,000.
 
Financial condition
 
December 31, 2012
 
As of December 31, 2012, we had a working capital deficit of $428,267, an accumulated deficit of $7,561,122 and a total stockholders’ deficit of $67,108, compared to working capital deficit of $2,020,482, an accumulated deficit of $7,100,022 and a total stockholders’ deficit of $2,202,482 at December 31, 2011.
 
At December 31, 2012 our registered independent public accounting firm expressed substantial doubt as to our ability to continue as a going concern because we have incurred substantial losses and negative cash flows from operations. We expect to fund operations by continuing to raise capital through the sale of common stock and the proceeds from debt.
 
June 30, 2013
 
As of June 30, 2013, we had a working capital deficit of $174,238, an accumulated deficit of $10,575,916 and a total stockholders’ deficit of $174,238.
 
We do not have a line of credit facility and have relied on short-term borrowings and the sale of common stock to provide cash to finance our operations.  We believe that we will need to raise additional capital in 2013 to sustain our operations.  We plan to seek additional equity and debt financing to provide funding for operations.
 
Other than the Bridge Loan to, and acquisition of, Airtronic, we do not have any material commitments for capital expenditures during the next twelve months.  Any required expenditure will be completed through internally generated funding or from proceeds from the sale of common or preferred stock, or borrowings.
 
 
19

 
 
Off-Balance Sheet Arrangements
 
We have not engaged in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities.
 
Tabular Disclosure of Contractual Obligations
 
As a small reporting company, we are not required to provide this information and have elected not to provide it.
 
Critical Accounting Policies
 
Management is responsible for the integrity of the financial information presented herein.  Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.  Where necessary, they reflect estimates based on management's judgment.  When selecting or evaluating accounting alternatives, management focuses on those that produce from among the available alternatives information most useful for decision-making.  We believe that the critical accounting policies discussed below involve additional management judgment due to the sensitivity of the methods, assumptions and estimates necessary in determining the related asset, liability, revenue and expense amounts.
 
Revenue Recognition
 
We follow the revenue recognition guidance in the Revenue Recognition Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC” or “Codification”). We recognize product revenue at the time product is shipped and title has transferred, provided that a purchase order has been received or a contract has been executed, there are no uncertainties regarding customer acceptance, the sales price is fixed and determinable and collectability is deemed probable. If uncertainties regarding customer acceptance exist, revenue is recognized when such uncertainties are resolved. There are no significant post-contract support obligations at the time of revenue recognition. Our accounting policy regarding vendor and post contract support obligations is based on the terms of the customers’ contracts and is billable upon occurrence of the post-sale support. Costs of products sold and services provided are recorded as the related revenue is recognized. Revenue is recognized at the time services or goods are provided. It is our policy to record contract losses in their entirety in the period in which such losses are foreseeable.
 
Fair Value Measurements
 
The carrying amounts of our financial instruments, including cash and cash equivalents, notes receivable, accounts payable, and short-term debt approximate fair value due to their relatively short maturities.
 
Income Taxes
 
We recognize income taxes under the liability method. We recognize deferred income taxes for differences between the financial reporting and tax bases of assets and liabilities at enacted statutory tax rates in effect for the years in which differences are expected to reverse. We recognize the effect on deferred taxes of a change in tax rates in income in the period that includes the enactment date. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.  We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured to determine the actual amount of benefit to recognize in our financial statements.
 
Stock Based Compensation
 
We adopted the fair value recognition provisions of ASC 718, "Compensation – Stock Compensation”.  Under the fair value recognition provisions, we are required to measure the cost of employee services received in exchange for share-based compensation measured at the grant date fair value of the award.
 
Impact of Recently Issued Accounting Standards
 
From time to time, the FASB or other standards setting bodies will issue new accounting pronouncements. Updates to the Codification are communicated through issuance of an Accounting Standards Update (“ASU”).

In July 2012, the FASB issued ASU No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment. Under this standard, entities testing long-lived intangible assets for impairment now have an option of performing a qualitative assessment to determine whether further impairment testing is necessary. If an entity determines, on the basis of qualitative factors, that the fair value of the indefinite-lived intangible asset is more-likely-than-not less than the carrying amount, the existing quantitative impairment test is required. Otherwise, no further impairment testing is required. For Global, this ASU is effective beginning January 1, 2013, with early adoption permitted under certain conditions. The adoption of this standard is not expected to have a material impact on the Company’s consolidated results of operations or financial condition.
 
 
20

 
 
In June 2011, the FASB issued guidance that requires entities to report components of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements. The guidance removes the option to present the components of other comprehensive income (“OCI”) as part of the statement of equity. This guidance is effective for our fiscal year 2012, and must be applied retrospectively for all periods presented in the consolidated financial statements. The new guidance does not apply to entities that have no items of OCI in any period presented. We do not anticipate that this new guidance will have a material impact on its consolidated financial statements.

Quantitative and Qualitative Disclosures About Market Risk
 
Not required.
 
Item 3.
Properties.
 
We do not lease any property under long-term leases; however we rent, on a month to month basis for $300 per month, approximately 500 square feet at 9477 Greenback Lane, Suite 524A, Folsom, CA 95630. In addition, our major shareholder provides space to us at no cost at his office at 777 South Flagler Drive, Suite 800 West, West Palm Beach, FL 33410.
 
Item 4.
Security Ownership of Certain Beneficial Owners and Management
 
The following tables set forth certain information as of July 29, 2013 regarding the beneficial ownership of our common stock by (i) each person or entity who, to our knowledge, owns more than 5% of our common stock; (ii) our executive officers named in the Summary Compensation Table below; (iii) each director; and (iv) all of our executive officers and directors as a group. Unless otherwise indicated in the footnotes to the following table, each person named in the table has sole voting and investment power and that person’s address is c/o Global Digital Solutions, Inc., 9477 Greenback Lane, Suite 524A, Folsom, CA 95630.
 
Name and Address of Beneficial Owner
 
Number of shares of common stock Beneficially Owned
   
Percent of Class (%)
 
             
Officers and Directors:
           
William J. Delgado (1)
   
4,455,029
     
5.2
%
8593 Jaytee Way
               
Fair Oaks, CA 95628
               
                 
5% or Greater Shareholders:
               
Richard J. Sullivan (2)
   
25,460,000
     
29.5
%
777 S. Flagler Drive, Suit 800 W
               
West Palm Beach, FL 33401
               
                 
David A. Loppert
   
8,000,000
     
9.3
%
777 S. Flagler Drive, Suit 800 W
               
West Palm Beach, FL 33401
               
                 
Gabriel De Los Reyes
   
6,000,000
     
6.9
%
17795 SW 158th Street
               
Miami, FL 33187
               
                 
Bronco Communications, LLC (3)     4,289,029       5.0 %
9477 Greenback Lane                
Folsom, CA 95630                
_________
               
(1) - Includes (a) 4,289,029 shares owned by Bronco Communications, LLC, an entity in which Mr. Delgado owns 10% and (b) 100,000 shares owned by Mr. Delgado's minor daughter.
(2) - Includes (a) 3,000,000 shares owned by Bay Acquisition Corp., an entity controlled by Mr. Sullivan, and (b) 500,000 shares owned by Mr. Sullivan's minor son.
(3) - William J. Delgado owns 10% of this entity.
 
 
21

 
 
Item 5.
Directors and Executive Officers.
 
William J. Delgado , (age 54), is our sole director, President, Chief Executive Officer and Chief Financial Officer. Mr. Delgado has over 33 years of telecommunications management experience including strategic planning, feasibility studies, economic analysis, design engineering, network planning, construction and maintenance.  He began his career with Pacific Telephone in the Outside Plant Construction (OSP).  He moved to the network engineering group and concluded his career at Pacific Bell as the Chief Budget Analyst for the Northern California region.  Mr. Delgado founded All Star Telecom in late 1991, specializing in OSP construction and engineering and systems cabling. All Star Telecom was sold to International FiberCom in April of 1999. After leaving International FiberCom in 2002, Mr. Delgado became President/CEO of Pacific Comtel in San Diego, California.  After the Company acquired Pacific Comtel in 2004, Mr. Delgado became and remains President, CEO and CFO of the Company.
 
Employment Agreements and Compensation Arrangements
 
We have not entered into any employment agreements or other compensation arrangements with Mr. Delgado.
 
Item 6.
Executive Compensation.
 
Summary Compensation Table
 
The following Summary Compensation Table sets forth, for the years ended December 31, 2012 and 2011, the compensation earned by our chief executive officer.
 
Name and Principal Position
 
Year
 
Salary ($)
   
Bonus ($)
   
All other compensation ($)
   
Total ($)
 
(a)
 
(b)
 
(c)
   
(d)
   
(i)
   
(j)
 
William J. Delgado,
 
2012
  $ 199,990     $ -     $ -     $ 199,990  
President, Chief Executive Officer & Chief Financial Officer
 
2011
  $ 51,900     $ -     $ -     $ 51,900  
 
Options Granted to Named Executives
 
No awards were granted in 2012 or 2011.
 
Outstanding Equity Awards at Fiscal Year-End
 
No equity awards were outstanding at December 31, 2012 or 2011.
 
Director Compensation
 
We do not have a compensation arrangement in place for members of our Board of Directors and we have not finalized any plan to compensate directors in the future for their services as Directors.  We anticipate that we will develop a compensation plan for our independent directors in order to attract qualified persons and to retain them. We expect that the compensation arrangements will be comprised of equity awards and cash for reimbursement of expenses only.
 
Directors' and Officers' Liability Insurance
 
We are in the process of obtaining directors' and officers' liability insurance insuring our directors and officers against liability for acts or omissions in their capacities as directors or officers, subject to certain exclusions.  Such insurance also insures us against losses which we may incur in indemnifying our officers and directors.  In addition, we have entered into indemnification agreements with key officers, directors and consultants, and such persons shall also have indemnification rights under applicable laws, and our Certificate of Incorporation and Bylaws. The form of Indemnification Agreement is attached hereto as Exhibit 10.14.
 
 
22

 
 
Board Independence
 
Our sole director is not an “independent director,” as that term is defined by listing standards of the national exchanges and SEC rules, including the rules relating to the independence standards of an audit committee and the non-employee director definition of Rule 16b-3 promulgated under the Exchange Act.
 
Board Committees
 
We intend to appoint such persons to the board of directors and committees of the board of directors as are expected to be required to meet the corporate governance requirements imposed by a national securities exchange, although we are not required to comply with such requirements until we elect to seek listing on a national securities exchange. We intend to appoint directors in the future so that a majority of our directors will be independent directors, of which at least one director will qualify as an “audit committee financial expert,” within the meaning of Item 407(d)(5) of Regulation S-K, as promulgated by the SEC. We have not appointed an audit committee, compensation committee, or nominating committee although we expect to do so in the near future.
 
Code of Ethics
 
Our board of directors has approved, and we have adopted, a Code of Ethics that applies to all of our directors, officers, employees, consultants and agents. We will provide a copy of the Code of Ethics free of charge upon request to any person submitting a written request to our chief executive officer.
 
Item 7.
Certain Relationships and Related Transactions, and Director Independence.
 
Since the beginning of our fiscal year 2011, there has not been, and there is not currently proposed any transaction or series of similar transactions in which the amount involved exceeded or will exceed the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years and in which any related person, including any director, executive officer, holder of more than 5% of our capital stock during such period, or entities affiliated with them, had a material interest, other than as described in the transactions set forth below.
 
On January 1, 2012, we acquired a 51% stake in Bronco Communications, LLC, (“Bronco”) a Nevada-California regional telecommunications subcontractor located in Folsom, CA in consideration for 4,289,029 shares of our restricted common stock valued at $0.035 per share, or $150,116, the fair market value of our common stock on the date the agreement was made. Our sole director and officer owns a 10% membership interest in Bronco. On October 15, 2012, we entered into an Amendment to Purchase Agreement, and we agreed to relinquish control of Bronco to its minority shareholders effective as of January 1, 2013.
 
In December 2012 we entered into an agreement with an investor to lend us $750,000. As part of that agreement, Bay Acquisition LLC, an entity controlled by Richard J. Sullivan, a beneficial owner of more than 5% of our common stock, agreed to pledge certain collateral as additional security for the loan.  In consideration for this pledge of collateral, we agreed to issue to Bay Acquisition LLC 3,000,000 shares of our restricted common stock valued at $360,000.
 
In January 2013, we granted Richard J. Sullivan and David A. Loppert, beneficial owners of more than 5% of our common stock, restricted stock grants of 3,000,000 and 5,000,000 shares of common stock, respectively.  In June 2013, we granted Richard J. Sullivan, David A. Loppert and William J. Delgado, our CEO, restricted stock grants of 10,000,000, 3,000,000 and 1,000,000 shares of common stock, respectively. The grants vest in January 2014.
 
Item 8.
Legal Proceedings.
 
We are not involved in any pending legal proceeding or litigations and, as far as we are aware, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on the Company.
 
Item 9.
Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.
 
Our common stock is quoted on the OTCQB Marketplace (“Pink OTC”) or pink sheets under the symbol “GDSI”. As of July 29, 2013, there were approximately 196 holders of record of our common stock. The transfer agent for our common stock is Issuer Direct Corporation.
 
 
23

 
 
The following table sets forth the high and low bid prices for our common stock for the periods indicated, as reported by the Pink OTC. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.

Period
 
High
   
Low
 
January 1, 2011 through March 31, 2011
  $ .002     $ .002  
April 1, 2011 through June 30, 2011
  $ .002     $ .002  
July 1, 2011through September 30, 2011
  $ .040     $ .002  
October 1, 2011 through December 31, 2011
  $ .023     $ .008  
January 1, 2012 through March 31, 2012
  $ .31     $ .055  
April 1, 2012 through June 30, 2012
  $ .12     $ .04  
July 1, 2012through September 30, 2012
  $ .095     $ .01  
October 1, 2012 through December 31, 2012
  $ .17     $ .02  
January 1, 2013 through March 31, 2013
  $ .14     $ .07  
April 1, 2013 through June 30, 2013
  $ 1.39     $ .09  
 
The last reported sales price of our common stock on the Pink OTC on August 8, 2013 was $0.98 per share.
 
Dividend Policy
 
We have not previously paid any cash dividends on our common stock and do not anticipate or contemplate paying dividends on our common stock in the foreseeable future.  We currently intend to use all our available funds to develop our business.  We can give no assurances that we will ever have excess funds available to pay dividends.
 
Securities authorized for issuance under Equity Compensation Plans
 
We do not have any equity compensation plans and we have not authorized any securities to be issued under an approved plan.  On the closing of the acquisition of Airtronic, we have agreed to issue to the employees of Airtronic options to acquire 4,960,852 shares of our common stock an exercise price of $0.04, the fair market value of our common stock on the date we entered into the LOI, exercisable for a period of ten years.
 
Trading Information
 
Our common stock is currently approved for quotation on the OTCQB Marketplace (“Pink OTC”) or pink sheets maintained by the Financial Industry Regulatory Authority, Inc. (FINRA) under the symbol GDSI.
 
Item 10.
Recent Sales of Unregistered Securities.
 
On December 7, 2011, we accepted subscriptions for a total of 2,975,000 shares of our common stock in a private placement from one investor. We received gross proceeds of $5,950. The private placement was made solely to “accredited investors,” as that term is defined in Regulation D under the Securities Act. The securities sold in the private placement were not registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.  
 
On January 1, 2012 we issued 4,289,029 shares of our common stock valued at $.035 per shares, or $150,116, to acquire 51% of Bronco Communications LLC.  The securities issued to Bronco were not registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.  
 
On March 28, 2012, we accepted subscriptions for a total of 3,300,000 shares of our common stock in a private placement from one investor. We received gross proceeds of $6,600. The private placement was made solely to “accredited investors,” as that term is defined in Regulation D under the Securities Act. The securities sold in the private placement were not registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.  
 
 
24

 
 
Between May 18, 2012 and May 21, 2012, we accepted subscriptions for a total of 500,000 shares of our common stock in a private placement from 2 investors. We received gross proceeds of $50,000. The private placement was made solely to “accredited investors,” as that term is defined in Regulation D under the Securities Act. The securities sold in the private placement were not registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.  
 
On May 30, 2012, we issued 250,000 shares of our common stock to a consultant for services rendered valued at $15,000.  The shares of common stock were issued to the consultant without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.
 
On May 30, 2012, we issued 6,043,801 shares of our common stock to a lender in full satisfaction of a note payable of $314,278.  The shares of common stock were issued to the lender without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.
 
On September 12, 2012, we issued an aggregate of 2,202,900 shares of our common stock to six lenders in full satisfaction of notes payable totaling $1,101,450.  The shares of common stock were issued to the lenders without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.
 
On October 1, 2012, we accepted subscriptions for a total of 416,667 shares of our common stock in a private placement from one investor. We received gross proceeds of $25,000. The private placement was made solely to “accredited investors,” as that term is defined in Regulation D under the Securities Act. The securities sold in the private placement were not registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.  
 
On October 15, 2012, we issued 750,000 shares of our common stock to two consultants for services rendered valued at $38,000.  The shares of common stock were issued to the consultants without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.
 
On October 15, 2012, we accepted subscriptions for a total of 750,000 shares of our common stock in a private placement from 2 investors. We received gross proceeds of $75,000. The private placement was made solely to “accredited investors,” as that term is defined in Regulation D under the Securities Act. The securities sold in the private placement were not registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.  
 
In December 2012, we issued a warrant to purchase 3,000,000 shares of our common stock at an exercise price of $.15 per share to an investor in connection with a loan we received from the investor. In May 2013, we amended the warrant’s exercise price to $.10. The warrant was issued without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder. The warrant agreement contained representations from the holder of the warrant to support the Company's reasonable belief that the holder acquired the warrant for his own account and not with a view to distribution in violation of the Securities Act, and that the holder is an "accredited investor" as defined in Regulation D.
 
On December 31, 2012, we issued 150,000 shares of our common stock in lieu of paying rent of $13,500. The shares of common stock were issued without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.
 
On December 31, 2012, we issued 500,000 shares of our common stock upon the conversion of 1,000 shares of our preferred stock. The shares of common stock were issued to the stockholder without registration in reliance upon the exemption provided by Section 3(a)(9) of the Securities Act of 1933, as amended, for securities exchanged by the Company and existing security holders where no commission or other remuneration is paid or given directly or indirectly by the Company for soliciting such exchange.
 
 
25

 
 
On January 1, 2103 we issued 1,000,666 shares of our common stock to six individuals for services and rent valued at $99,700. The shares of common stock were issued without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.
 
On April 10, 2013, we issued 8,000,000 shares of our common stock to two individuals upon the issuance of restricted stock grants that vest in January 2014, in consideration for their par value. The shares of common stock were issued without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.
 
On April 10, 2013, we issued 3,000,000 shares of our common stock to an entity controlled by Richard Sullivan, our major shareholder, in consideration for collateral the entity pledged to a lender for a loan to the Company. The shares were recorded at par value. The shares of common stock were issued without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.
 
On April 10, 2013, we accepted subscriptions for a total of 250,000 shares of our common stock in a private placement from 2 investors. We received gross proceeds of $25,000. The private placement was made solely to “accredited investors,” as that term is defined in Regulation D under the Securities Act. The securities sold in the private placement were not registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.  
 
On April 10, 2013, we issued 500,000 shares of our common stock to a consultant for investor relations services rendered valued at $50,000.  The shares of common stock were issued to the consultant without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.
 
On May 6, 2013, we issued a warrant to purchase 1,000,000 shares of our common stock at an exercise price of $.15 per share to a consultant in connection with a loan modification. The warrant was issued without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder. The warrant agreement contained representations from the holder of the warrant to support the Company's reasonable belief that the holder acquired the warrant for his own account and not with a view to distribution in violation of the Securities Act, and that the holder is an "accredited investor" as defined in Regulation D.
 
On May 21, 2013, we accepted subscriptions for a total of 200,000 shares of our common stock in a private placement from 2 investors. We received gross proceeds of $50,000. The private placement was made solely to “accredited investors,” as that term is defined in Regulation D under the Securities Act. The securities sold in the private placement were not registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.  
 
On June 1, 2013, we agreed to issue 15,000,000 shares of our common stock to five individuals upon the issuance of restricted stock grants that vest in January 2014, in consideration for their par value. The shares of common stock will be issued without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.
 
Between May 22, 2013 and June 6, 2013, we accepted subscriptions for a total of 2,150,000 shares of our common stock in a private placement from 15 investors. We received gross proceeds of $537,500. The private placement was made solely to “accredited investors,” as that term is defined in Regulation D under the Securities Act. The securities sold in the private placement were not registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.  
 
 
26

 
 
On June 25, 2103 we issued 310,000 shares of our common stock to two consultants for investor relations services valued at $155,000. The shares of common stock were issued without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.
 
On June 25, 2013, we issued a warrant to purchase 500,000 shares of our common stock at an exercise price of $.50 per share to a consultant for investor relations services. The warrant was issued without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder. The warrant agreement contained representations from the holder of the warrant to support the Company's reasonable belief that the holder acquired the warrant for his own account and not with a view to distribution in violation of the Securities Act, and that the holder is an "accredited investor" as defined in Regulation D.
 
Between June 18, 2013 and June 30, 2013, we accepted subscriptions for a total of 668,000 shares of our common stock in a private placement from 12 investors. We received gross proceeds of $313,600. The private placement was made solely to “accredited investors,” as that term is defined in Regulation D under the Securities Act. The securities sold in the private placement were not registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.  
 
Shares to be issued in connection with the acquisition of Airtronic and Price Protection
 
Airtronic’s Plan provides, among other things, that Airtronic’s secured and unsecured creditors may elect to take shares of our common stock, valued at $.50 per share, saleable after twelve months with “Price Protection”.  Price Protection shall mean that if a holder of our common stock issued pursuant to the Plan sells its shares in whole or in part in an arm’s-length transaction for a fair market value less than $ .50 per share after twelve months from the effective date of the Plan, but before twenty-four months from the effective date of the Plan, then the shareholder shall be provided with an amount of new shares of our common stock equal to the result of the following formula: (x) the sales price the shareholder would have received if its shares of our common stock had sold for $ .50 per share minus   the actual sales price received by the shareholder for our common stock; divided by (y) the actual price per share received by the shareholder.
 
Item 11.
Description of the Registrant’s Securities to be Registered.
 
Authorized Capital Stock
 
We are authorized to issue 185,000,000 shares of capital stock, of which 175,000,000 are shares of common stock, par value $.001 per share (the “Common Stock”), and 10,000,000 shares of preferred stock, par value $.001 per share (the “Preferred Stock”).
 
 
As of June 30, 2013, we have issued and outstanding securities on a fully diluted basis:
 
83,342,117 shares of common stock
no shares of preferred stock;
no stock options;
4,500,000 warrants to acquire shares of our common stock; and
7,500,000 unissued and unvested restricted stock grants.
 
Common Stock
 
The holders of the common stock are entitled to one vote per share. In addition, the holders of our common stock will be entitled to receive ratably such dividends, if any, as may be declared by our Board of Directors out of legally available funds; however, the current policy of our Board of Directors is to retain earnings, if any, for operations and growth. Upon liquidation, dissolution or winding-up, the holders of the common stock will be entitled to share ratably in all assets that are legally available for distribution. The holders of the common stock will have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of the common stock will be subject to, and may be adversely affected by, the rights of the holders of any series of preferred stock, which may be designated solely by action of our Board of Directors and issued in the future.
 
 
27

 
 
Preferred Stock
 
Our Board of Directors will be authorized, subject to any limitations prescribed by law, without further vote or action by our stockholders, to issue from time to time shares of preferred stock in one or more series. Each series of preferred stock will have such number of shares, designations, preferences, voting powers, qualifications and special or relative rights or privileges as shall be determined by our Board of Directors, which may include, among others, distinct classes or series, dividend rights, voting rights, liquidation preferences, redemption rights, conversion rights and preemptive rights.
 
Warrants
 
In December 2012, we issued a three-year warrant to purchase 3,000,000 shares of our common stock, at an amended exercise price of $0.10 per share, to an investor in connection with our $750,000 Promissory Note Purchase Agreement in December 2012.  In May 2013, we issued a five-year warrant to purchase 1,000,000 shares of our common stock at an exercise price of $0.15 per share to an advisor in connection with the modification of the Promissory Note Purchase Agreement Amendment.  In June 2013, we issued a five-year warrant to purchase 500,000 shares of our common stock at an exercise price of $0.50 per share to a consultant for investor relations services.
 
Prior to exercise, the warrants do not confer upon holders any voting or any other rights as a stockholder. No fractional shares will be issued upon exercise of the warrants. If, upon exercise of the warrants, a holder would be entitled to receive a fractional interest in a share, we may, in our discretion, upon exercise, round up to the nearest whole number the number of shares of our common stock to be issued to the warrant holder or otherwise equitably adjust the exercise amount and exercise price per share.
 
Registration Rights
 
We have agreed to include all shares of common stock sold in private placements, including any warrants issued in connection therewith, or for fees, as well as certain share that have been issued as consideration for services, in our next filed "resale" registration statement with the Securities and Exchange Commission.
 
Item 12.
Indemnification of Directors and Officers.
 
Indemnification of Directors and Officers.
 
New Jersey Statutes (“NJS”) Section 14A:3-5 provide us with the power to indemnify any of our directors and officers. The director or officer must have conducted himself/herself in good faith and reasonably believe that his/her conduct was in, or not opposed to, our best interests. In a criminal action, the director, officer, employee or agent must not have had reasonable cause to believe his/her conduct was unlawful.  Advances for expenses may be made by agreement if the director or officer affirms in writing that he/she believes he/she has met the standards and will personally repay the expenses if it is determined such officer or director did not meet the standards.
 
Our Bylaws include an indemnification provision under which we have the power to indemnify our directors, officers, former directors and officers, or any person who serves or served at our request for our benefit as a director or officer of another corporation or our representative in a partnership, joint venture, trust, or other enterprise (including heirs and personal representatives) against all expenses, liability, and loss actually and reasonably incurred, including an amount paid to settle an action or satisfy a judgment to which the director or officer is made a party by reason of being or having been a director, officer, or representative of ours or any of our subsidiaries before the Merger.
 
We also have a director and officer indemnification agreement with our sole director and officer that provides, among other things, for the indemnification to the fullest extent permitted or required by New Jersey law, provided that such indemnitee shall not be entitled to indemnification in connection with any “claim” (as such term is defined in the agreement) initiated by the indemnitee against us or our directors or officers unless we join or consent to the initiation of such claim, or the purchase and sale of securities by the indemnitee in violation of Section 16(b) of the Exchange Act.
 
 
28

 
 
Any repeal or modification of these provisions approved by our stockholders shall be prospective only, and shall not adversely affect any limitation on the liability of any of our directors or officers existing as of the time of such repeal or modification.
 
We are also permitted to apply for insurance on behalf of any director, officer, employee or other agent for liability arising out of his actions, whether or not the NJS would permit indemnification.
 
Insofar as indemnification for liabilities arising under the Securities Act may be permitted for our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
 
Limitation of Liability of Directors
 
Our Articles of Incorporation provide a limitation of liability such that no director or officer shall be personally liable to us or any of our stockholders for damages for breach of fiduciary duty as a director or officer, involving any act or omission of any such director or officer, provided there was no intentional misconduct, fraud or a knowing violation of the law, or payment of dividends in violation of NJS Section 14A:6-14.
 
 
Item 13.
Financial Statements and Supplementary Data.
 
Financial Statements
 
(i) For the Years Ended December 31, 2012 and 2011
Page
Report of PMB Helin Donovan  LLP, Independent Registered Public Accounting Firm
F-1
Consolidated Balance Sheets as of December 31, 2012 and 2011
F-2
Consolidated Statements of Operations for the years ended December 31, 2012 and 2011
F-3
Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2012 and 2011
F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2012 and 2011
F-5
Notes to Consolidated Financial Statements
F-6-17
   
(ii) For the Three and Six-Month Periods Ended June 30, 2013 and 2012
 
Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012
F-18
Condensed Consolidated Statements of Operations for the Three and Six-Month Periods Ended June 30, 2013 and 2012
F-19
Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Six-Month Period Ended June 30, 2013
F-20
Condensed Consolidated Statements of Cash Flows for the Six-Month Periods Ended June 30, 2013 and 2012
F-21
Notes to Condensed Consolidated Financial Statements
F-22-29
 
Item 14.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
 
None.
 
Item 15.
Financial Statements and Exhibits.
 
(a) Financial Statements
 
(i) For the Years Ended December 31, 2012 and 2011
Page
Report of PMB Helin Donovan  LLP, Independent Registered Public Accounting Firm
F-1
Consolidated Balance Sheets as of December 31, 2012 and 2011
F-2
Consolidated Statements of Operations for the years ended December 31, 2012 and 2011
F-3
Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2012 and 2011
F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2012 and 2011
F-5
Notes to Consolidated Financial Statements
F-6-17
   
(ii) For the Three and Six-Month Periods Ended June 30, 2013 and 2012
 
Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012
F-18
Condensed Consolidated Statements of Operations for the Three and Six-Month Periods Ended June 30, 2013 and 2012
F-19
Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Six-Month Period Ended June 30, 2013
F-20
Condensed Consolidated Statements of Cash Flows for the Six-Month Periods Ended June 30, 2013 and 2012
F-21
Notes to Condensed Consolidated Financial Statements
F-22-29
 
 
29

 
 
(d)           Exhibits.
 
Exhibit No.
 
Description
2.1
 
Purchase Agreement, dated as of January 1, 2012, by and between Global Digital Solution, Inc., and Bronco Communications, LLC
2.2
 
Amendment to Purchase Agreement dated October 15, 2012, by and between Global Digital Solution, Inc., and Bronco Communications, LLC
2.3
 
Agreement of Merger and Plan of Reorganization dated as of October __, 2012, by and between Global Digital Solution, Inc., and Airtronic USA, Inc.
2.4
 
First Amendment to Agreement of Merger and Plan of Reorganization dated as of August 5, 2013, by and between Global Digital Solution, Inc., and Airtronic USA, Inc.
3.1
 
Certificate of Incorporation
3.2
 
Articles of Merger
3.3
 
Certificate of Amendment to the Certificate of Incorporation
3.4
 
Bylaws
10.1
 
Debtor In Possession Note Purchase Agreement by and between the Company and Airtronic USA, Inc. dated October 22, 2012
10.2
 
8 1/4% Secured Promissory Note in the original principal amount of $750,000 dated October 22, 2012 in favor of the Company
10.3
 
Security Agreement by and between the Company and Airtronic USA, Inc. dated October 22, 2012
10.4
 
Bridge Loan Modification and Ratification Agreement by and between the Company and Airtronic USA, Inc. dated March __, 2013
10.5
 
Second Bridge Loan Modification and Ratification Agreement by and between the Company and Airtronic USA, Inc. dated as of August 5, 2013
10.6
 
8 1/4% Secured Promissory Note in the original principal amount of $550,000 dated August 5, 2013 in favor of the Company
10.7
 
Intellectual Property Security Agreement dated as of August 5, 2013, by and between Merriellyn Kett and the Company
10.8
 
Promissory Note Purchase Agreement by and between the Company and the investors listed therein dated December __, 2012
10.9
 
Secured Promissory Note in the original principal amount of $750,000 dated December __, 2012 in favor of Gabriel De Los Reyes
10.10
 
Security Agreement dated December __, 2012 by and between the Company, Bay Acquisition, LLC and the noteholder identified on Schedule A
10.11
 
Warrant dated December __, 2012 for 3,000,000 shares of common stock
10.12
 
Amendment dated May 6, 2013 by and between the Company and Gabriel De Los Reyes
10.13
 
Form of Subscription Agreement and Securities Purchase Agreement
10.14
 
Form of Indemnification Agreement
21
 
List of Subsidiaries
 
 
30

 

SIGNATURES
 
Pursuant to the requirements of the Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
 
  GLOBAL DIGITAL SOLUTIONS, INC.
   
Dated: August 9, 2013
By:
/s/ William J. Delgado
   
William J. Delgado
   
Chief Executive Officer
   
(Principal Executive Officer)

 
31

 
 
EXHIBIT INDEX
 
Exhibit No.
 
Description
2.1
 
Purchase Agreement, dated as of January 1, 2012, by and between Global Digital Solution, Inc., and Bronco Communications, LLC
2.2
 
Amendment to Purchase Agreement dated October 15, 2012, by and between Global Digital Solution, Inc., and Bronco Communications, LLC
2.3
 
Agreement of Merger and Plan of Reorganization dated as of October __, 2012, by and between Global Digital Solution, Inc., and Airtronic USA, Inc.
2.4
 
First Amendment to Agreement of Merger and Plan of Reorganization dated as of August 5, 2013, by and between Global Digital Solution, Inc., and Airtronic USA, Inc.
3.1
 
Certificate of Incorporation
3.2
 
Articles of Merger
3.3
 
Certificate of Amendment to the Certificate of Incorporation
3.4
 
Bylaws
10.1
 
Debtor In Possession Note Purchase Agreement by and between the Company and Airtronic USA, Inc. dated October 22, 2012
10.2
 
8 1/4% Secured Promissory Note in the original principal amount of $750,000 dated October 22, 2012 in favor of the Company
10.3
 
Security Agreement by and between the Company and Airtronic USA, Inc. dated October 22, 2012
10.4
 
Bridge Loan Modification and Ratification Agreement by and between the Company and Airtronic USA, Inc. dated March __, 2013
10.5
 
Second Bridge Loan Modification and Ratification Agreement by and between the Company and Airtronic USA, Inc. dated as of August 5, 2013
10.6
 
8 1/4% Secured Promissory Note in the original principal amount of $550,000 dated August 5, 2013 in favor of the Company
10.7
 
Intellectual Property Security Agreement dated as of August 5, 2013, by and between Merriellyn Kett and the Company
10.8
 
Promissory Note Purchase Agreement by and between the Company and the investors listed therein dated December __, 2012
10.9
 
Secured Promissory Note in the original principal amount of $750,000 dated December __, 2012 in favor of Gabriel De Los Reyes
10.10
 
Security Agreement dated December __, 2012 by and between the Company, Bay Acquisition, LLC and the noteholder identified on Schedule A
10.11
 
Warrant dated December __, 2012 for 3,000,000 shares of common stock
10.12
 
Amendment dated May 6, 2013 by and between the Company and Gabriel De Los Reyes
10.13
 
Form of Subscription Agreement and Securities Purchase Agreement
10.14
 
Form of Indemnification Agreement
21
 
List of Subsidiaries

 
32

 
 
INDEX TO FINANCIAL STATEMENTS

(i) For the Years Ended December 31, 2012 and 2011
Page
Report of PMB Helin Donovan  LLP, Independent Registered Public Accounting Firm
F-1
Consolidated Balance Sheets as of December 31, 2012 and 2011
F-2
Consolidated Statements of Operations for the years ended December 31, 2012 and 2011
F-3
Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2012 and 2011
F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2012 and 2011
F-5
Notes to Consolidated Financial Statements
F-6-17
   
(ii) For the Three and Six-Month Periods Ended June 30, 2013 and 2012
 
Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012
F-18
Condensed Consolidated Statements of Operations for the Three and Six-Month Periods Ended June 30, 2013 and 2012
F-19
Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Six-Month Period Ended June 30, 2013
F-20
Condensed Consolidated Statements of Cash Flows for the Six-Month Periods Ended June 30, 2013 and 2012
F-21
Notes to Condensed Consolidated Financial Statements
F-22-29
 
 
 

 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Stockholders
Global Digital Solutions, Inc.
 
  We have audited the accompanying consolidated balance sheets of Global Digital Solutions, Inc. (“the Company”) as of December 31, 2012 and 2011, and the related consolidated statements of operations, consolidate statements of stockholders’ equity (deficit) and  consolidated statements of cash flows for each of the years in the two-year period ended December 31, 2012. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Global Digital Solutions, Inc. as of December 31, 2012 and 2011, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the financial statements, the Company has sustained a net loss from operations and has an accumulated deficit.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.  Management’s plans in this regard are also described in Note 1.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
/s/ PMB Helin Donovan, LLP
PMB Helin Donovan, LLP
Seattle, Washington
August 8, 2013
 
 
F-1

 
 
GLOBAL DIGITAL SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
 
   
December 31,
 
   
2012
   
2011
 
Assets
           
Current Assets
           
Cash and cash equivalents
  $ 385,141     $ 668  
Total current assets
    385,141       668  
                 
Property and equipment, net
    -       -  
                 
Assets of discontinued operations
    395,133       -  
                 
Total assets
  $ 780,274     $ 668  
                 
Liabilities and Stockholders' Equity (Deficit)
               
Current Liabilities
               
Accounts payable and accrued expenses
  $ 191,499     $ 77,013  
Convertible notes payable
    504,309       1,926,637  
Notes payable
    117,600       17,500  
Total Current Liabilities
    813,408       2,021,150  
                 
Liabilities of discontinued operations
    33,974       -  
                 
Total Liabilities
    847,382       2,021,150  
                 
Commitments and Contingencies (Note 7)
               
                 
Stockholders’ equity (deficit)
               
Preferred stock, $0.001 par value, 10,000,000 shares authorized, 0 and 1,000,000 shares issued and outstanding
    -       1,000  
Common stock, $0.001 par value, 100,000,000 shares authorized,
 
52,513,451 and 33,111,054 shares issued and outstanding
    52,264       33,111  
Additional paid-in capital
    7,326,336       5,045,429  
Accumulated deficit
    (7,561,122 )     (7,100,022 )
Total Global Digital Solutions, Inc. stockholders' equity (deficit)
    (182,522 )     (2,020,482 )
Noncontrolling interest
    115,414       -  
Total stockholders’ equity (deficit)
    (67,108 )     (2,020,482 )
                 
Total liabilities and stockholders' equity (deficit)
  $ 780,274     $ 668  
 
See the accompanying notes to consolidated financial statements.

 
F-2

 
 
GLOBAL DIGITAL SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 
   
For the Year Ended
 
   
December 31,
 
   
2012
   
2011
 
             
Revenue
  $ -     $ 1,415  
                 
Cost of revenue
    300       500  
                 
Gross profit (loss)
    (300 )     915  
                 
Operating expenses
               
Selling, general and administrative expenses
    301,284       95,720  
Other (income)/expense
               
Interest expense
    10,000       -  
Other income
    (600 )     -  
Total costs and expenses
    310,684       95,720  
                 
Loss from continuing operations before provision for income taxes
    (310,984 )     (94,805 )
                 
Provision for income taxes
    -       -  
                 
Loss from continuing operations
    (310,984 )     (94,805 )
                 
Loss from discontinued operations
    (208,922 )        
                 
Net loss
    (519,906 )     (94,805 )
                 
Loss attributable to the noncontrolling interest
    (28,815 )     -  
                 
Net loss attributable to Global Digital Solutions, Inc.
  $ (491,091 )   $ (94,805 )
                 
Loss per common share attributable to Global Digital Solutions, Inc.
               
common stockholders - basic and diluted:
               
Loss from continuing operations
  $ (0.01 )   $ (0.00 )
Loss from discontinued operations
    -       -  
Loss attributable to the noncontrolling interest
    -       -  
Net loss
  $ (0.01 )   $ (0.00 )
                 
Shares used in computing net loss per share:
               
Basic and diluted
    45,302,055       30,331,670  

See the accompanying notes to consolidated financial statements.
 
 
F-3

 
 
GLOBAL DIGITAL SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2012
 
                           
Additional
                   
   
Preferred Stock
   
Common Stock
   
Paid-In
   
Accumulated
   
Noncontrolling
       
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit
   
Interest
   
Total
 
                                                 
Balance, December 31, 2010
    1,000,000     $ 1,000       30,136,054     $ 30,136     $ 5,042,454     $ (7,005,217 )   $ -     $ (1,931,627 )
Common stock issued for conversion of debt
                    2,975,000       2975       2975                       5,950  
Net loss
                                            (94,805 )             (94,805 )
Balance, December 31, 2011
    1,000,000       1,000       33,111,054       33,111       5,045,429       (7,100,022 )     -       (2,020,482 )
                                                                 
Shares issued for Bronco acquisition
                    4,289,029       4,289       145,827                       150,116  
Assumption of Bronco's assets
                                    1,009,657       (685,321 )             324,336  
Assumption of Bronco's equity
                                    (859,541 )     715,312       144,229       -  
Private placements of common stock
                    1,666,667       1,667       148,333                       150,000  
Common stock issued for conversion of debt
                    11,546,701       11,547       1,410,781                       1,422,328  
Common stock issued for rent
                    150,000       150       13,350                       13,500  
Common stock issued for services
                    1,000,000       1,000       52,000                       53,000  
Warrants issued
                                    360,000                       360,000  
Conversion of preferred stock to common stock
    (1,000,000 )     (1,000 )     500,000       500       500                       -  
Net loss
                                            (491,091 )     (28,815 )     (519,906 )
Balance, December 31, 2012
    -     $ -       52,263,451     $ 52,264     $ 7,326,336     $ (7,561,122 )   $ 115,414     $ (67,108 )
 
See the accompanying notes to consolidated financial statements.
 
 
F-4

 
 
GLOBAL DIGITAL SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   
For the Year Ended
 
   
December 31,
 
   
2012
   
2011
 
Operating Activities
           
Net income/(loss)
  $ (519,906 )   $ (94,805 )
Adjustments to reconcile net loss to net cash used
               
in operating activities:
               
Common stock issued in payment of rent
    13,500       -  
Common stock issued in payment of services
    53,000       -  
Amortization of warrant expense
    10,000       -  
Changes in operating assets and liabilities:
               
Increase (decrease) in accounts payable and accrued expenses
    (26,858 )     26,069  
Increase (decrease) in accrued wages
    141,343       50,000  
Net cash provided by discontinued operations
    113,294       -  
Net cash used in operating activities
    (215,627 )     (18,736 )
                 
Investing Activities
               
Net cash used in investing activities
    -       -  
                 
Financing Activities
               
Proceeds from short-term debt
    197,500       17,500  
Payments on short-term debt
    (122,500 )     -  
Proceeds from long-term debt
    375,100       -  
Proceeds from sale of common stock
    150,000       -  
Net cash generated by financing activities
    600,100       17,500  
                 
Net increase in cash and cash equivalents
    384,473       (1,236 )
                 
Cash and cash equivalents at beginning of year
    668       1,904  
                 
Cash and cash equivalents at end of year
  $ 385,141     $ 668  
                 
Supplementary disclosures of cash flow information
               
Cash paid during the year for
               
Interest
  $ -     $ -  
Taxes
  $ -     $ -  
                 
Supplementary disclosure of non-cash investing and financing activities
               
Shares of common stcok issued for acquisition of Bronco
  $ 150,116     $ -  
Shares of common stock issued to retire debt
  $ 1,422,328     $ 5,950  
 
See the accompanying notes to consolidated financial statements.
 
 
F-5

 
 
GLOBAL DIGITAL SOLUTIONS, INC.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
 
Note 1 – Organization, Liquidity and Summary of Significant Accounting Policies
 
Organization and History

Effective as of March 23, 2004, Creative Beauty Supply, Inc., ("Creative"), a New Jersey corporation that was incorporated on August 23, 1995, acquired Global Digital Solutions, Inc., a Delaware corporation ("Global”). The merger was treated as a recapitalization of Global. Creative changed its name to Global Digital Solutions, Inc. (“We” or the “Company). The Company disposed of its pre-merger assets and liabilities and succeeded to the business of Global. Although Creative was the legal acquiror, Global became the accounting acquiror of the Company for financial statement purposes. On January 8, 2004, Global acquired Pacific ComTel, Inc., a company that provided structured cabling design, installation and maintenance for leading information technology companies, federal, state and local government, major businesses, educational institutions, and telecommunication companies.

Our mission was to target the United States government contract marketplace for audio and video services. The U.S. government and commercial marketplaces have budgeted over the long term to upgrade existing telephony, computer, and outsourcing systems across the spectrum of communications, security, and services marketplace segments. Due to significant capital constraints, we wound down the majority of our operations in June of 2005, but continued to operate a small operations team in Northern California.

We changed our fiscal year end from June 30 to December 31 in June, 2009.

On January 1, 2012, we acquired a 51% stake in Bronco Communications, LLC (“Bronco”), a Nevada-California regional telecommunications subcontractor located in Folsom, California. See Note 11.

On May 1, 2012, with the support of our major shareholders, we made the decision to wind down and discontinue our operations in the telecommunications area and refocus our efforts in the area of small arms manufacturing, knowledge-based and culturally attuned social consulting and security-related solutions in unsettled areas.  See Notes 11, 12 and 15.

In December 2012 we incorporated GDSI Florida LLC, and in January 2013 we incorporated Global Digital Solutions, LLC, both Florida limited liability companies.

Liquidity
 
We have sustained losses and experienced negative cash flows from operations since inception and, at December 31, 2012, we had cash and cash equivalents of $385,141, a working capital deficit of $428,267 and an accumulated deficit of $7,561,122. These factors raise substantial doubt about our ability to continue to operate in the normal course of business. We have funded our activities to date almost exclusively from equity and debt financings.
 
We will continue to require substantial funds to continue development of our core business. Management’s plans in order to meet our operating cash flow requirements include (i) financing activities such as private placements of common stock, and issuances of debt and convertible debt instruments and (ii) the establishment of strategic relationships which we expect will lead to the generation of additional revenue or acquisition opportunities. See Notes 11 and 15, for further information.
 
While we believe that we will be successful in obtaining the necessary financing to fund our operations, there are no assurances that such additional funding will be achieved or that we will succeed in our future operations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

The Company’s accountants have expressed substantial doubt about the Company’s ability to continue as a going concern as a result of its history of net loss. The Company’s ability to achieve and maintain profitability and positive cash flow is dependent upon our ability to successfully execute the plans to pursue the acquisition of Airtronic and subsequent private placements described in this Form 10. The outcome of these matters cannot be predicted at this time. These consolidated financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue its business.
 
 
F-6

 
 
GLOBAL DIGITAL SOLUTIONS, INC.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
 
Summary of Significant Accounting Policies
 
Principles of Consolidation
The consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiary and our majority-owned subsidiary. The non-controlling interest represents the 49% of the outstanding voting stock of Bronco not owned by us. All significant intercompany accounts and transactions have been eliminated in consolidation. Results of operations of Bronco are included in discontinued operations in our 2012 consolidated financial statements.

Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally acceptable (“GAAP”) in the United States of America (“U.S.”) requires us to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, we evaluate our estimates, including those related to accounts receivable, fair values of financial instruments, useful lives of property and equipment, income taxes, and contingent liabilities, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Cash and Cash Equivalents
We consider all highly liquid investments with original maturities of three months or less to be cash equivalents.
 
Accounts Receivable
We record accounts receivable at the invoiced amount and we do not charge interest. We maintain an allowance for doubtful accounts to reserve for potentially uncollectible receivables. We review the accounts receivable by amounts due by customers which are past due to identify specific customers with known disputes or collectability issues. In determining the amount of the reserve, we make judgments about the creditworthiness of significant customers based on ongoing credit evaluations.

Property and Equipment
Property and equipment are carried at cost less accumulated depreciation and amortization computed using the straight-line method. Computer hardware and software are depreciated over an estimated useful life of 3 years.  Maintenance and repair costs are expensed as incurred.

Revenue Recognition
We follow the revenue recognition guidance in the Revenue Recognition Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC” or “Codification”). We recognize product revenue at the time product is shipped and title has transferred, provided that a purchase order has been received or a contract has been executed, there are no uncertainties regarding customer acceptance, the sales price is fixed and determinable and collectability is deemed probable. If uncertainties regarding customer acceptance exist, revenue is recognized when such uncertainties are resolved. There are no significant post-contract support obligations at the time of revenue recognition. Our accounting policy regarding vendor and post contract support obligations is based on the terms of the customers’ contracts and is billable upon occurrence of the post-sale support. Costs of products sold and services provided are recorded as the related revenue is recognized. Revenue is recognized at the time services or goods are provided, and revenue from short-term rentals is recognized over the rental period which typically ranges from two to four weeks. It is our policy to record contract losses in their entirety in the period in which such losses are foreseeable.

Long-lived Assets
We review our long-lived assets, including property and equipment, for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Examples of such events could include a significant disposal of a portion of such assets, an adverse change in the market involving the business employing the related asset, a significant decrease in the benefits realized from an acquired business, difficulties or delays in integrating the business or a significant change in the operations of an acquired business.
 
 
F-7

 
 
GLOBAL DIGITAL SOLUTIONS, INC.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
 
An impairment test involves a comparison of undiscounted cash flows from the use of the asset to the carrying value of the asset.  Measurement of an impairment loss is based on the amount that the carrying value of the asset exceeds its fair value.  No impairment losses were incurred in the periods presented.

Fair Value Measurements
The carrying amounts of our financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and short-term debt approximate fair value due to their relatively short maturities.

Debt Issued with Warrants  
We account for the issuance of debt and related warrants by allocating the debt proceeds between the debt and warrants based on the relative estimated fair values of the debt security without regard for the warrants and the estimated fair value of the warrants themselves. The amount allocated to the warrants would then be reflected as both an increase to equity, and as a debt discount that would be amortized over the term of the debt. However, in circumstances where warrants must be accounted for as a liability, the full estimated fair value of the warrants is established as both a liability and a debt discount. In some cases, if the value of the warrants is greater than the principal amount received, an immediate interest expense charge is recorded for the excess.

In accounting for convertible debt instruments, the proceeds from issuance of the convertible notes are first allocated between the convertible notes and the warrants. If the amount allocated to convertible notes results in an effective per share conversion price less than the fair value of our common stock on the date of issuance, the intrinsic value of this beneficial conversion feature is recorded as a further discount to the convertible debt with a corresponding increase to additional paid in capital.

Income Taxes
We recognize income taxes under the liability method. We recognize deferred income taxes for differences between the financial reporting and tax bases of assets and liabilities at enacted statutory tax rates in effect for the years in which differences are expected to reverse. We recognize the effect on deferred taxes of a change in tax rates in income in the period that includes the enactment date. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.  We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured to determine the actual amount of benefit to recognize in our financial statements. See Note 9 for additional information.
  
Basic and Fully Diluted Loss Per Share
Basic and diluted loss per common share is computed by dividing the loss by the weighted average number of common shares outstanding for the period. Since we have incurred losses attributable to common stockholders during each of the two years ended December 31, 2012 and 2011, diluted loss per common share has not been computed by giving effect to all potentially dilutive common shares that were outstanding during the period. Dilutive common shares consist of convertible preferred stock and incremental shares issuable upon exercise of warrants to the extent that the average fair value of our common stock for each period is greater than the exercise price of the warrants. See Note 10.

Goodwill
Goodwill and indefinite-lived intangible assets are not amortized. Rather, they are tested for impairment at least annually or more frequently if events or changes in circumstances indicate that the asset might be impaired.  Contracts in place, is the only intangible asset with an indefinite life on our consolidated balance sheets.  We have elected December 31 as the date to perform our annual impairment test.

Goodwill is included in the accompanying financial statements as a component of Assets of Discontinued Operations because we never realized the benefits of the acquired Goodwill.
 
 
F-8

 
 
GLOBAL DIGITAL SOLUTIONS, INC.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
 
Recent Accounting Pronouncements

From time to time, the FASB or other standards setting bodies will issue new accounting pronouncements. Updates to the Codification are communicated through issuance of an Accounting Standards Update (“ASU”).

In July 2012, the FASB issued ASU No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment. Under this standard, entities testing long-lived intangible assets for impairment now have an option of performing a qualitative assessment to determine whether further impairment testing is necessary. If an entity determines, on the basis of qualitative factors, that the fair value of the indefinite-lived intangible asset is more-likely-than-not less than the carrying amount, the existing quantitative impairment test is required. Otherwise, no further impairment testing is required. For Global, this ASU is effective beginning January 1, 2013, with early adoption permitted under certain conditions. The adoption of this standard is not expected to have a material impact on the Company’s consolidated results of operations or financial condition.

In June 2011, the FASB issued guidance that requires entities to report components of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements. The guidance removes the option to present the components of other comprehensive income (“OCI”) as part of the statement of equity. This guidance is effective for our fiscal year 2012, and must be applied retrospectively for all periods presented in the consolidated financial statements. The new guidance does not apply to entities that have no items of OCI in any period presented. We do not anticipate that this new guidance will have a material impact on its consolidated financial statements.

Note 2 – Financial Instruments

Cash and Cash Equivalents

Our cash and cash equivalents, at December 31, 2012 and 2011, consisted of the following:

   
2012
   
2011
 
Cash in bank
  $ 385,141     $ 668  
Cash and cash equivalents
  $ 385,141     $ 668  

Note 3 – Fair Value Measurements
 
Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable:

Level 1 - Quoted prices for identical instruments in active markets.

Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable directly or indirectly.

Level 3 - Valuations derived from valuation techniques in which one or more significant inputs are unobservable.

We had no Level 1, Level 2 or Level 3 assets or liabilities at December 31, 2012, or 2011.

 
F-9

 
 
GLOBAL DIGITAL SOLUTIONS, INC.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
 
Note 4 – Property and Equipment

Property and equipment at December 31, 2012 and 2011 consisted of the following:

   
Estimated Useful Lives (Years)
   
2012
   
2011
 
Computers and software
  3     $ 6,573     $ 6,573  
            6,573       6,573  
Less accumulated depreciation and amortization
          (6,573 )     (6,573 )
Property and equipment, net
        $ -     $ -  

There was no depreciation expense on property and equipment for either of the years ended December 31, 2012 and 2011.

Note 5 – Convertible Notes Payable

Convertible notes payable totaled $504,309 and $1,926,637 at December 31, 2012 and 2011, respectively. Throughout 2004, we issued non-interest bearing, convertible notes payable and received total proceeds of $1,926,637 from unrelated individuals and an institution. $1,422,328 of the notes were converted into shares of our common stock at the holder’s option at a conversion rate of $0.50 per share in September 2012. The other convertible note, totaling $504,309, held by an institution, is non interest bearing, and is convertible at a conversion price equal to our share’s average trading closing share price for the ten days prior to the closing of the conversion.

Note 6 – Notes Payable

In December, 2012, we entered into a Promissory Note Purchase Agreement, a Secured Promissory Note (“Note”) and Security Agreement with an investor (“Investor”) to lend us $750,000. The Note bears interest at 8 ¼%, is secured by all of our assets and is due on May 1, 2013.  At December 31, 2012 we had received $375,100 in proceeds under this note.
 
In connection with the Note issuance, the Company granted the note holder, warrants to purchase 3,000,000 shares of common stock. The warrants have an exercise price of $0.15 per share and have a three-year term from their respective note issuance date. Upon issuance, the relative fair value of the 3,000,000 warrants related to the $750,000 note was determined to be $360,000. The relative fair value was determined utilizing a Black-Scholes pricing model. The value assigned to the warrants was recorded as debt discounts on the consolidated balance sheet. The debt discounts are being amortized over the life of the corresponding note using the effective interest method.

Notes payable at December 31, 2012 and 2011 consisted of the following:
 
Type   Collateral
(if any)
 
Interest
 Rate
   
Monthly
Payments
   
Maturity
  2012     2011  
Private
 
Assets
    8.25 %   $ -  
May-13
  $ 375,100     $ -  
Private
 
None
    10.00 %   $ -  
May-13
    50,000       -  
Private
 
None
    10.00 %   $ -  
Dec -13
    37,500       -  
Private
 
None
    5.00 %   $ -  
Demand
    5,000       5,000  
Private
 
None
    0.00 %   $ -  
Mar - 12
    -       12,500  
                            467,600       17,500  
Less: Unamortized debt discount
    (350,000 )        
Notes payable
  $ 117,600     $ 17,500  
 
 
F-10

 
 
GLOBAL DIGITAL SOLUTIONS, INC.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
 
Note 7 – Commitments and Contingencies

Consulting Agreements
Effective May 9, 2012, we entered into a one-year “referral compensation agreement” with a third party consulting firm pursuant to which the firm would facilitate meetings and introductions on our behalf with certain potential investors in return for our agreement to pay the consulting firm compensation for these introduction.  The consulting firm was issued 250,000 shares of restricted shares of commons stock valued at $15,000.

Effective May 15 2012, we entered into a one-year “referral compensation agreement” with a third party consulting firm pursuant to which the firm would facilitate meetings and introductions on our behalf with certain potential investors in return for our agreement to pay the consulting firm compensation for these introduction.  The consulting firm was issued 500,000 shares of restricted shares of commons stock valued at $25,000.

Effective July 27 2012, we entered into a one-year “referral compensation agreement” with a third party consulting firm pursuant to which the firm would facilitate meetings and introductions on our with certain potential investors in return for our agreement to pay the consulting firm compensation for these introduction.  The consulting firm was issued 250,000 shares of restricted shares of commons stock valued at$13,000.

Office Leases
Through January 2010, we had an operating leases for our office space in Folsom, California. This lease is on a month-to-month basis. The lease required a monthly payment of $300 per month and could be terminated by either party at any time.

Note 8 - Stockholders’ Equity
 
During the years ended December 31, 2011 and 2012, we issued the following shares of restricted common stock.  At the time of issuance, the issue price was negotiated between the Company and the recipient.
 
In Consideration For
 
Date of Issue
 
Number of Shares
   
Issue Price
   
Value
 
2011
                     
Private Placement for Working Capital
 
12/07/11
    2,975,000     $ 0.002     $ 5,950  
                             
2012
                           
Bronco Acquisition
 
01/01/12
    4,289,029     $ 0.035     $ 150,116  
Debt Conversion
 
04/28/12
    3,300,000     $ 0.002     $ 6,600  
Debt Conversion
 
05/21/12
    6,043,801     $ 0.052     $ 314,278  
Debt Conversion
 
09/10/12
    2,202,900     $ 0.500     $ 1,101,450  
Private Placement for Working Capital
 
01/16/12
    416,667     $ 0.060     $ 25,000  
Private Placement for Working Capital
 
05/18/12
    250,000     $ 0.100     $ 25,000  
Private Placement for Working Capital
 
05/21/12
    250,000     $ 0.100     $ 25,000  
Private Placement for Working Capital
 
10/15/12
    750,000     $ 0.100     $ 50,000  
Preferred Stock Conversion
 
10/15/12
    500,000     $ 0.002     $ 1,000  
Rent
 
12/31/12
    150,000     $ 0.090     $ 13,500  
Services
 
05/21/12
    250,000     $ 0.052     $ 13,000  
Services
 
10/15/12
    500,000     $ 0.050     $ 25,000  
Services
 
10/15/12
    250,000     $ 0.052     $ 13,000  

 
F-11

 
 
GLOBAL DIGITAL SOLUTIONS, INC.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
 
Common Stock Warrants

We have issued warrants, which are fully vested and available for exercise, as follows:

Class of Warrant
 
Issued in connection with or for
 
Number
   
Exercise Price
 
Date of Issue
 
Date of Expiration
Series A
 
Debt
  3,000,000     $ 0.15  
December 2012
 
December 2015

The valuation of the warrants utilized the following assumptions utilizing the Black-Scholes option-pricing model:

Class of Warrant
 
Fair Value
   
Dividend Yield
   
Volatility
   
Contractual Lives (Yrs.)
   
Risk-Free Rate
 
Series A
  $ 360,000       0.0 %     576.79 %     3.0       0.39 %

The fair value of warrants issued during the year ended December 31, 2012 was $0.12. Our computation of expected volatility is based on our historical volatility. The interest rate is based on the U.S. Treasury Yield curve in effect at the time of grant. We do not expect to pay dividends. The fair value is being amortized over the life of the warrant.
 
The following is a summary of outstanding and exercisable warrants at December 31, 2012:
 
   
Outstanding
   
Exercisable
Range of Exercise
Prices
 
Weighted
Average
Number
Outstanding
at 12/31/12
 
Outstanding
Remaining
Contractual
Life (in yrs.)
 
Weighted
Average
Exercise
Price
   
Number
Exercisable
at 12/31/12
   
Weighted
Average
Exercise
Price
                         
$
0.15
   
3,000,000
   
3.0
 
$
0.15
     
3,000,000
   
$
0.15
                                     
$
0.15
   
3,000,000
   
3.0
 
$
0.15
     
3.000,000
   
$
0.15
 
The intrinsic value of warrants outstanding at December 31, 2012 was $0.00.

Note 9 - Income Taxes
 
We have incurred losses since inception, which have generated net operating loss carryforwards.  Pretax losses were approximately $461,000 and $95,000 for the years ended December 31, 2012 and 2011, respectively.   At December 31, 2012, we had a federal net operating loss carryforward of approximately $609,000 that will expire beginning in 2024.  Current or future ownership changes may limit the future realization of these net operating losses.  Our policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the consolidated statements of operations. As of January 1, 2012, we had no unrecognized tax benefits, or any tax related interest or penalties. There were no changes in our unrecognized tax benefits during the year ended December 31, 2012. We did not recognize any interest or penalties during 2012 or 2011 related to unrecognized tax benefits.
 
Section 382 of the Internal Revenue Code generally imposes an annual limitation on the amount of net operating loss carryforwards that may be used to offset taxable income when a corporation has undergone significant changes in its stock ownership. There can be no assurance that we will be able to utilize any net operating loss carryforwards in the future.
 
 
F-12

 
 
GLOBAL DIGITAL SOLUTIONS, INC.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
 
We recognize deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax loss carryforwards.  We have established a valuation allowance to reflect the likelihood of realization of deferred tax assets.  There is no income tax benefit for the losses for the years ended December 31, 2012 and 2011, since management has determined that the realization of the net deferred tax asset is not more likely than not to be realized and has created a valuation allowance for the entire amount of such benefit.
 
At December 31, 2012 and 2011, the significant components of our deferred tax assets and liabilities were as follows:
 
   
2012
   
2011
 
Deferred tax assets:
           
Net operating loss
  $ 103,368     $ 17,848  
Stock compensation
    21,112       -  
Accrued expenses
    96,377       19,917  
Gross deferred tax assets
    220,857       37,765  
Less:  Valuation Allowance
    (220,857 )     (37,765 )
Net deferred tax assets
  $ -     $ -  
 
A reconciliation of the Federal statutory rate to the Company’s effective tax rate for the years ended December 31, 2012 and 2011 is as follows:
 
   
2012
   
2011
 
Federal statutory rate
    34.0 %     34.0 %
State income taxes, net of federal benefit
    5.8 %     5.8 %
Decrease in income taxes resulting from:
               
Change in valuation allowance
    -39.8 %     -39.8 %
Effective tax rate
    0.0 %     0.0 %
 
Note 10 - Loss Per Common Share

Basic and diluted loss per common share is computed by dividing the loss by the weighted average number of common shares outstanding for the period.  Since we incurred losses attributable to common stockholders during the years ended December 31, 2012 and 2011, diluted loss per common share has not been computed by giving effect to all potentially dilutive common shares that were outstanding during the years ended December 31, 2012 and 2011.  Dilutive common shares consist of shares issuable on the conversion of preferred stock and incremental shares issuable upon the exercise of warrants to the extent that the average fair value of our common stock for each period is greater than the exercise price of the warrant.

 
F-13

 
 
GLOBAL DIGITAL SOLUTIONS, INC.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
 
The following table sets forth the computation of basic and diluted loss per common share:

   
2012
   
2011
 
Numerator:
           
Loss from continuing operations
  $ (461,100 )   $ (93,890 )
Loss from discontinued operations
    (58,806 )     -  
Loss attributable to the noncontrolling interest
    (28,815 )     -  
Net loss
  $ (491,091 )   $ (93,890 )
                 
Denominator:
               
Weighted-average shares outstanding
    45,302,055       30,331,670  
Effect of dilutive securities (1)
    -       -  
Weighted-average diluted shares
    45,302,055       30,331,670  
                 
Loss per common share – basic and diluted:
               
Continuing operations
  $ (0.01 )   $ (0.00 )
Discontinued operations
    (0.00 )     (0.00 )
Attributable to the noncontrolling interest
    (0.00 )     (0.00 )
Total – basic and diluted
  $ (0.01 )   $ (0.00 )
                  
 
(1)  
 The following common stock equivalents outstanding as of December 31, 2012 and 2011 were not included in the computation of dilutive loss per share because the net effect would have been anti-dilutive:

   
2012
   
2011
 
Warrants
    3,000,000       -  
Preferred stock
    -       1,000,000  
Total common stock equivalents
    3,000,000       1,000,000  
 
Note 11  - Acquisitions
 
Acquisition of Bronco Communications, LLC
In January 2012, we acquired 51% of Bronco in consideration for the issuance of 4,289,029 shares of our restricted common stock valued at $0.035 per share, or $150,116. The 49% interest we did not acquire is accounted for as a noncontrolling interest. The purchase price was allocated to the assets acquired based on the fair values at the acquisition date. The goodwill acquired was valued at $351,653. The financial results of Bronco are included in these consolidated financial statements as of January 1, 2012, the date control was acquired, in accordance with the Codification for business combinations.  The purchase price was allocated as follows:

Cash and cash equivalents
  $ 5,325  
Accounts receivable
    53,342  
Property and equipment
    63,792  
Total Assets
  $ 122,459  
Accounts payable and accrued expenses
  $ 79,536  
Notes payable
    71,498  
Total Liabilities
  $ 151,034  
Contract in place
  $ -  
Net Assets Acquired
  $ (28,575 )
         
Fair value of common stock issued
  $ 150,116  
 
 
F-14

 
 
GLOBAL DIGITAL SOLUTIONS, INC.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
 
Agreement to Acquire Airtronic USA, Inc.
On August 13, 2012, we entered into a Letter of Intent (“LOI”) to acquire 70% of Airtronic USA, Inc. (“Airtronic”), a debtor in possession under chapter 11 of the Bankruptcy Code in a case pending in the US Bankruptcy Court for the Northern District of Illinois, Eastern Division (the Bankruptcy Court”).  O n October 22, 2012, we memorialized the terms of the LOI and entered into an Agreement of Merger and Plan of Reorganization (“Merger Agreement”) to acquire 70% of Airtronic (the “Merger”) upon the effective date that Airtronic’s bankruptcy case is discharged by the Bankruptcy Court. We may acquire the remaining 30% of Airtronic two years after the closing of the Merger based upon a 4 times EBITDA valuation of Airtronic as set forth in the Merger Agreement. We are working with Airtronic, and its secured and unsecured creditors, to file a consensual plan of reorganization.

We agreed to contribute to Airtronic, at the closing of the Merger, $2 million less any amounts then outstanding on the Bridge Loan discussed below. We also agreed to issue to the employees of Airtronic options to acquire 4,960,852 shares of our common stock an exercise price of $0.04, the fair market value of our common stock on the date we entered into the LOI exercisable for a period of ten years. See Note 14 for changes to the Merger Agreement subsequent to December 31, 2012.

Airtronic, founded in 1990 and based in Elk Grove Village, Illinois, is an electro-mechanical e ngineering desi g n and manufactur i ng c o mpany that provides s mall arms and small arms spare pa r ts to the U.S. D epartment of Def e nse, foreign militari e s, and the l a w e n forcement market. Airtronic’s pr o ducts include g r enade launchers, r o cket pro p elled grenade la u nchers, grena d e launcher guns, flex machine guns, gre n ade machine g u ns, rifles, and magazines.

On October 22, 2012, we entered into a Debtor In Possession Note Purchase Agreement (“Bridge Loan”) with Airtronic. We agreed to lend Airtronic up to a maximum of $2,000,000, with the first initial advance set at a maximum of $750,000, evidenced by an 8¼% Secured Promissory Note with an original principal amount of $750,000 made by Airtronic in favor of the Company (the “Original Note”) and a Security Agreement securing all of Airtronic’s assets. As of December 31, 2012 we had not advanced any funds to Airtronic under the Bridge Loan and Original Note. The Original Note bears interest at 8¼% per annum, is secured by all of Airtronic’s assets and, unless an event of default shall have previously occurred and be continuing, the full amount of principal and accrued interest under the note shall be due and payable on the date the Bankruptcy Court has discharged the Airtronic bankruptcy case. See Note 16, “Subsequent Events”, for amendments to the Bridge Loan subsequent to December 31, 2012.

Note 12 – Discontinued Operations
 
In accordance with ASC Topic 205, “Presentation of Financial Statements-Discontinued Operations”, we have presented the results of operations of Bronco as discontinued operations for the year ended December 31, 2012. The following table details the operating results included of discontinued operations:

   
Year Ended
December 31,
2012
 
Net sales
  $ 144,337  
Cost of goods sold
    114,071  
Gross profit
    30,266  
Selling, general and administrative expenses
    236,564  
Interest expense
    7,000  
Other income
    (4,376 )
Loss before provision for income taxes
    (208,922 )
Provision for income taxes
    -  
Loss from discontinued operations
  $ (208,922 )

 
F-15

 
 
GLOBAL DIGITAL SOLUTIONS, INC.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
 
   
December 31,
2012
 
Assets
     
Cash and cash equivalents
  $ 96  
Property and equipment, net
    43,384  
Goodwill
    351,653  
Assets of discontinued operations
  $ 395,133  
         
Liabilities
       
Accounts payable and accrued expenses
  $ 33,974  
Liabilities of discontinued operations
  $ 33,974  

Note 13 – Related Party Transactions

Our chief executive officer and chief financial officer, William J. Delgado, was paid $1,900 and we accrued unpaid wages of $50,000 in the year ending December 31, 2011.  Mr. Delgado was paid $58,646 and we accrued unpaid wages of $191,344 in the year ending December 31, 2012.  At December 31, 2011, we owed Mr. Delgado $600,000 under a convertible note payable which was converted into 1.2 million shares of our restricted common stock valued at $0.50 per share in September 2012. Mr. Delgado owned 66,000 shares of our common stock at December 31, 2011 and December 31, 2012 respectively.

Note 14 - Concentrations
 
Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and accounts receivable.

We maintain deposit balances at various financial institutions that, from time to time, may exceed federally insured limits. As of December 31, 2012, we had deposits in excess of federally insured limit of $250,000. We maintained this balance with a high quality financial institution, which we believe limits this risk. At December 31, 2011, we did not have any deposits in excess of federally insured limits.

Note 15 – Subsequent Events

Convertible Notes
In December 2012, we entered into a Promissory Note Purchase Agreement, a Secured Promissory Note (“Note”) and Security Agreement with the Investor to lend us $750,000. The Note bears interest at 8 ¼%, is secured by all of our assets and is due on May 1, 2013.  In connection with the transaction, we issued to the Investor a warrant to acquire 3,000,00 shares of our common stock at an exercise price of $0.15, exercisable for a period of three years (the “Warrant”). In May 2013, as discussed below, the exercise price of the Warrant was reduced to $0.10.
 
We allocated the $360,000 fair value of the Warrant calculated using a Black-Scholes pricing model. We calculated that the fair market value of the beneficial conversion feature (“BCF”) of the Note is $393,243, and we are amortizing the BCF over the life of the loan using the effective interest rate method.

On May 6, 2013, the Company and the Investor amended the Promissory Note Purchase Agreement and the related Secured Promissory Note, Security Agreement and Warrant to:

(1)  
Extend the Note’s maturity date to July 1, 2013;
(2)  
Provide that on or before the maturity date, we may elect to convert the Note into 3,000,000 shares of our common stock at a conversion price of $0.25; and
(3)  
Reduce the exercise price of the Warrant from $0.15 to $0.10.

 
F-16

 
 
GLOBAL DIGITAL SOLUTIONS, INC.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
 
On July 1, 2013, we elected to convert the Note and issued the Investor 3 million shares of our restricted common stock valued at $750,000.
 
Bridge Loan to Airtronic
On October 22, 2012, we entered into the Bridge Loan with Airtronic as discussed in Note 11.  At December 31, 2012 we had not advanced any funds to Airtronic under the Bridge Loan. In March 2013, the Company and Airtronic amended the Bridge Loan to provide for a maximum advance of up to $700,000 in accordance with draws submitted by Airtronic and approved by the Company in accordance with the budget set forth in the amendment.

On June 26, 2013, we agreed to a second modification of the Bridge Loan agreement with Airtronic, and agreed to loan Airtronic up to an additional $550,000 under the Bridge Loan.  On August 5, 2013, we entered into the Second Bridge Loan Modification and Ratification Agreement, a new 8¼% secured promissory note for $550,000 (the “New Note”), and a Security Agreement with the CEO of Airtronic, securing certain intellectual property for patent-pending applications and trademarks that were registered in her name.

As of August 5, 2013, we had advanced $683,640 under the Bridge Loan to Airtronic.

Acquisition of Airtronic
On October 22, 2012, we into a Merger Agreement to acquire 70% of Airtronic as discussed in Note 11.  On June 26, 2013 we agreed to enter into a modification of the Merger Agreement (“Modification Agreement”), which was approved by the Bankruptcy Court on June 28, 2013.  The Modification Agreement provides that, contemporaneously with the closing of the Merger, we will contribute a noninterest bearing note to Airtronic in lieu of the $2,000,000 cash contribution set forth in the Merger Agreement (the “Parent Note”).  The initial principal balance of the Parent Note shall be equal to $2,000,000 less the following amounts to be funded or previously funded by the Company:

1.  
The outstanding balance of principal, accrued interest and other amounts then due and owing under the terms of Original Note.
2.  
The total amount of cash and the value of the Company’s shares of common stock that we shall make available for the settlement of any class of claim or claim pursuant to Airtronic’s approved Plan of Reorganization in its bankruptcy proceeding currently pending before the Bankruptcy Court, as discussed below; and
3.  
All other amounts funded or advanced by the Company to or for the benefit of Airtronic prior to the closing date of the Merger.

Contemporaneously with the closing of the Merger, the Original Note shall be cancelled; however, the New Note shall remain in full force and effect in accordance with its terms, as shall all security agreements, loan agreements and related documents to the extent they secure, supplement, are incorporated in or relate to the New Note.

Airtronic Plan of Reorganization
On June 10, 2013, Airtronic, with our consent, filed a Plan of Reorganization with the Bankruptcy Court. (the “Plan”).  The Plan provides, among other things, that Airtronic’s secured and unsecured creditors may elect to take shares of our common stock, valued at $0.50 per share, saleable after twelve months with “Price Protection”.  Price Protection shall mean that if a holder of our common stock issued pursuant to the Amended Plan sells its shares in whole or in part in an arm’s-length transaction for a fair market value less than $0 .50 per share after twelve months from the effective date of the Plan, but before twenty-four months from the effective date of the Plan, then the shareholder shall be provided with an amount of new shares of our common stock equal to the result of the following formula: (x) the sales price the shareholder would have received if its shares of our common stock had sold for $0 .50 per share minus   the actual sales price received by the shareholder for our common stock; divided by (y) the actual price per share received by the shareholder.
 
 
F-17

 
 
GLOBAL DIGITAL SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
             
   
June 30,
   
December 31,
 
   
2013
   
2012
 
Assets
           
Current Assets
           
Cash and cash equivalents
  $ 609,431     $ 385,141  
Note receivable
    695,961       -  
Prepaid expenses
    165,000       -  
Other current assets
    28,000       -  
Total current assets
    1,498,392       385,141  
                 
Property and equipment, net
    -       -  
                 
Assets of discontinued operations
    -       395,133  
                 
Total assets
  $ 1,498,392     $ 780,274  
                 
Liabilities and Stockholders' Equity (Deficit)
               
Current Liabilities
               
Accounts payable
  $ 79,367     $ 155  
Accrued expenses
    283,954       191,344  
Convertible notes payable
    1,254,309       504,309  
Notes payable
    55,000       117,600  
Total current liabilities
    1,672,630       813,408  
                 
Liabilities of discontinued operations
    -       33,974  
                 
Total Liabilities
    1,672,630       847,382  
                 
Commitments and Contingencies (Note 4)
               
                 
Stockholders’ equity (deficit)
               
Preferred stock, $0.001 par value, 10,000,000 shares authorized, none issued and outstanding
    -       -  
Common stock, $0.001 par value, 100,000,000 shares authorized, 83,342,117 and 52,513,451 shares issued and outstanding
    83,343       52,264  
Additional paid-in capital
    10,318,335       7,326,336  
Accumulated deficit
    (10,575,916 )     (7,561,122 )
Total Global Digital Solutions, Inc. stockholders' equity (deficit)
    (174,238 )     (182,522 )
Noncontrolling interest
    -       115,414  
Total stockholders’ equity (deficit)
    (174,238 )     (67,108 )
                 
Total liabilities and stockholders' equity (deficit)
  $ 1,498,392     $ 780,274  
 
See the accompanying notes to condensed consolidated financial statements.
 
 
F-18

 
 
GLOBAL DIGITAL SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                         
   
For the Three Months Ended
   
For the Six Months Ended
 
   
June 30,
   
June 30,
 
   
2013
   
2012
   
2013
   
2012
 
                         
Revenue
  $ -     $ -     $ -     $ -  
                                 
Cost of revenue
    -       -       -       300  
                                 
Gross profit (loss)
    -       -       -       (300 )
                                 
Operating expenses
                               
Selling, general and administrative expenses
    1,368,497       109,280       2,047,696       144,260  
Other (income)/expense
                               
Interest income
    (10,416 )     -       (12,321 )     -  
Interest expense
    662,302       -       708,198       -  
Total costs and expenses
    2,020,383       109,280       2,743,573       144,260  
                                 
Loss from continuing operations before provision for income taxes
    (2,020,383 )     (109,280 )     (2,743,573 )     (144,560 )
                                 
Provision for income taxes
    -       -       -       -  
                                 
Loss from continuing operations
    (2,020,383 )     (109,280 )     (2,743,573 )     (144,560 )
                                 
Loss from discontinued operations
    (25,477 )     (61,458 )     (271,221 )     (229,674 )
                                 
Net loss
    (2,045,860 )     (170,738 )     (3,014,794 )     (374,234 )
                                 
Loss attributable to the noncontrolling interest
    -       (30,114 )     -       (38,983 )
                                 
Net loss attributable to Global Digital Solutions, Inc.
  $ (2,045,860 )   $ (140,624 )   $ (3,014,794 )   $ (335,251 )
                                 
Loss per common share attributable to Global Digital Solutions, Inc.
                               
common stockholders - basic and diluted:
                               
Loss from continuing operations
  $ (0.03 )   $ (0.00 )   $ (0.05 )   $ (0.00 )
Loss from discontinued operations
    -       -       -       (0.01 )
Loss attributable to the noncontrolling interest
    -       -       -       -  
Net loss
  $ (0.03 )   $ (0.00 )   $ (0.05 )   $ (0.01 )
                                 
Shares used in computing net loss per share:
                               
Basic and diluted
    63,943,788       43,095,893       58,598,393       40,421,599  
 
See the accompanying notes to condensed consolidated financial statements.
 
 
F-19

 
 
GLOBAL DIGITAL SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 2013
                                                 
                           
Additional
                   
   
Preferred Stock
   
Common Stock
   
Paid-In
   
Accumulated
   
Noncontrolling
       
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit
   
Interest
   
Total
 
                                                 
Balance, December 31, 2012
    -     $ -       52,263,451     $ 52,264     $ 7,326,336     $ (7,561,122 )   $ 115,414     $ (67,108 )
Loss on disposal of discontinued operations
                                                    (115,414 )     (115,414 )
Stock-based compensation expense
    -       -       26,000,000       26,000       1,368,958       -               1,394,958  
Shares or warrants issued for sevices
                    1,810,666       1,811       373,722                       375,533  
Sale of common stock
                    3,268,000       3,268       922,832                       926,100  
Issuance of warrant included in the convertible debt
                                    326,487                       326,487  
Net loss
                                            (3,014,794 )             (3,014,794 )
Balance, June 30, 2013
    -       -       83,342,117     $ 83,343     $ 10,318,335     $ (10,575,916 )   $ -     $ (174,238 )
 
See the accompanying notes to condensed consolidated financial statements.
 
 
F-20

 
 
GLOBAL DIGITAL SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
         
   
For the Six Months Ended
 
   
June 30,
 
   
2013
   
2012
 
Operating Activities
           
Net loss
  $ (3,014,794 )   $ (335,251 )
Adjustments to reconcile net loss to net cash used
               
  in operating activities:
               
Stock- based compensation expense
    1,371,958       -  
Common stock issued in payment of services
    375,533       15,000  
Amortization of debt discount
    676,487       -  
  Changes in operating assets and liabilities:
               
Prepaid expenses
    (165,000 )     -  
Other assets
    (5,000 )     -  
Accounts payable
    79,212       72,987  
Accrued expenses
    92,610       -  
Cash provided by discontinued operations
    245,745       123,042  
Net cash used in operating activities
    (343,249 )     (124,222 )
                 
Investing Activities
               
Loans to Airtronic USA, Inc.
    (695,961 )     -  
Net cash used in investing activities
    (695,961 )     -  
                 
Financing Activities
               
Proceeds from sale of common stock
    926,100       75,000  
Proceeds from short-term debt
    374,900       85,000  
Payments on short-term debt
    (37,500 )     (35,000 )
Net cash generated by financing activities
    1,263,500       125,000  
                 
Net increase in cash and cash equivalents
    224,290       778  
                 
Cash and cash equivalents at beginning of year
    385,141       668  
                 
Cash and cash equivalents at end of period
  $ 609,431     $ 1,446  
                 
Supplementary disclosure of non-cash investing and financing activities
               
Purchase of Bronco with common shares
  $ -     $ 150,116  
 
See the accompanying notes to condensed consolidated financial statements.
 
 
F-21

 
 
GLOBAL DIGITAL SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2013 and 2012
 
Note 1 – Organization, Liquidity and Summary of Significant Accounting Policies
 
Organization and History

Effective as of March 23, 2004, Creative Beauty Supply, Inc., ("Creative"), a New Jersey corporation that was incorporated on August 23, 1995, acquired Global Digital Solutions, Inc., a Delaware corporation ("Global”). The merger was treated as a recapitalization of Global. Creative changed its name to Global Digital Solutions, Inc. (“We” or the “Company). The Company disposed of its pre-merger assets and liabilities and succeeded to the business of Global. Although Creative was the legal acquiror, Global became the accounting acquiror of the Company for financial statement purposes. On January 8, 2004, Global acquired Pacific ComTel, Inc., a company that provided structured cabling design, installation and maintenance for leading information technology companies, federal, state and local government, major businesses, educational institutions, and telecommunication companies.

Our mission was to target the United States government contract marketplace for audio and video services. The U.S. government and commercial marketplaces have budgeted over the long term to upgrade existing telephony, computer, and outsourcing systems across the spectrum of communications, security, and services marketplace segments. Due to significant capital constraints, we wound down the majority of our operations in June of 2005, but continued to operate a small operations team in Northern California.

We changed our fiscal year end from June 30 to December 31 in June, 2009.

On January 1, 2012, we acquired a 51% stake in Bronco Communications, LLC, a Nevada limited liability corporation (“Bronco”), operating in Nevada-California as a regional telecommunications subcontractor located in Folsom, California from a related party.

On May 1, 2012, with the support of our major shareholders, we made the decision to wind down and discontinue our operations in the telecommunications area and refocus our efforts in the area of small arms manufacturing, knowledge-based and culturally attuned social consulting and security-related solutions in unsettled areas.

In December 2012 we incorporated GDSI Florida LLC, and in January 2013 we incorporated Global Digital Solutions, LLC, both Florida limited liability companies.

Liquidity
 
We have sustained losses and experienced negative cash flows from operations since inception and, at June 30, 2013, we had cash and cash equivalents of $609,431, a working capital deficit of $174,238 and an accumulated deficit of $10,575,916. These factors raise substantial doubt about our ability to continue to operate in the normal course of business. We have funded our activities to date almost exclusively from equity and debt financings.
 
We will continue to require substantial funds to continue development of our core business. Management’s plans in order to meet our operating cash flow requirements include (i) financing activities such as private placements of common stock, and issuances of debt and convertible debt instruments and (ii) the establishment of strategic relationships which we expect will lead to the generation of additional revenue or acquisition opportunities.

While we believe that we will be successful in obtaining the necessary financing to fund our operations, there are no assurances that such additional funding will be achieved or that we will succeed in our future operations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

The Company’s independent registered accounting firm have expressed substantial doubt about our ability to continue as a going concern as a result of our history of net loss. Our ability to achieve and maintain profitability and positive cash flow is dependent upon our ability to successfully execute the plans to pursue the acquisition as described in this Form 10. The outcome of these matters cannot be predicted at this time. These consolidated financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should we be unable to continue its business.

The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.  The interim financial information in this report has not been audited. In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments) considered necessary for fair financial statement presentation have been made. Results of operations reported for interim periods may not be indicative of the results for the entire year. These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and the notes thereto for the year ended December 31, 2012, included elsewhere in this Form 10.
 
 
F-22

 
 
GLOBAL DIGITAL SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2013 and 2012
 
Summary of Significant Accounting Policies
 
  Accounting Method
The Company’s financial statements are prepared using the accrual basis of accounting in accordance with principles generally accepted in the United States of America. The consolidated financial statements include our accounts and the accounts of our wholly owned and majority-owned subsidiary in 2012. As of January 1, 2013, we disposed of Bronco Communications.

Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally acceptable (“GAAP”) in the United States of America (“U.S.”) requires us to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, we evaluate our estimates, including those related to accounts receivable, fair values of financial instruments, useful lives of property and equipment, income taxes, and contingent liabilities, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Non-Controlling Interest
The Company owned 51% of the outstanding stock of Bronco. The financial information related to Bronco was consolidated into our financial statements in 2012, which included an accounting for non-controlling interest.  At June 2013, the investment in Bronco has been disposed.

Debt Issued with Warrants  
We account for the issuance of debt and related warrants by allocating the debt proceeds between the debt and warrants based on the relative estimated fair values of the debt security without regard for the warrants and the estimated fair value of the warrants themselves. The amount allocated to the warrants would then be reflected as both an increase to equity, and as a debt discount that would be amortized over the term of the debt. However, in circumstances where warrants must be accounted for as a liability, the full estimated fair value of the warrants is established as both a liability and a debt discount. In some cases, if the value of the warrants is greater than the principal amount received, an immediate interest expense charge is recorded for the excess.

In accounting for convertible debt instruments, the proceeds from issuance of the convertible notes are first allocated between the convertible notes and the warrants. If the amount allocated to convertible notes results in an effective per share conversion price less than the fair value of our common stock on the date of issuance, the intrinsic value of this beneficial conversion feature is recorded as a further discount to the convertible debt with a corresponding increase to additional paid in capital.

Provision for Income Taxes
Income taxes are calculated based upon the asset and liability method of accounting.  Deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end.  A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not” standard to allow for recognition of such an asset.  In addition, realization of an uncertain income tax position must be estimated as “more likely than not” (i.e., greater than 50% likelihood of receiving a benefit) before it can be recognized in the financial statements .   Further, the recognition of tax benefits recorded in the financial statements, if any, is based on the amount most likely to be realized assuming a review by tax authorities having all relevant information.

Subsequent Events
We evaluate events that occur subsequent to the balance sheet date of periodic reports, but before financial statements are issued for periods ending on such balance sheet dates, for possible adjustment to such financial statements or other disclosure.

Stock Based Compensation
We adopted the fair value recognition provisions of ASC 718, "Compensation – Stock Compensation”.  Under the fair value recognition provisions, we are required to measure the cost of employee services received in exchange for share-based compensation measured at the grant date fair value of the award.  Compensation expense is recorded for all share-based awards granted to either non-employees, or employees and directors on or after January 1, 2013.  Accordingly, compensation expense of $1,001,410, for vesting of common stock, restricted stock grants and warrants to consultants and officers and directors is recorded in the accompanying statements of operations for the period ended June 30, 2013.

The Company accounts for the issuance of equity instruments (including warrants) to acquire goods and services based on the fair value of the goods and services or the fair value of the equity instrument at the time of issuance, whichever is more reliably measurable.
 
 
F-23

 
 
GLOBAL DIGITAL SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2013 and 2012
 
Cash and Cash Equivalents
Our cash and cash equivalents at June 30, 2013 and December 31, 2012 consisted of the following:

   
2013
   
2012
 
Cash in bank
  $ 609,431     $ 385,141  
Cash and cash equivalents
  $ 609,431     $ 385,141  

Fair Value Measurements
Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable:
 
Level 1 - Quoted prices for identical instruments in active markets.

Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable directly or indirectly.

Level 3 - Valuations derived from valuation techniques in which one or more significant inputs are unobservable.

We had no Level 1, Level 2 or Level 3 assets or liabilities at June 30, 2013 and December 31, 2012.

Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and accounts receivable.
 
We maintain deposit balances at various financial institutions that, from time to time, may exceed federally insured limits. As of June 30, 2013 and December 31, 2012, we had deposits in excess of the federally insured limit of $250,000. We maintained this balance with a high quality financial institution, which we believe limits this risk.

Note 2 – Note Receivable

On October 22, 2012, we entered into a Debtor In Possession Note Purchase Agreement (“Bridge Loan”) with Airtronic. We agreed to lend Airtronic up to a maximum of $2,000,000, with an initial advance of $750,000 evidenced by an 8¼% Secured Promissory Note with an original principal amount of $750,000 made by Airtronic in favor of the Company (the “Original Note”) and a Security Agreement securing all of Airtronic’s assets. As of December 31, 2012 we had not advanced any funds to Airtronic under the Bridge Loan and Original Note. The Original Note bears interest at 8¼% per annum, is secured by all of Airtronic’s assets and, unless an event of default shall have previously occurred and be continuing, the full amount of principal and accrued interest under the note shall be due and payable on the date the Bankruptcy Court has discharged the Airtronic bankruptcy case. In March 2013, the Company and Airtronic amended the Bridge Loan to provide for a maximum advance of up to $700,000 in accordance with draws submitted by Airtronic and approved by the Company in accordance with the budget set forth in the amendment.  On June 26, 2013, we agreed to a second modification of the Bridge Loan agreement with Airtronic, and agreed to loan Airtronic up to an additional $550,000 under the Bridge Loan.  On August 5, 2013, we entered into the Second Bridge Loan Modification and Ratification Agreement, a new 8¼% secured promissory note for $550,000 (the “New Note”), and a Security Agreement with the CEO of Airtronic, securing certain intellectual property for patent-pending applications and trademarks that were registered in her name.

Note 3 – Notes Payable

Convertible notes payable at June 30, 2013 and December 31, 2012 consisted of the following:

Type
 
Collateral
(If any)
 
Interest Rate
   
Monthly Payment
 
Maturity
 
2013
   
2012
 
Laurus Master Fund
 
None
    5.00 %   $ -  
May-13
  $ 504,309     $ 504,309  
Private
 
Assets
    8.25 %   $ -  
Jul-13
    750,000       -  
                          $ 1,254,309     $ 504,309  

Throughout 2004, we issued convertible notes payable and received total proceeds of $1,926,637 from unrelated individuals and an institution. In September 2012 $1,422,328 of the notes were converted into shares of our common stock at a conversion rate of $0.50 per share. The other convertible note, totaling $504,309, held by an institution, is non interest bearing, and is convertible at a fixed conversion price equal to our share’s average trading closing share price for the ten days prior to the closing of the conversion.
 
 
F-24

 
 
GLOBAL DIGITAL SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2013 and 2012
 
On May 6, 2013, as discussed below, we amended the terms of a Note payable to a private investor (“Investor”) and (i) extended the maturity date to July 1, 2013, (ii) provided that the note may be convertible to shares of our common price at a conversion price of $.25, and reduced the exercise price of the warrant issued in connection with the note payable from $.15 to $.10.

In connection with the note issuance, we granted the note holder, warrants to purchase 3,000,000 of shares of our common stock (the “Warrant”). The Warrant has an exercise price of $0.10 per share and have a three year term from the note issuance date. Upon issuance, the relative fair value of the Warrant was determined to be $360,000. The relative fair value was determined utilizing a Black-Scholes pricing model. A beneficial conversion feature of $393,243 resulted from a conversion price of $0.25, while the fair value of the common was $0.30. Both the value assigned to the warrants and the value assigned to the resulting beneficial conversion feature, were recorded as debt discount on the consolidated balance sheet. The debt discount is being amortized over the life of the note using the effective interest method.

Notes payable at June 30, 2013 and December 31, 2012 consisted of the following:

Type
 
Collateral
(if any)
 
Interest
Rate
   
Monthly
Payments
 
Maturity
  June 30, 2013     December 31, 2012  
Private
 
Assets
    8.25 %   $ -  
May-13
  $ -     $ 375,100  
Private
 
None
    10.00 %   $ -  
May-13
    50,000       50,000  
Private
 
None
    10.00 %   $ -  
Dec -13
    -       37,500  
Private
 
None
    5.00 %   $ -  
Demand
    5,000       5,000  
                            55,000       467,600  
Less: Unamortized debt discount
    -       (350,000 )
Notes payable
  $ 55,000     $ 117,600  

In December 2012, we entered into a Promissory Note Purchase Agreement, a Secured Promissory Note (“Note”) and Security Agreement with the Investor to lend us $750,000. The Note bears interest at 8¼%, is secured by all of our assets and is due on May 1, 2013.  In connection with the transaction, we issued to the Investor the Warrant.
 
We allocated the $360,000 fair value of the Warrant calculated using a Black-Scholes pricing model. We calculated that the fair market value of the beneficial conversion feature (“BCF”) of the Note is $393,243, and we are amortizing the BCF over the life of the loan using the effective interest rate method.

On May 6, 2013, the Company and the Investor amended the Promissory Note Purchase Agreement and the related Secured Promissory Note, Security Agreement and Warrant to:

(1)  
Extend the Note’s maturity date to July 1, 2013;
(2)  
Provide that on or before the maturity date, we may elect to convert the Note into 3,000,000 shares of our common stock at a conversion price of $.25; and
(3)  
Reduce the exercise of the Warrant from $0.15 to $0.10.

For financial reporting purposes, on May 6, 2013, the Note was considered paid and we recorded a convertible note of $750,000 – see Convertible Notes above.

Note 4 – Commitments and Contingencies

Effective January 1, 2013, we entered into a three-month consulting agreement with a consulting firm pursuant to which the firm would provide investor relations services.  The consulting firm was issued 500,000 shares of restricted shares of common stock valued at $50,000 and the expense was recognized over the three-month service period.
 
 
F-25

 
 
GLOBAL DIGITAL SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2013 and 2012
 
Effective April 3, 2013, we entered into a twelve-month consulting agreement with a consultant pursuant to which the consultant would provide investor relations services.  The consultant was issued 500,000 shares of restricted shares of common stock valued at $50,000 and the expense is being recognized over the term of the agreement. In June 2013, we entered into an amendment to the consulting agreement.  The consultant agreed to provide additional services over the remaining term of the agreement and, in consideration, we issued the consultant 250,000 shares of our restricted common stock valued at $125,000 and we agreed to issue the consultant a warrant to purchase 500,000 shares of our common stock at an exercise price of $.50, with a fair market value of $250,000 .  The warrant was issued on July 1, 2013.

Note 5 - Stockholders’ Equity
 
Preferred Stock
We are authorized to issue 10,000,000 shares of noncumulative, non-voting, nonconvertible preferred stock, $0.001 par value per share.  At June 30, 2013 and December 31, 2012, no shares of preferred stock were outstanding.
 
Common Stock
We are authorized to issue 100,000,000 shares of common stock, $0.001 par value per share.  At June 30, 2013 and December 31, 2012, 83,342,117 and 52,513,451 shares were issued and outstanding, respectively.

During the six-month period ended June 30, 2013, we issued the following shares of restricted common stock.  At the time of issuance, the issue price was negotiated between the Company and the recipient:
 
In Consideration For
 
Date of Issue
 
Number of Shares
   
Price
   
Value
 
Services
 
1/1/13
    1,000,666     $ 0.100     $ 99,700  
Stock-based compensation
 
1/10/13
    11,000,000     $ 0.120 *     11,000  
Services
 
4/15/13
    500,000     $ 0.100       50,000  
Private placement
 
4/15/13
    250,000     $ 0.100       25,000  
Private placement
 
5/31/13
    200,000     $ 0.250       50,000  
Private placement
 
6/6/13
    2,150,000     $ 0.250       537,500  
Services
 
6/25/13
    310,000     $ 0.500       155,000  
Stock based compensation
 
6/25/13
    15,000,000     $ 0.260 *     15,000  
Private placement
 
6/25/13
    408,000     $ 0.450       183,600  
Private placement
 
6/30/13
    260,000     $ 0.500       130,000  
          31,078,666             $ 1,256,800  
 
* - Stock-based compensation was calculated at fair value on the grant date and the expense is being amortized over the vesting period and service period.  $3,929,423 of compensation expense will be recognized over the next seven to 10 months.

Common Stock Warrants
We have issued warrants, which are fully vested and available for exercise, as follows:

Warrant
 
Issued in connection with or for
 
Number
   
Exercise Price
 
Date of Issue
 
Date of Expiration
A-1
 
Debt
    3,000,000     $ .10  
December 2012
 
December 2015
A-2
 
Services
    1,000,000     $ .15  
May 2013
 
May 2018
A-3
 
Services
    500,000     $ .50  
June 25, 2013
 
June 2018
 
The valuation of the warrants utilized the following assumptions utilizing a Black-Scholes pricing model:
 
 
 
Warrant
 
Fair Value
   
Dividend Yield
   
Volatility
   
Contractual Lives (Yrs.)
   
Risk-Free Rate
 
A-1
  $ 360,000       0.00 %     576.79 %     3.0       0.39 %
A-2
  $ 300,000       0.00 %     593.00 %     5.0       0.84 %
A-3
  $ 250,000       0.00 %     598.12 %     5.0       1.20 %

The fair value of warrants issued during the six-month period ended June 30, 2013 ranged from $0.15 to $0.50. Our computation of expected volatility is based on our historical volatility. The interest rates are based on the U.S. Treasury Yield curve in effect at the time of grant. We do not expect to pay dividends. The fair values are being amortized over the life of the warrants.
 
 
F-26

 
 
GLOBAL DIGITAL SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2013 and 2012
 
The following is a summary of outstanding and exercisable warrants at June 30, 2013:
 
   
Outstanding
   
Exercisable
 
Range of Exercise
Prices
 
Weighted
Average
Number
Outstanding
at 6/30/13
 
Outstanding
Remaining
Contractual
Life (in yrs.)
 
Weighted
Average
Exercise
Price
   
Number
Exercisable
at 6/30/13
   
Weighted
Average
Exercise
Price
 
                           
$
0.10
   
3,000,000
   
3.0
 
$
0.12
     
3,000,000
   
$
0.12
 
$
0.15
   
1,000,000
   
5.0
 
$
0.15
     
-
         
$
0.50
   
500,000
   
5.0
 
$
0.50
     
-
         
$
0.16
   
4,500,000
   
4.0
 
$
0.15
     
3,000,000
   
$
0.12
 
 
The intrinsic value of warrants outstanding at June 30, 2013 was $3,890,000.
 
Note 6 – Stock-Based Compensation

We issued 26,000,000 shares of restricted stock, not issued under stock incentive plans, to employees, advisors and consultants that vest between July 1, 2013 and January 31, 2014. The fair value of the total compensation expense is approximately $4,786,000. We recorded an expense related to the vested restricted stock issued to employees, advisors and consultants of approximately $996,000 and $1,372,000 for the three and six-month periods ended June 30, 2013.  We had no such expense in 2012.

Note 7 - Income Taxes

We had an effective tax rate of nil for the six-months ended June 30, 2013 and 2012. We incurred losses before taxes for the six-months ended June 30, 2013 and 2012. However, we have not recorded a tax benefit for the resulting net operating loss carryforwards, as we determined that a full valuation allowance against our net deferred tax assets was appropriate based primarily on our historical operating results.

Our policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the statement of operations.  At December 31, 2012, we had no unrecognized tax benefits, or any tax related interest or penalties.  There were no changes in unrecognized tax benefits during the period ended June 30, 2013.  We did not recognize any interest or penalties during 2012 related to unrecognized tax benefits, or through the period ended June 30, 2013.

Note 8 - Loss Per Common Share

Basic and diluted loss per common share for all periods presented is calculated based on the weighted average common shares outstanding for the period. The following potentially dilutive securities were outstanding as of June 30, 2013 and 2012 were not included in the computation of dilutive loss per common share because the effect would have been anti-dilutive (in thousands):

The following common stock equivalents outstanding as of June 30, 2013 and 2012 were not included in the computation of dilutive loss per share because the net effect would have been anti-dilutive:

   
2013
   
2012
 
Warrants
    4,500,000       -  
Preferred stock
    -       1,000,000  
Total common stock equivalents
    4,500,000       1,000,000  

Note 9  - Acquisitions

Acquisition of Bronco Communications, LLC
In January 2012, we acquired 51% of Bronco in consideration for the issuance of 4,289,029 shares of our restricted common stock valued at $0.035 per share, or $150,116 from a related party. The 49% interest we did not acquire is accounted for as a noncontrolling interest. The purchase price was allocated to the assets acquired based on the fair values at the acquisition date. The goodwill acquired was valued at $351,653. The financial results of Bronco are included in these consolidated financial statements as of January 1, 2012, the date control was acquired, in accordance with the Codification for business combinations.  We subsequently discontinued the operations of Bronco and disposed of its remaining assets in January 2013.  See Note 10.
 
 
F-27

 
 
GLOBAL DIGITAL SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2013 and 2012
 
Agreement to Acquire Airtronic USA, Inc.
On August 13, 2012, we entered into a Letter of Intent (“LOI”) to acquire 70% of Airtronic USA, Inc. (“Airtronic”), a debtor in possession under chapter 11 of the Bankruptcy Code in a case pending in the US Bankruptcy Court for the Northern District of Illinois, Eastern Division (the Bankruptcy Court”).  O n October 22, 2012, we memorialized the terms of the LOI and entered into an Agreement of Merger and Plan of Reorganization (“Merger Agreement”) to acquire 70% of Airtronic (the “Merger”) upon the effective date that Airtronic’s bankruptcy case is discharged by the Bankruptcy Court. We may acquire the remaining 30% of Airtronic two years after the closing of the Merger based upon a 4 times EBITDA valuation of Airtronic as set forth in the Merger Agreement.

We agreed to contribute to Airtronic, at the closing of the Merger, $2 million less any amounts then outstanding on the Bridge Loan discussed below. We also agreed to issue to the employees of Airtronic options to acquire 4,960,852 shares of our common stock an exercise price of $0.04, the fair market value of our common stock on the date we entered into the LOI, exercisable for a period of ten years.

On June 26, 2013 we agreed to enter into a modification of the Merger Agreement (“Modification Agreement”), and on August 5, 2013, we entered into the Modification Agreement, which provides that, contemporaneously with the closing of the Merger, we will contribute a noninterest bearing note to Airtronic in lieu of the $2,000,000 cash contribution set forth in the Merger Agreement (the “Parent Note”).  The initial principal balance of the Parent Note shall be equal to $2,000,000 less the following amounts to be funded or previously funded by the Company:

1.  
The outstanding balance of principal, accrued interest and other amounts then due and owing under the terms of Original Note, as defined below.
2.  
The total amount of cash and the value of the Company’s shares of common stock that we shall make available for the settlement of any class of claim or claim pursuant to Airtronic’s approved Plan of Reorganization in its bankruptcy proceeding, as discussed below; and
3.  
All other amounts funded or advanced by the Company to or for the benefit of Airtronic prior to the closing date of the Merger.

Contemporaneously with the closing of the Merger, the Original Note shall be cancelled; however, the New Note (defined below) shall remain in full force and effect in accordance with its terms, as shall all security agreements, loan agreements and related documents to the extent they secure, supplement, are incorporated in or relate to the New Note.

Airtronic, founded in 1990 and based in Elk Grove Village, Illinois, is an electro-mechanical e ngineering desi g n and manufactur i ng c o mpany that provides s mall arms and small arms spare pa r ts to the U.S. D epartment of Def e nse, foreign militari e s, and the l a w e n forcement market. Airtronic’s pr o ducts include g r enade launchers, r o cket pro p elled grenade la u nchers, grena d e launcher guns, flex machine guns, gre n ade machine g u ns, rifles, and magazines.

As discussed in Note 2 – Note Receivable, on October 22, 2012, we entered into a Bridge Loan with Airtronic.

On June 10, 2013, Airtronic, with our consent, filed a Plan of Reorganization with the Bankruptcy Court (the “Plan”).  The Plan provides, among other things, that Airtronic’s secured and unsecured creditors may elect to take shares of our common stock, valued at $0.50 per share, saleable after twelve months with “Price Protection”.  Price Protection shall mean that if a holder of our common stock issued pursuant to the Amended Plan sells its shares in whole or in part in an arm’s-length transaction for a fair market value less than $0.50 per share after twelve months from the effective date of the Plan, but before twenty-four months from the effective date of the Plan, then the shareholder shall be provided with an amount of new shares of our common stock equal to the result of the following formula: (x) the sales price the shareholder would have received if its shares of our common stock had sold for $0.50 per share minus   the actual sales price received by the shareholder for our common stock; divided by (y) the actual price per share received by the shareholder.
 
Note 10 – Discontinued Operations

On May 1, 2012, with the support of our major shareholders, we made the decision to wind down and discontinue our operations in the telecommunications area and refocus our efforts in the area of small arms manufacturing, knowledge-based and culturally attuned social consulting and security-related solutions in unsettled areas. I n connection with the decision to discontinue Bronco’s operations, the carrying value of Bronco’s net assets was written down to their estimated fair value and in the first and second quarters of this year we recognized a loss on sale of discontinued operations of approximately $25,000 and $271,000 respectively. Historical revenue related to Bronco and included in the loss from discontinued operations in the accompanying condensed consolidated statements of operations for the three and six-month periods ended June 30, 2012 totaled approximately $50,000 and $150,000, respectively.
 
 
F-28

 
 
GLOBAL DIGITAL SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2013 and 2012
 
Results of discontinued operations for the three and six-month periods ended June 30, 2013 and 2012 are as follows:

   
Three-Months Ended
   
Six-Months Ended
 
   
June 30,
   
June 30,
 
   
2013
   
2012
   
2013
   
2012
 
Net sales
  $ -     $ 50,319     $ -     $ 149,917  
Cost of goods sold
    -       45,019       -       104,725  
Gross profit
    -       5,301       -       45,191  
Selling, general and administrative expenses
    25,477       59,759       25,477       267,865  
Loss on sale of assets of discontinued operations
                    245,744       -  
Interest expense
    -       7,000       -       7,000  
Loss before provision for income taxes
    (25,477 )     (61,458 )     (271,221 )     (229,674 )
Provision for income taxes
    -       -       -       -  
Loss from discontinued operations
  $ (25,477 )   $ (61,458 )   $ (271,221 )   $ (229,674 )

Note 11 – Related Party Transactions

Our chief executive officer and chief financial officer, William J. Delgado, was paid $24,187 and $40,212, and we accrued unpaid wages of $50,000 in the three and six-month periods ended June 30, 2013.  Mr. Delgado was paid $6,480 and $7,480, and we accrued unpaid wages of $50,000 and $100,000, in the three and six-month periods ended June 30, 2012.

Note 12 – Subsequent Events

Convertible Notes
On July 1, 2013, we elected to convert the Note and issued the Investor 3 million shares of our restricted common stock valued at $750,000.
 
 
F-29 

 
Exhibit 2.1
 
PURCHASE AGREEMEN T
 
This Purchase Agreement (this "Agreement"), dated as of January 1, 2012, by and between Global Digital Solutions, Inc., a New Jersey corporation (the "Buyer"), Bronco Communications , LLC a Nevada limited liability company (the "Company"),
 
W I T N E S S E T H:
 
WHEREAS, the Member(s) is the owner of all membership interests of the Company ;
 
WHEREAS, the Company is engaged in the business of Telecommunication s Engineering and Construction (the "Business"); and
 
WHEREAS, the parties hereto wish to provide for the terms and conditions on which the Member(s) shall sell 51% of the shares in the Company to Buyer would be consummated and for the consideration described in this Agreement.
 
NOW, THEREFORE, in consideration of the mutual representations, warranties , covenants and agreements, and upon the terms and subject to the conditions, hereinafter set forth , the parties do hereby agree as follows:
 
ARTICLE I
THE PURCHASE
 
1.01.       The Closing.
 
(a)       Subject to the terms of this Agreement, the closing of the transactions contemplated hereby (the "Closing") shall take place at GDSI offices located in Folsom, CA, commencing at 1:00 p.m. on January 1, 2012 or at such other time and/or place and/or on such other date as the parties may mutually agree (the "Closing Date").
 
(b)       At the Closing, Buyer shall deliver to the Member(s): the Purchase Price (as defined in Section 1.02; and (ii) such other instruments and documents, in form and substance reasonably acceptable to the Member(s), as may be necessary to effect the Closing.
 
(c)       At the Closing, the Member(s) shall deliver to Buyer:
 
(i)        the company records for the Company; and (ii) such other instruments and documents, in form and substance reasonably acceptable to Buyer, as may be necessary to effect the Closing.
 
1.02        Purchase Price.
 
The Purchase price shall be as follows: The purchase price for the 51% of the Company shall be 1 X (times) the revenue of the company X (times) $ .035 to be paid at January 1, 2013 in restricted shares of the Company's common stock.
 
 
 

 
 
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE MEMBER(S)
 
The Member(s) represents and warrants that the statements contained in this Section 2 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date as follows:
 
2.01.       Capitalization. The member interests are validly issued, fully paid and non-assessable and are owned beneficially and of record by the Member(s) free and clear of all liens, security interests, restrictions, options, proxies, voting trusts or other encumbrances ("Encumbrances"). There are outstanding no securities convertible into, exchangeable for, or carrying the right to acquire, equity securities of the Company, or subscriptions, warrants, options, rights or other arrangements or commitments obligating the Company to issue or dispose of any of its equity securities or any ownership interest therein. All of the issued and outstanding member interests of the Company were issued in compliance with all applicable state and federal securities law.
 
2.02.       Organization. The Company is a company duly organized, validly existing and in good standing under the laws of its jurisdiction of formation and has all requisite corporate power and authority to carry on its business as it is now being conducted. The Company is duly qualified to do business and is in good standing as a foreign limited liability company in all jurisdictions where the nature of the property owned or leased by it, or the nature of the business conducted by it, makes such qualification necessary.
 
2.03.       Corporate Power and Authority; Effect of Agreement. Each Member(s) is an individual with all requisite power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by the Member(s) and constitutes the valid and binding obligation of the Member(s), enforceable against the Member(s) in accordance with its terms, except to the extent that such enforceability (i) may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights generally, and (ii) is subject to general principles of equity. The execution, delivery and performance by the Member(s) of this Agreement and the consummation by the Member(s) of the transactions contemplated hereby will not, with or without the giving of notice or the lapse of time, or both, (y) violate any law, rule or regulation to which the Member(s) or the Company are subject or require any authorization, consent, approval, exemption or other action by or notice to any governmental authority, (z) violate any order, judgment or decree applicable to the Member(s) or the Company.
 
2.04.       Financial Statements.
(a)        The Member(s) has delivered to Buyer (i) the (un)audited balance sheets of the Company as of December 31, 2010-2011 (the "Balance Sheets") and (un)audited statement of operations and cash flows of the Company for the three-month period then ended, and (ii) (un)audited balance sheets of the Company as of December 31, 2010 and December 31, 2011, and (un)audited statement of operations and cash flows of the Company for the twelve­month periods then ended, including the footnotes thereto (the "Annual Financial Statements") (the financial statements listed in (i) and (ii), collectively, the "Financial Statements"), copies of which are included in Schedule 2.04. The Financial Statements fairly present in all material respects the financial position and the results of operations and cash flows of the Company, for the respective dates or periods (as the case may be) indicated therein and have been prepared in conformity with GAAP consistently applied. All of the assets, liabilities, income, costs and expenses reflected in the Financial Statements are related to the Business and arose out of and were incurred in the ordinary course of the Business. All related party transactions have been accounted for by use of consistent accounting policies and methodologies that would not affect the comparability of such financial information in any material way.
 
 
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(b)        Except as specifically reflected in the Financial Statements or Schedule 2.04(b) or elsewhere in the Schedules or as contemplated by this Agreement, the Company does not have any liabilities, commitments or obligations of any kind whatsoever (whether secured or unsecured and whether accrued, absolute, contingent, direct, indirect or otherwise), other than any liabilities, commitments or obligations incurred after January 1, 2012 in the ordinary course of business.
 
2.05.     Assets and Properties. The Company has good title to all of the material tangible personal assets and properties which it purports to own (including those reflected on the December 31, 2011 Balance Sheet, except for assets and properties sold, consumed or otherwise disposed of in the ordinary course of business since the date of the Balance Sheet, which are not individually or in the aggregate material), free and clear of all Encumbrances.
 
2.06.     Litigation. There is no claim, suit, action or proceeding in any court or before any governmental or regulatory authority ("Litigation") pending or, to the Member(s)'s knowledge, threatened, involving the Company, the Business or any assets or liabilities of any of the foregoing. The Company is not subject to any outstanding orders, rulings, judgments, injunctions, writs, decrees or actions including, without limitation, any actions brought by any regulatory authority.
 
2.07.     Compliance with Laws. Neither the Member(s) nor the Company has received any written notice of any violation of any applicable laws, rules, regulations and orders relating to the operation, conduct or ownership of the Business. The Company has all permits, licenses, certificates and authorizations of governmental and regulatory authorities necessary for the conduct of their business as presently conducted.
 
2.08.     Consents. No consent, approval or authorization of, or exemption by, or filing with, any governmental authority or third party is required to be obtained or made by the Member(s), the Company in connection with the execution, delivery and performance by the Member(s) of this Agreement or the taking by the Member(s) of any other action contemplated hereby.
 
2.09.     Taxes
 
(a)         All Tax Returns required to be filed by or with respect to the Company have been properly and timely filed and all such Tax Returns are complete and accurate in all material respects. Except to the extent reserved or reflected against on the December 31, 2011 Balance Sheet, all Taxes due with respect to such Tax Returns or which are otherwise due and payable by the Company have been paid in full. All Taxes required to be withheld and paid over by the Company to any relevant taxing authority in connection with payments to employees, independent contractors, creditors , Member(s) or to third parties have been so withheld and paid over.
 
 
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(b)        No Tax authority in a jurisdiction where the Company does not file Tax Returns has made a claim, assertion or threat that the Company is or may be subject to Tax in such jurisdiction; (ii) no deficiencies for any Tax have been threatened, proposed, asserted or assessed against the Company that have not been satisfied; (iii) no audits or examinations with respect to the Company are ongoing or have been threatened or proposed by the Internal Revenue Service or the appropriate state, local or foreign Tax authority; (iv) no waivers or extensions of statutes of limitation with respect to Taxes have been given by or requested with respect to the Company; (v) there are no tax rulings, requests for rulings, or closing agreements relating to the Company that could affect the liability for Taxes of the Company for any period (or portion of a period) after the Closing; (vi) no power of attorney has been granted by the Company with respect to any matter relating to Taxes of the Company that is currently in force.
 
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
 
The Buyer hereby represents and warrants that the statements contained in this Section 3 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date as follows:
 
3.01.        Organization. The Buyer is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of their incorporation, and has all requisite corporate power and authority to carry on their business as it is now being conducted, and to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. Newco has been formed for the sole purpose of completing the Merger and has not incurred any obligations, liabilities, or other commitments as set forth in this Agreement.
 
3.02.        Corporate Power and Authority; Effect of Agreement. The execution, delivery and performance by each Buyer of this Agreement and each of the documents referenced herein and the consummation by each Buyer of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of each Buyer. This Agreement has been duly and validly executed and delivered by each Buyer and constitutes the valid and binding obligation of each Buyer, enforceable against each Buyer in accordance with its terms, except to the extent that such enforceability (i) may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights generally, and (ii) is subject to general principles of equity. The execution, delivery and performance by each Buyer of this Agreement and the consummation by each Buyer of the transactions contemplated hereby will not, with or without the giving of notice or the lapse of time, or both, (i) violate, or require any consent under, any material contract or other commitment of each Buyer, (ii) violate any provision of law, rule or regulation to which each Buyer is subject, (iii) violate any order, judgment or decree applicable to each Buyer or (iv) violate any provision of the Certificate of Incorporation or the By-laws of each Buyer; except, in each case, for violations which in the aggregate would not materially hinder or impair the consummation of the transactions contemplated hereby.
 
 
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3.03.        Consents. No consent, approval or authorization of, or exemption by, or filing with, any governmental authority or third party is required to be obtained or made by the Buyer in connection with the execution, delivery and performance by the Buyer of this Agreement, or the taking by the Buyer of any other action contemplated hereby.
 
3.04.        Compliance with Laws. The Buyer has not received any written notice of any violation of any applicable laws, rules, regulations and orders relating to the operation, conduct or ownership of its business. The Buyer have all permits, licenses, certificates and authorizations of governmental and regulatory authorities necessary for the conduct of their business as presently conducted.
 
ARTICLE IV
CONDITIONS TO BUYER' OBLIGATION S
 
The obligation of Buyer to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction (or waiver) on or prior to the Closing Date of all of the following conditions:
 
4.01.        Representations, Warranties and Covenants of Member(s). The Member(s) shall have complied in all material respects with his agreements and covenants contained herein to be performed on or prior to the Closing Date, and the representations and warranties of the Member(s) contained herein in the aggregate shall be true in all material respects on and as of the Closing Date with the same effect as though made on and as of the Closing Date, except (a) as otherwise contemplated hereby, and (b) to the extent that any such representations and warranties were made as of a specified date and as to such representations and warranties the same shall continue on the Closing Date to have been true in all material respects as of the specified date. For purposes of the preceding sentence, specific material adverse effect and materiality qualifiers contained in individual representations and warranties shall be disregarded.
 
4.02.        No Prohibition. No statute, rule or regulation or order of any court or administrative agency shall be in effect that prohibits Buyer from consummating the transactions contemplated hereby.
 
4.03.        Consents. All other consents, approvals, authorizations, exemptions and waivers from governmental agencies and third parties that are reasonably required for the consummation of the transactions contemplated hereby, shall have been obtained in form and substance reasonably satisfactory to the Buyer.
 
 
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ARTICLE V
CONDITIONS TO THE MEMBER(S)'S OBLIGATIONS
 
The obligation of the Member(s) to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction (or waiver) on or prior to the Closing Date of all of the following conditions:
 
5.01.         Representations, Warranties and Covenants of Buyer. Buyer shall have complied in all material respects with its agreements and covenants contained herein to be performed on or prior to the Closing Date, and the representations and warranties of Buyer contained herein in the aggregate shall be true in all material respects on and as of the Closing Date with the same effect as though made on and as of the Closing Date, except (a) as otherwise contemplated hereby, and (b) to the extent that any such representations and warranties were made as of a specified date and as to such representations and warranties the same shall continue on the Closing Date to have been true in all material respects as of the specified date. For purposes of the preceding sentence, specific material adverse effect and materiality qualifiers contained in individual representations and warranties shall be disregarded.
 
5.02.         No Prohibition. No statute, rule or regulation or order of any court or administrative agency shall be in effect that prohibits the Member(s) from consummating the transactions contemplated hereby.
 
ARTICLE VI
MISCELLANEOU S
 
6.01.        Interpretive Provisions .
 
(a)        Whenever used in this Agreement, "to the Member(s)'s knowledge" or "to the knowledge of the Member(s) shall mean the actual knowledge of the Member(s) and the knowledge that either would have after due and reasonable inquiry.
 
(b)         The words "hereof," "herein," "hereby" and "hereunder" and words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision thereof.
 
(c)         For purposes of this Agreement, the Company shall be deemed to be an affiliate of the Member(s) prior to the Closing and an affiliate of ADS after the Merger.
 
6.02.         Entire Agreement. This Agreement (including the Schedules) and the Ancillary Documents constitute the sole understanding of the parties with respect to the subject matter hereof.
 
6.03.         Successors and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties hereto; provided, however, that this Agreement may not be assigned by either party hereto without the prior written consent of the other (except that Buyer may without the prior written consent of the Member(s) assigns this Agreement to any affiliate of Buyer so long as such assignee shall execute a counterpart of this Agreement agreeing to be bound by the provisions hereof as "Buyer," and agreeing to be jointly and severally liable with the assignor and any other assignee for all of the obligations of the assignor hereunder), but no such assignment of this Agreement or any of the rights or obligations hereunder shall relieve Buyer of its obligations under this Agreement. Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement, express or implied, is intended to confer on any person other than the parties hereto or their respective heirs, successors, executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement.
 
 
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6.04.        Headings. The headings of the Articles, Sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof.
 
6.05.        Modification and Waiver. No amendment, modification or alteration of the terms or provisions of this Agreement shall be binding unless the same shall be in writing and duly executed by the parties hereto, except that any of the terms or provisions of this Agreement may be waived in writing at any time by the party which is entitled to the benefits of such waived terms or provisions. No waiver of any of the provisions of this Agreement shall be deemed to or shall constitute a waiver of any other provision hereof (whether or not similar) No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof.
 
6.06.        Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original and all of which shall constitute the same instrument.
 
6.07.        Expenses. Except as otherwise provided herein, the Member(s) and Buyer shall pay all costs and expenses incurred by them or it or on their or its behalf in connection with this Agreement and the transactions contemplated hereby, including, without limiting the generality of the foregoing, fees and expenses of their respective financial consultants, accountants and counsel.
 
6.08.        Notices. Any notice, request, instruction or other document to be given hereunder by any party hereto to any other party shall be in writing and shall be given (and will be deemed to have been duly given upon receipt) by delivery in person, by electronic facsimile transmission, by overnight courier or by registered or certified mail, postage prepaid,
 
if to the Member(s) to:
 
Bronco Communications LLC
5348 Vegas Dr.
Las Vegas, NV 89108-2347
 
 
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if to Buyer to them at:
 
Global Digital Solutions, Inc.
9477 Greenback Lane
Suite 524A
Folsom, CA 95630
 
or at such other address for a party as shall be specified by like notice.
 
6.09.        Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California without giving effect to the principles of conflicts of law.
 
IN WITNESS WHEREOF, each of the individual parties hereto has executed this Agreement and Buyer has caused their duly authorized representatives to execute this Agreement on its behalf as of the date first above written.
 
  Global Digital Solutions, Inc.  
       
 
By:
/s/ William J. Delgado  
   
Name: William J. Delgado
 
    Title:  President /CEO  
       
  Bronco Communications, LLC  
       
 
By:
/s/ Daryl W. Fiese  
   
Name: Daryl W. Fiese
 
    Title:  Managing Partner  
 
 
8
Exhibit 2.2
 
October 15, 2012

AMENDMENT TO PURCHASE AGREEMEN
 
This amendment is being issued pursuant to an original purchase agreement issued on January 1, 2012 by and between Global Digital Solutions, Inc. a New Jersey Corporation ("Company"), and Bronco Communications, LLC a Nevada Limited Liability Company ("Bronco") with offices in Folsom, CA,
 
WHEREAS, The Company and the Note Holder entered into a purchase agreement whereby the company acquired 51% of the outstanding interest of Bronco, and
 
WHEREAS, The Company was to issue Company restricted common stock equal tol X (times) the 2012 revenue at $.035/share, and
 
WHEREAS, The Company has decided to pursue an alternative business strategy focusing on defense and educations systems, and
 
NOW THEREFORE, In consideration of the mutual promises made herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
 
1.  
The Company acknowledges that Bronco has generated revenue for 2012 to date of $150,116.
 
2.  
The Parties hereby agree that for the issuance of 4,289,029 (revenue divided by .035/share) of GDSI restricted common shares, and that effective 1/1/2013, the Company shall relinquish control and it's 51% ownership in Bronco to the owners/members of Bronco.
 
3.  
No modification, except as set forth herein, the original transaction documents and all other documents and instruments executed in connection therewith shall remain unmodified and in full force and effect.

 
 

 
 
IN WITNESS WHEREOF, the undersigned hereby agree to this amendment as of the day and the year written above,
 
By: /s/ Daryl W. Fiese  
     
Name:   DARYL W. FIESE  
     
Address:  5348 Vegas Dr.  
  Las Vegas, NV 89108  
     
Global Digital Solutions, Inc.  
     
By:  /s/ William J. Delgado  
     
Title CEO  
     
Address:
9477 Greenback Lane
Suite 524A
Folsom, CA 95630
 
 
 
2
Exhibit 2.3
 
AGREEMENT OF MERGER AND
PLAN OF REORGANIZATION
 
BY AND AMONG
 
GLOBAL DIGITAL SOLUTIONS, INC.,
 
and
 
AIRTRONIC USA, INC.
 
Dated as of October __, 2012
 
 
 

 
 
AGREEMENT OF MERGER AND PLAN OF REORGANIZATION
 
THIS AGREEMENT OF MERGER AND PLAN OF REORGANIZATION (this “Agreement”) is made and entered into on October ___, 2012, by and among Global Digital Solutions, Inc., a New Jersey corporation (“Parent”), a to be formed subsidiary of Parent (“Acquisition Corp.”), and Airtronic USA, Inc., an Illinois corporation (the “Company”).
 
WITNESSETH:
 
WHEREAS , the Company is a debtor in possession under Chapter 11 of the Bankruptcy Code in Case No. 12-09776 that is pending in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (the “Bankruptcy Court”);
 
WHEREAS , the Board of Directors of each of Parent and the Company have each determined that it is fair to and in the best interests of their respective corporations and stockholders for Acquisition Corp. to be merged with and into the Company (the “Merger”) upon the terms and subject to the conditions set forth herein;
 
WHEREAS , the Board of Directors of each of Parent and the Company have approved the Merger in accordance with the General Corporation Law of the State of Delaware (the “DGCL”), the Business Corporation Act of 1983 of the State of Illinois (the “Illinois Act”) and upon the terms and subject to the conditions set forth herein, in the Delaware Certificate of Merger attached as Exhibit A hereto (the “Certificate of Merger”) and the Illinois Articles of Merger attached as Exhibit B hereto (the “Statement of Merger”);
 
WHEREAS , the requisite stockholders of the Company (the “Stockholders”) and Parent have each approved this Agreement, the Certificate of Merger, the Articles of Merger and the transactions contemplated and described hereby and thereby, including, without limitation, the Merger, and Parent, as the sole stockholder of Acquisition Corp., has approved by written consent pursuant to Section 228(a) of the DGCL, this Agreement, the Certificate of Merger and the transactions contemplated and described hereby and thereby, including, without limitation, the Merger;
 
WHEREAS , immediately following the Closing (as defined below), Parent (as it will exist as of the closing of the Merger) will se ll up to 300 of its Units, with each “ Unit” consisting of 10,000 share s of its preferred stock for $1.00 and 10,000 share s of its common stock for $.01, for a purchase price of $1.01 per Unit, in a private placement offering to accredited investors (the “Private Placement”) for the purpose of financing the ongoing business and operations of the Parent and the Surviving Corporation (as defined below) following the Merger;
 
WHEREAS , on or before 5:00 PM CDT on Tuesday, October 23, 2012, subject to Bankruptcy Court approval, Parent will make a bridge loan to the Company of up to $2,000,000 with an initial funding of $750,000 (the “Bridge Loan”) with the Company in the maximum amount of $750,000 upon the terms and conditions set forth in the Bridge Loan documents; and
 
WHEREAS , contemporaneously with the Closing (as defined below), Parent will contribute $2,000,000 to the Surviving Corporation, and the Surviving Corporation will use proceeds from the contribution to pay off the Bridge Loan and/or for working capital needs of the business; and
 
WHEREAS , the parties hereto intend that the Merger contemplated herein shall qualify as a reorganization within the meaning of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the “Code”), by reason of Section 368(a)(2)(E) of the Code.
 
NOW, THEREFORE , in consideration of the mutual agreements and covenants hereinafter set forth, the parties hereto agree as follows:
 
 
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ARTICLE I.
 
THE MERGER
 
Section 1.01 Merger. Subject to the terms and conditions of this Agreement, the Articles of Merger and the Certificate of Merger, Acquisition Corp. shall be merged with and into the Company in accordance with Section 252 of the DGCL and 805 ILCS 5/11.35 of the Illinois Act. At the Effective Time (as defined below), the separate legal existence of Acquisition Corp. shall cease, and the Company shall be the surviving corporation in the Merger (sometimes hereinafter referred to as the “Surviving Corporation”) and shall continue its corporate existence under the laws of the State of Delaware under the name “Airtronic USA, Inc.”
 
Section 1.02 Effective Time. The Merger shall become effective upon the filing of the Certificate of Merger with the Secretary of State of the State of Delaware in accordance with Section 251(c) of the DGCL and the Articles of Merger with the Secretary of State of Illinois in accordance with 805 ILCS 5/11.35 of the Illinois Act. The time at which the Merger shall become effective as aforesaid is referred to hereinafter as the “Effective Time.”
 
Section 1.03 Signing of Definitive Merger Agreement; Closing.
 
(a)      The Agreement will be signed by each of Parent, Acquisition Corp. and the Company on the date hereof, but this Agreement will have no force or effect until it has been approved by the Bankruptcy Court.
 
(b)      The closing ”). of the Merger (the “ Closing ”) shall occur concurrently with the Effective Time (the “ Closing Date The Closing shall occur at the offices of Ginsberg Jacobs LLC referred to in Section 10.01 hereof. At the Closing, all of the exhibits hereto, and the documents, certificates, agreements, opinions and instruments referenced in Article VII will be executed and delivered as described therein. At the Effective Time, all actions to be taken at the Closing shall be deemed to be taken simultaneously.
 
Section 1.04 Certificate of Incorporation, By-Laws, Directors and Officers.
 
(a)      The Certificate of Incorporation of the Acquisition Corp., as in effect immediately prior to the Effective Time, attached as Exhibit C hereto, as amended by the Certificate of Merger, shall be the Certificate of Incorporation of the Surviving Corporation from and after the Effective Time until amended in accordance with applicable law and such Certificate of Incorporation provided that as of the Effective Time, such Certificate of Incorporation shall be amended to provide that the name of the Surviving Corporation is the Company.
 
(b)      The By-Laws of the Acquisition Corp., as in effect immediately prior to the Effective Time, attached as Exhibit D hereto, shall be the By-Laws of the Surviving Corporation from and after the Effective Time until amended in accordance with applicable law, the Certificate of Incorporation of the Surviving Corporation and such By-Laws; provided that all references in such Bylaws to Acquisition Corp. shall be amended to refer to the Company.
 
(c)      The directors and officers listed in Exhibit E hereto shall be the directors and officers of the Surviving Corporation, and each shall hold his or her respective office or offices from and after the Effective Time until his or her successor shall have been elected and shall have qualified in accordance with applicable law, or as otherwise provided in the Certificate of Incorporation or By-Laws of the Surviving Corporation or the Certificate of Incorporation or By-Laws of Parent, as the case may be. Notwithstanding anything to the contrary provided herein or the Certificate of Incorporation or By-Laws of the Surviving Corporation, the Board of Directors of the Surviving Corporation will be comprised of three participants: the existing stockholders of the Company will have the right to select two participants and the Parent will have the right to select one participant.

 
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Section 1.05 Assets and Liabilities. At the Effective Time, the Surviving Corporation shall possess all the rights, privileges, powers and franchises of a public as well as of a private nature, and be subject to all the restrictions, disabilities and duties of each of Acquisition Corp. and the Company (collectively, the “Constituent Corporations”); and all the rights, privileges, powers and franchises of each of the Constituent Corporations, and all property, real, personal and mixed, and all debts due to any of the Constituent Corporations on whatever account, as well as all other things in action or belonging to each of the Constituent Corporations, shall be vested in the Surviving Corporation; and all property, rights, privileges, powers and franchises, and all and every other interest shall be thereafter as effectively the property of the Surviving Corporation as they were of the several and respective Constituent Corporations, and the title to any real estate vested by deed or otherwise in either of such Constituent Corporations shall not revert or be in any way impaired by the Merger; but, subject to the Compan y’s Plan (as defined in Section 7.01(f) below), all rights of creditors and all liens upon any property of any of the Constituent Corporations shall be preserved unimpaired, and all debts, liabilities and duties of the Constituent Corporations shall thenceforth attach to the Surviving Corporation, and may be enforced against it to the same extent as if said debts, liabilities and duties had been incurred or contracted by it.
 
Section 1.06 Manner and Basis of Converting Shares.
 
(a) At the Effective Time:
 
(i) each share of common stock, par value $0.001 per share of Acquisition Corp. that shall be outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into the right to receive one (1) share of common stock, no par value, of the Surviving Corporation, so that at the Effective Time, Parent shall be the holder of seventy percent of the issued and outstanding shares of the Surviving Corporation and the remaining thirty percent shall be issued to the Company’s Stockholders listed on Schedule 1.06(a)(i) in proportion to the number of shares of the Company’s issued and outstanding shares of common stock (the “Company Common Stock”) beneficially owned by each such Company shareholder and set forth on Schedule 1.06(a)(i).
 
(ii) on or after the second anniversary of the Closing Date, each share of common stock, without par value, of the Surviving Corporation (the “Surviving Corporation Common Stock”) beneficially owned by the Stockholders listed on Schedule 1.06(a)(i) may be converted by such holder into shares of common stock, par value $0.001 per share, of Parent (the “Parent Common Stock ”) by multiplying the number of shares of Surviving Corporation Common Stock beneficially owned by such holder by the Surviving Corporation Common Stock Per Share Value (as defined below). Fractional shares of Parent Common Stock shall be rounded up or down to the nearest whole share. The Surviving Corporation Common Stock Per Share Value shall be determined as follows:
 
(A)      the Surviving Corporation will be valued based on 4 times the higher of the last 12 months EBITDA (as hereinafter defined) or the average 12 month EBITDA for the period from the Effective Time through the third anniversary thereof (the “Surviving Corporation Value ”). The term “EBITDA” means for any period the “positive earnings before interest, tax, depreciation and amortization” as defined under GAAP, consistently applied, where earnings are net income or net loss (excluding however: (i) all extraordinary or non-recurring expenses and (ii) fifty percent (50%) of any compensation received by the existing Stockholders of the Company). Notwithstanding anything to the contrary provided herein, EBITDA may not be a negative number.
 
(B)      The Surviving Corporation Value will be divided by the number of shares of the Surviving Corporation Common Stock outstanding as of the Effective Time and the result will be the per share value of the Surviving Corporation Common Stock (the “Surviving Corporation Common Stock Per Share Value”).
 
(iii) each share of Company Common Stock held in the treasury of the Company immediately prior to the Effective Time shall be cancelled in the Merger and cease to exist.

 
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(b) After the Effective Time, there shall be no further registration or transfers on the stock transfer books of the Surviving Corporation of the shares of Company Common Stock that were outstanding immediately prior to the Effective Time.
 
Section 1.07 Surrender and Exchange of Certificates. Promptly after the Effective Time and upon (a) surrender of a certificate or certificates representing shares of Company Common Stock that were outstanding immediately prior to the Effective Time or an affidavit and indemnification in form reasonably acceptable to counsel for Parent stating that such Stockholder has lost its certificate or certificates or that such have been destroyed and (b) delivery of a Letter of Transmittal (as described in Article IV hereof), Parent shall issue to each record holder of Company Common Stock surrendering such certificate, certificates or affidavit and Letter of Transmittal, a certificate or certificates registered in the name of such Stockholder representing the number of shares of Surviving Corporation Common Stock that such Stockholder shall be entitled to receive as set forth in Sections 1.06(a)(i) hereof. Until the certificate, certificates or affidavit is or are surrendered together with the Letter of Transmittal as contemplated by this Section 1.07 and Article IV hereof, each certificate or affidavit that immediately prior to the Effective Time represented any outstanding shares of Company Common Stock shall be deemed at and after the Effective Time to represent only the right to receive upon surrender as aforesaid the Surviving Corporation Common Stock specified in Schedule 1.06(a)(i) for the holder thereof or to perfect any rights of appraisal that such holder may have pursuant to the applicable provisions of the Illinois Act.
 
Section 1.08 Incentive Stock Grants. Parent shall, as of the Closing Date, reserve 10% of its then issued and outstanding shares of Parent Common Stock for incentive grants to be issued to officers and employees of the Surviving Corporation in accordance with Parent’s 2012 Equity Incentive Plan, which will be prepared at the direction of the President of the Surviving Corporation, in his or her sole discretion.
 
Section 1.09 Operation of Surviving Corporation. Notwithstanding anything herein to the contrary, or any provision in the Certificate of Incorporation, By-Laws, or other organizational documents to the contrary, all actions and decisions set forth below will require the consent of both the Company’s Stockholders listed on Schedule 1.06(a)(i) (by majority vote if there are more than one) and the Surviving Corporation’s Board of Directors:
 
(a)
Merging, consolidating or reorganizing with another business, or selling, or the sale of material assets of the Surviving Corporation;
(b)
Admitting additional stockholders;
(c)
Creating, incurring or assuming any indebtedness (other than debt in the ordinary course of business);
(d)
Purchasing another business or product line (whether by purchase of assets, stock, merger, joint venture or otherwise);
(e)
Applying for or modifying any licenses affecting the business of the Surviving Corporation;
(f)
Entering into any contract or commitment that requires aggregate expenditures in excess of $50,000, or making capital expenditures of more than $5,000 in any instance or $50,000 in any calendar year; and
(g)
Entering into any lease for any real property or any personal property.
 
Section 1.10 Further Assurances. From time to time, from and after the Effective Time, as and when reasonably requested by Parent, the proper officers and directors of the Company as of the Effective Time shall, for and on behalf and in the name of the Company or otherwise, execute and deliver all such deeds, bills of sale, assignments and other instruments and shall take or cause to be taken such further actions as Parent, Acquisition Corp. or their respective successors or assigns reasonably may deem necessary or desirable in order to confirm or record or otherwise transfer to the Surviving Corporation title to and possession of all of the properties, rights, privileges, powers, franchises and immunities of the Company as contemplated by this Agreement or otherwise to carry out fully the provisions and purposes of this Agreement and the Certificate of Merger.

 
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ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
 
The Company hereby represents and warrants to Parent and Acquisition Corp. as set forth below. EXCEPT AS SET FORTH IN THIS AGREEMENT, THE COMPANY MAKES NO EXPRESS WARRANTY, NO WARRANTY OF MERCHNTABILITY, NO WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, AND NO IMPLIED STATUTORY WARRANTY WHATSOEVER. The representations, warranties and covenants of the Company contained in this Article shall not survive the Closing Date, and any and all breaches of such representations and warranties shall be deemed as of the Closing Date.
 
Section 2.01 Organization, Standing, Subsidiaries, Etc.
 
(a)   The Company is a corporation duly organized and existing in good standing under the laws of the State of Illinois and has, subject to Bankruptcy Court approval, all requisite power and authority (corporate and other) to carry on its business, to own or lease its properties and assets, to enter into this Agreement, the Articles of Merger and the Certificate of Merger and to carry out the terms hereof and thereof. Copies of the Certificate of Incorporation and By-Laws of the Company that have been delivered to Parent and Acquisition Corp. prior to the execution of this Agreement are true and complete and have not since been amended or repealed.
 
(b)   The Company has no subsidiaries or direct or indirect interest (by way of stock ownership or otherwise) in any firm, corporation, limited liability company, partnership, association or business.
 
Section 2.02 Qualification. The Company is duly qualified to conduct business as a foreign corporation and is in good standing in each jurisdiction wherein the nature of its activities or its properties owned or leased makes such qualification necessary, except where the failure to be so qualified would not have a material adverse effect on the condition (financial or otherwise), properties, assets, liabilities, business operations, results of operations or prospects of the Company taken as a whole (the “Condition of the Company”).
 
Section 2.03 Capitalization of the Company. The authorized capital stock of the Company consists of 3,000 shares of Company Common Stock, of which there are 214 shares of Company Common Stock issued and outstanding, and such shares are duly authorized, validly issued, fully paid and non-assessable, and none of such shares have been issued in violation of the preemptive rights of any natural person, corporation, business trust, association, limited liability company, partnership, joint venture, other entity, government, agency or political subdivision (each, a “person”). The offer, issuance and sale of such shares of Company Common Stock were (a) exempt from the registration and prospectus delivery requirements of the Securities Act of 1933, as amended (the “Securities Act”), (b)registered or qualified (or were exempt from registration or qualification) under the registration or qua lification requirements of all applicable state securities laws and (c) accomplished in conformity with all other applicable securities laws. None of such shares of Company Common Stock are subject to a right of withdrawal or a right of rescission under any federal or state securities or “Blue Sky” law. Except as otherwise set forth in this Agreement or any Schedule hereto, the Company has no outstanding options, rights or commitments to issue Company Common Stock or other Equity Securities (as defined below) of the Company, and there are no outstanding securities convertible or exercisable into or exchangeable for Company Common Stock or other Equity Securities of the Company. For purposes of this Agreement, “Equity Security ” shall mean any stock or similar security of an issuer or any security (whether stock or Indebtedness for Borrowed Money (as defined below)) convertible, with or without consideration, into any stock or other equity security, or any security (whether stock or Indebtedness for Borrowed Money) carrying any warrant or right to subscribe to or purchase any stock or similar security, or any such warrant or right.
 
 
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Section 2.04 Indebtedness. Except as set forth on Schedule 2.04 hereto, the Company has no Indebtedness for Borrowed Money. For purposes of this Agreement, “Indebtedness for Borrowed Money” shall mean (a) all Indebtedness in respect of money borrowed including, without limitation, Indebtedness that represents the unpaid amount of the purchase price of any property and is incurred in lieu of borrowing money or using available funds to pay such amounts and not constituting an account payable or expense accrual incurred or assumed in the ordinary course of business of the Company, (b) all Indebtedness evidenced by a promissory note, bond or similar written obligation to pay money or (c) all such Indebtedness guaranteed by the Company or for which the Company is otherwise contingently liable. Furthermore, for purposes of this Agreement, “Indebtedness” shall mean any obligation of the Company which, under generally accepted accounting principles in the United Stated (“GAAP”), is required to be shown on the balance sheet of the Company as a liability. Any obligation secured by a mortgage, pledge, security interest, encumbrance, lien or charge of any kind (a “Lien”), shall be deemed to be Indebtedness, even though such obligation is not assumed by the Company.
 
Section 2.05 Company Stockholders. Schedule 2.05 hereto contains a true and complete list of the names of the record owners of all of the outstanding shares of Company Common Stock and other Equity Securities of the Company, together with the number of securities held or to which such person has rights to acquire. To the knowledge of the Company, there is no voting trust, agreement or arrangement among any of the beneficial holders of Company Common Stock affecting the nomination or election of directors or the exercise of the voting rights of Company Common Stock.
 
Section 2.06 Corporate Acts and Proceedings. The execution, delivery and performance of this Agreement, the Articles of Merger and the Certificate of Merger (together, the “Merger Documents”) have been duly authorized by the Board of Directors of the Company and have been approved by the requisite vote of the Stockholders, and all of the corporate acts and, subject to Bankruptcy Court approval, other proceedings required for the due and valid authorization, execution, delivery and performance of the Merger Documents and the consummation of the Merger have been validly and appropriately taken, except for the filings referred to in Section 1.02.
 
Section 2.07 Governmental Consents. All material consents, approvals, orders, or authorizations of, or registrations, qualifications, designations, declarations, or filings with any federal or state governmental authority, including ATF and DCMA approvals, on the part of the Company required in connection with the consummation of the Merger shall have been obtained prior to, and be effective as of, the Closing.
 
Section 2.08 Compliance with Laws and Instruments. The business, products and operations of the Company have been and are being conducted in compliance in all material respects with all applicable laws, rules and regulations, except for such violations thereof for which the penalties, in t he aggregate, would not have a material adverse effect on the Condition of the Company. The execution, delivery and performance by the Company of the Merger Documents and the consummation by the Company of the transactions contemplated by this Agreement: (a) will not cause the Company to violate or contravene (i) any provision of law, (ii) any rule or regulation of any agency or government, (iii) any order, judgment or decree of any court, or (iv) any provision of the Certificate of Incorporation or By-Laws of the Company, (b) will not violate or be in conflict with, result in a breach of or constitute (with or without notice or lapse of time, or both) a default under, any indenture, loan or credit agreement, deed of trust, mortgage, security agreement or other contract, agreement or instrument to which the Company is a party or by which the Company or any of its properties is bound or affected, except as would not have a material adverse effect on the Condition of the Company and (c) will not result in the creation or imposition of any Lien upon any property or asset of the Company. The Company is not in violation of, or (with or without notice or lapse of time, or both) in default under, any term or provision of its Certificate of Incorporation or By-Laws or of any indenture, loan or credit agreement, deed of trust, mortgage, security agreement or, except as would not materially and adversely affect the Condition of the Company, any other material agreement or instrument to which the Company is a party or by which the Company or any of its properties is bound or affected.
 
Section 2.09 Binding Obligations. The Merger Documents constitute the legal, valid and binding obligations of the Company and are enforceable against the Company in accordance with their respective terms, except as such enforcement is limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity.

 
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Section 2.10    Broker’s and Finder’s Fees. No person has, or as a result of the transactions   contemplated or described herein will have, any right or valid claim against the Company, Parent,   Acquisition Corp. or any Stockholder for any commission, fee or other compensation as a finder or broker,   or in any similar capa city.
 
Section 2.11   Financial Statements. Parent has previously been provided with drafts of the Company’s (i) compiled unaudited balance sheets (the ÒBalance SheetÓ) as of December 31, 2011 (the ÒCompany   Balance Sheet DateÓ), (ii) unaudited statements of operations and accumulated deficits and cash flows for   the years ended December 31, 2011 and December 31, 2010, (iii) unaudited balance sheet as of August 31,   2012, and (iv) unaudited statements of operations for the eight months ended August 31, 2012. Such   financial statements are collectively referred to as the ÒFinancial StatementsÓ. The Financial Statements   (a) are in accordance with the books and records of the Company, (b) present fairly in all material respects   the financial condition of the Company at the dates therein specified and the results of its operations and   changes in financial position for the periods therein specified and (c) have been prepared in accordance   with GAAP (except for footnote disclosures) applied on a basis consistent with prior accounting periods.
 
Section 2.12   Absence of Undisclosed Liabilities . Except as set forth in Schedule 2.12 (which may be   modified based on creditors that file a proof of claim with the Bankruptcy Court), the Company has no   material obligation or liability (whether accrued, absolute, contingent, liquidated or otherwise, whether due   or to become due), arising out of any transaction entered into at or prior to the Closing, except (a) as   disclosed in the Balance Sheet, (b) to the extent set forth on or reserved against in the Balance Sheet,   (c) current liabilities incurred and obligations under agreements entered into in the usual and ordinary   course of business since the Company Balance Sheet Date, none of which (individually or in the aggregate)   has had or will have a material adverse effect on the Condition of the Company and (d) by the specific   terms of any written agreement, document or arrangement identified in the Disclosures.
 
Section 2.13   Changes. Since the Company Balance Sheet Date, the Company has not (a) incurred any   debts, obligations or liabilities, absolute, accrued, contingent or otherwise, whether due or to become due,   except for fees, expenses and liabilities incurred in connection with the Merger and related transactions and   current liabilities incurred in the usual and ordinary course of business, (b) discharged or satisfied any   Liens other than those securing, or paid any obligation or liability other than, current liabilities shown on   the Balance Sheet and current liabilities incurred since the Company Balance Sheet Date, in each case in the usual and ordinary course of business, (c) mortgaged, pledged or subjected to Lien any of its assets,   tangible or intangible other than in the usual and ordinary course of business, (d) sold, transferred or leased   any of its assets, except in the usual and ordinary course of business, (e) cancelled or compromised any   debt or claim, or waived or released any right, of material value, (f) suffered any physical damage,   destruction or loss (whether or not covered by insurance) materially and adversely affecting the Condition   of the Company, (g) entered into any transaction other than in the usual and ordinary course of business,   (h) encountered any labor union difficulties, (i) made or granted any wage or salary increase or made any   increase in the amounts payable under any profit sharing, bonus, deferred compensation, severance pay,   insurance, pension, retirement or other employee benefit plan, agreement or arrangement, other than in the   ordinary course of business consistent with past practice, or entered into any employment agreement, (j)   issued or sold any shares of capital stock, bonds, notes, debentures or other securities or granted any   options (including employee stock options), warrants or other rights with respect thereto, (k) declared or   paid any dividends on or made any other distributions with respect to, or purchased or redeemed, any of its   outstanding capital stock, (l) suffered or experienced any change in, or condition affecting, the Condition of   the Company other than changes, events or conditions in the usual and ordinary course of its business, none of which (either by itself or in conjunction with all such other changes, events and conditions) has been materially adverse, (m) made any change in the accounting principles, methods or practices followed by it or depreciation or amortization policies or rates theretofore adopted, (n) made or permitted any amendment   or termination of any material contract, agreement or license to which it is a party, (o) suffered any material   loss not reflected in the Balance Sheet or its statement of income for the period ended on the Company   Balance Sheet Date, (p) paid, or made any accrual or arrangement for payment of, bonuses or special   compensation of any kind or any severance or termination pay to any present or former officer, director,   employee, stockholder or consultant, (q) made or agreed to make any charitable contributions or incurred  any non-business expenses in excess of $50,000 in the aggregate or (r) entered into any agreement, or otherwise obligated itself, to do any of the foregoing.
 
 
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Section 2.14 Assets and Contracts.
 
(a) Schedule 2.14(a) contains a true and complete list of all real property leased by the Company and of all tangible personal property owned or leased by the Company. All the real property listed in Schedule 2.14(a) is leased by the Company under valid leases enforceable in accordance with their terms, and there is not, under any such lease, any existing default or event of default or event which with notice or lapse of time, or both, would constitute a default by the Company, and the Company has not received any notice or claim of any such default by the Company. The Company does not own any real property.
 
(b) Except as expressly set forth in this Agreement, the Financial Statements, or as disclosed in Schedule 2.14(b) hereto, the Company is not a party to any written or oral agreement not made in the ordinary course of business that is material to the Company. Except as disclosed in Schedule 2.14(b) hereto, the Company is not a party to any written or oral (i) agreement for the purchase of fixed assets or for the purchase of materials, supplies or equipment in excess of normal operating requirements, (ii) agreement for the employment of any officer, individual employee or other person on a full-time basis or any agreement with any person for consulting services, (iii) indenture, loan or credit agreement, note agreement, deed of trust, mortgage, security agreement, promissory note or other agreement or instrument relating to or evidencing Indebtedness for Borrowed Money or subjecting any asset or property of the Company to any Lien or evidencing any Indebtedness, (iv) guaranty of any Indebtedness, (v) other than as set forth in Schedule 2.14(a) hereto, lease or agreement under which the Company is lessee of or holds or operates any property, real or personal, owned by any other person under which payments to such person exceed $25,000 per year, (vi) agreement granting any preemptive right, right of first refusal or similar right to any person, (vii) agreement or arrangement with any Affiliate or any “associate” (as such term is defined in Rule 405 under the Securities Act) of the Company or any present or former officer, director or stockholder of the Company, (viii) agreement obligating the Company to pay any royalty or similar charge for the use or exploitation of any tangible or intangible property, (ix) covenant not to compete or other material restriction on its ability to conduct a business or engage in any other activity, (x) agreement to register securities under the Securities Act or (xi) collective bargaining agreement. Except as disclosed in Schedule 2.14(b) , none of the agreements, contracts, leases, instruments or other documents or arrangements listed in Schedules 2.14(a) and 2.14(b) requires the consent of any of the parties thereto other than the Company to permit the contract, agreement, lease, instrument or other document or arrangement to remain effective following consummation of the Merger and the transactions contemplated hereby. For purposes of this Agreement, an “Affiliate” shall mean any person that directly or indirectly controls, is controlled by, or is under common control with, the indicated person.
 
(c)   The Company has made available to Parent and Acquisition Corp. true and complete copies of all agreements and other documents and a description of all applicable oral agreements disclosed or referred to in Schedules 2.14(a) and 2.14(b), as well as any additional agreements or documents, requested by Parent or Acquisition Corp. The Company has in all material respects performed all obligations required to be performed by it to date and is not in default in any material respect under any of the contracts, agreements, leases, documents, commitments or other arrangements to which it is a party or by which it or any of its property is otherwise bound or affected.
 
Section 2.15 Personnel. The Company has complied in all material respects with all laws relating to the employment of labor, and the Company has encountered no material labor union difficulties. Other than pursuant to ordinary arrangements of compensation to personnel, the Company is not under any obligation or liability to any officer, director, consultant or staff member of the Company.
 
 
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Section 2.16 Tax Returns and Audits.
 
(a) Except as disclosed in Schedule 2.16(a) hereto, all required federal, state and local Tax Returns (as defined below) of the Company have been accurately prepared and duly and timely filed, and all federal, state and local Taxes (as defined below) required to be paid with respect to the periods covered by such returns have been paid. Except as disclosed in Schedule 2.16(a) hereto, the Company is not and has not been delinquent in the payment of any Tax. The Company has not had a Tax deficiency proposed or assessed against it and has not executed a waiver of any statute of limitations on the assessment or collection of any Tax. None of the Company’s federal income tax returns has been audited by any governmental authority; and none of the Company’s state or local income or franchise tax returns has been audited by any governmental authority. The reserves for Taxes reflected on the Balance Sheet, if any, are and will be sufficient for the payment of all unpaid Taxes payable by the Company as of the Company Balance Sheet Date. Since the Company Balance Sheet Date, the Company has made adequate provisions on its books of account for all Taxes with respect to its business, properties and operations for such period. Except as disclosed in Schedule 2.16(a) hereto, the Company has withheld or collected from each payment made to each of its employees the amount of all taxes (including, but not limited to, federal, state and local income taxes, Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act taxes) required to be withheld or collected therefrom, and has paid the same to the proper Tax receiving officers or authorized depositaries. There are no federal, state, local or foreign audits, actions, suits, proceedings, investigations, claims or administrative proceedings relating to Taxes or any Tax Returns of the Company now pending, and the Company has not received any notice of any proposed audits, investigations, claims or administrative proceedings relating to Taxes or any Tax Returns. The Company is not obligated to make a payment, nor is it a party to any agreement that under certain circumstances could obligate it to make a payment that would not be deductible under Section 280G of the Code. The Company has not agreed, nor is it required, to make any adjustments under Section 481(a) of the Code (or any similar provision of state, local and foreign law), whether by reason of a change in accounting method or otherwise, for any Tax period for which the applicable statute of limitations has not yet expired. The Company (i) is not a party to, nor is it bound by or obligated under, any Tax sharing agreement, Tax indemnification agreement or similar contract or arrangement, whether written or unwritten (collectively, “Tax Sharing Agreements”), and (ii) does not have any potential liability or obligation to any person as a result of, or pursuant to, any such Tax Sharing Agreements.
 
(b) For purposes of this Agreement, the following terms shall have the meanings provided below:
 
(i) “Tax” or “Taxes” shall mean (A) any and all taxes, assessments, customs, duties, levies, fees, tariffs, imposts, deficiencies and other governmental charges of any kind whatsoever (including, but not limited to, taxes on or with respect to net or gross income, franchise, profits, gross receipts, capital, sales, use, ad valorem, value added, transfer, real property transfer, transfer gains, transfer taxes, inventory, capital stock, license, payroll, employment, social security, unemployment, severance, occupation, real or personal property, estimated taxes, rent, excise, occupancy, recordation, bulk transfer, intangibles, alternative minimum, doing business, withholding and stamp), together with any interest thereon, penalties, fines, damages costs, fees, additions to tax or additional amounts with respect thereto, imposed by the United States (federal, state or local) or other applicable jurisdiction; (B) any liability for the payment of any amounts described in clause (A) as a result of being a member of an affiliated, consolidated, combined, unitary or similar group or as a result of transferor or successor liability, including, without limitation, by reason of Regulation section 1.1502-6; and (C) any liability for the payments of any amounts as a result of being a party to any Tax Sharing Agreement or as a result of any express or implied obligation to indemnify any other person with respect to the payment of any amounts of the type described in clause (A) or (B).
 
(ii) “Tax Return” shall include all returns and reports (including elections, declarations, disclosures, schedules, estimates and information returns (including Form 1099 and partnership returns filed on Form 1065) required to be supplied to a Tax authority relating to Taxes.
 
 
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Section 2.17 Patents and Other Intangible Assets.
 
(a) The Company (i) owns or has the rights to use, free and clear of all Liens, claims and restrictions, all patents, trademarks, service marks, trade names, copyrights, licenses and right, as listed on Schedule 2.17, with respect to the foregoing used in or necessary for the conduct of its business as now conducted or proposed to be conducted without infringing upon or otherwise acting adversely to the right or claimed right of any person under or with respect to any of the foregoing and (ii) is not obligated or under any liability to make any payments by way of royalties, fees or otherwise to any owner or licensor of, or other claimant to, any patent, trademark, service mark, trade name, copyright or other intangible asset, with respect to the use thereof or in connection with the conduct of its business or otherwise.
 
(b) To the knowledge of the Company, the Company owns and has the unrestricted right to use all trade secrets, if any, including know-how, negative know-how, formulas, patterns, programs, devices, methods, techniques, inventions, designs, processes, computer programs and technical data and all information that derives independent economic value, actual or potential, from not being generally known or known by competitors (collectively, “Intellectual Property”) required for or incident to the development, operation and sale of all products and services sold by the Company, free and clear of any right, Lien or claim of others; provided, however, that the possibility exists that other persons, completely independently of the Company or its employees or agents, could have developed Intellectual Property similar or identical to that of the Company. The Company is not aware of any such developmen t of substantially identical trade secrets or technical information by others. All Intellectual Property can and will be transferred by the Company to the Surviving Corporation as a result of the Merger and without the consent of any person other than the Company.
 
Section 2.18 Employee Benefit Plans; ERISA.
 
(a)   Except as disclosed on Schedule 2.18 hereto, there are no “employee benefit plans” (within the meaning of Section 3(3) of ERISA) nor any other employee benefit or fringe benefit arrangements, practices, contracts, policies or programs of every type other than programs merely involving the regular payment of wages, commissions, or bonuses established, maintained or contributed to by the Company, whether written or unwritten and whether or not funded. The plans listed on Schedule 2.18 hereto are hereinafter referred to as the “Employee Benefit Plans.”
 
(b)   All current and prior material documents, including all amendments thereto, with respect to each Employee Benefit Plan have been made available to Parent and Acquisition Corp. or their advisors.
 
(c)   To the knowledge of the Company, all Employee Benefit Plans are in material compliance with the applicable requirements of ERISA, the Code and any other applicable state, federal or foreign law.
 
(d)   There are no pending claims or lawsuits that have been asserted or instituted against any Employee Benefit Plan, the assets of any of the trusts or funds under the Employee Benefit Plans, the plan sponsor or the plan administrator of any of the Employee Benefit Plans or against any fiduciary of an Employee Benefit Plan with respect to the operation of such plan, nor does the Company have any knowledge of any incident, transaction, occurrence or circumstance that might reasonably be expected to form the basis of any such claim or lawsuit.
 
(e)   There is no pending or, to the knowledge of the Company, contemplated investigation, or pending or possible enforcement action by the Pension Benefit Guaranty Corporation, the Department of Labor, the Internal Revenue Service or any other government agency with respect to any Employee Benefit Plan and the Company has no knowledge of any incident, transaction, occurrence or circumstance which might reasonably be expected to trigger such an investigation or enforcement action.
 
(f)   No actual or, to the knowledge of the Company, contingent liability exists with respect to the funding of any Employee Benefit Plan or for any other expense or obligation of any Employee Benefit Plan, except as disclosed on the financial statements of the Company, and no contingent liability exists under ERISA with respect to any “multi-employer plan,” as defined in Section 3(37) or Section 4001(a)(3) of ERISA.
 
(g)   No events have occurred or are expected to occur with respect to any Employee Benefit Plan that would cause a material change in the costs of providing benefits under such Employee Benefit Plan or would cause a material change in the cost of providing for other liabilities of such Employee Benefit Plan.

 
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Section 2.19 Title to Property and Encumbrances. The Company has good, valid and indefeasible marketable title to all properties and assets used in the conduct of its business (except for property held under valid and subsisting leases that are in full force and effect and which are not in default) free of all Liens and other encumbrances, except Permitted Liens (as defined below) and such ordinary and customary imperfections of title, restrictions and encumbrances as do not, individually or in the aggregate, materially detract from the value of the property or assets or materially impair the use made thereof by the Company in its business. Without limiting the generality of the foregoing, the Company has good and indefeasible title to all of its properties and assets reflected in the Balance Sheet, except for property disposed of in the usual and ordinary course of business since the Company Balance Sheet Date and for property held under valid and subsisting leases that are in full force and effect and that are not in default. For purposes of this Agreement, “Permitted Liens ” shall mean (a) Liens for taxes and assessments or governmental charges or levies not at the time due or in respect of which the validity thereof shall currently be contested in good faith by appropriate proceedings; (b) Liens in respect of pledges or deposits under workmen’s compensation laws or similar legislation, carriers’, warehousemen’s, mechanics’, laborers’ and materialmens’ and similar Liens, if the obligations secured by such Liens are not then delinquent or are being contested in good faith by appropriate proceedings, (c) Liens incidental to the conduct of the business of the Company that were not incurred in connection with the borrowing of money or the obtaining of advances or credits and that do not in the aggregate materially detract from the value of its property or materially impair the use made thereof by the Company in its business and (d) any Liens included in the Plan and approved by the Company, the Parent, the Acquisition Corp and the Bankruptcy Court.
 
Section 2.20 Condition of Properties. All facilities, machinery, equipment, fixtures and other properties owned, leased or used by the Company are in reasonably good operating condition and repair, subject to ordinary wear and tear, and are adequate and sufficient for the Company’s business.
 
Section 2.21 Insurance Coverage . There is in full force and effect one or more policies of insurance issued by insurers of recognized responsibility, insuring the Company and its properties, products and business against such losses and risks, and in such amounts, as are customary for corporations of established reputation engaged in the same or similar business and similarly situated. The Company has not been refused any insurance coverage sought or applied for, and the Company has no reason to believe that it will be unable to renew its existing insurance coverage as and when the same shall expire upon terms at least as favorable to those currently in effect, other than possible increases in premiums that do not result from any act or omission of the Company. No suit, proceeding or action or, to the best current actual knowledge of the Company, threat of suit, proceeding or action has been asserted or made against the Company within the last five years due to alleged bodily injury, disease, medical condition, death or property damage arising out of the function or malfunction of a product, procedure or service designed, manufactured, sold or distributed by the Company.
 
Section 2.22 Litigation. Except as disclosed in Schedule 2.22 hereto, there is no legal action, suit, arbitration or other legal, administrative or other governmental proceeding pending or, to the knowledge of the Company, threatened against or affecting the Company or its properties, assets or business, and after reasonable investigation, the Company is not aware of any incident, transaction, occurrence or circumstance that might reasonably be expected to result in or form the basis for any such action, suit, arbitration or other proceeding. The Company is not in default with respect to any order, writ, judgment, injunction, decree, determination or award of any court or any governmental agency or instrumentality or arbitration authority.
 
Section 2.23 Licenses. The Company possesses from all appropriate governmental authorities all licenses, permits, authorizations, approvals, franchises and rights necessary for the Company to engage in the business currently conducted by it, all of which are in full force and effect.
 
 
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Section 2.24 Interested Party Transactions. Except as described on Schedule 2.24 hereto, to the knowledge of the Company, no current officer, director or stockholder of the Company or any Affiliate or “associate” (as such term is defined in Rule 405 under the Securities Act) of any such person or the Company has or has had, either directly or indirectly, (a) an interest in any person that (i) furnishes or sells services or products that are furnished or sold or are proposed to be furnished or sold by the Company or (ii) purchases from or sells or furnishes to the Company any goods or services, or (b) a beneficial interest in any contract or agreement to which the Company is a party or by which it may be bound or affected.
 
Section 2.25 Environmental Matters.
 
(a)   To the knowledge of the Company, the Company has never generated, used, handled, treated, released, stored or disposed of any Hazardous Materials (as defined below) on any real property on which it now has or previously had any leasehold or ownership interest, except in compliance with all applicable Environmental Laws (as defined below).
 
(b)   To the knowledge of the Company, the historical and present operations of the business of the Company are in compliance with all applicable Environmental Laws, except where any non-compliance has not had and would not reasonably be expected to have a material adverse effect on the Condition of the Company.
 
(c)   There are no material pending or, to the knowledge of the Company, threatened, demands, claims, information requests or notices of noncompliance or violation against or to the Company relating to any Environmental Law; and, to the knowledge of the Company, there are no conditions or occurrences on any of the real property used by the Company in connection with its business that would reasonably be expected to lead to any such demands, claims or notices against or to the Company, except such as have not had, and would not reasonably be expected to have, a material adverse effect on the Condition of the Company.
 
(d)   To the knowledge of the Company, (i) the Company has not sent or disposed of, otherwise had taken or transported, arranged for the taking or disposal of (on behalf of itself, a customer or any other party) or in any other manner participated or been involved in the taking of or disposal or release of a Hazardous Material to or at a site that is contaminated by any Hazardous Material or that, pursuant to any Environmental Law, (A) has been placed on the “National Priorities List”, the “CERCLIS” list, or any similar state or federal list, or (B) is subject to or the source of a claim, an administrative order or other request to take “removal”, “remedial”, “corrective” or any other “response” action, as defined in any Environmental Law, or to pay for the costs of any such action at the site; (ii) the Company is not involved in (and has no basis to reasonably expect to be involved in) any suit or proceeding and has not received (and has no basis to reasonably expect to receive) any notice, request for information or other communication from any governmental authority or other third party with respect to a release or threatened release of any Hazardous Material or a violation or alleged violation of any Environmental Law, and has not received (and has no basis to reasonably expect to receive) notice of any claims from any person relating to property damage, natural resource damage or to personal injuries from exposure to any Hazardous Material; and (iii) the Company has timely filed every report required to be filed, acquired all necessary certificates, approvals and permits, and generated and maintained all required data, documentation and records under all Environmental Laws, in all such instances except where the failure to do so would not reasonably be expected to have, individually or in the aggregate, a mater ial adverse effect on the Condition of the Company.
 
(e)   For purposes of this Agreement, the following terms shall have the meanings provided below:
 
(i) “Environmental Laws” shall mean the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. §§ 9601, et seq.; the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. §§ 11001, et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901, et seq.; the Toxic Substances Control Act, 15 U.S.C. §§ 2601 et seq.; the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. §§ 136, et seq. and comparable state statutes dealing with the registration, labeling and use of pesticides and herbicides; the Clean Air Act, 42 U.S.C. §§ 7401 et seq.; the Clean Water Act (Federal Water Pollution Control Act), 33 U.S.C. §§ 1251 et seq.; the Safe Drinking Water Act, 42 U.S.C. §§ 300f, et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. §§ 1801, et seq.; as any of the above statutes have been amended as of the date hereof, all rules, regulations and policies promulgated pursuant to any of the above statutes, and any other foreign, federal, state or local law, statute, ordinance, rule, regulation or policy governing environmental matters, as the same have been amended as of the date hereof.

 
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(ii) “Hazardous Material” shall mean any substance or material meeting any one or more of the following criteria: (a) it is or contains a substance designated as or meeting the characteristics of a hazardous waste, hazardous substa nce, hazardous material, pollutant, contaminant or toxic substance under any Environmental Law; (b) its presence at some quantity requires investigation, notification or remediation under any Environmental Law; or (c) it contains, without limiting the foregoing, asbestos, polychlorinated biphenyls, petroleum hydrocarbons, petroleum derived substances or waste, pesticides, herbicides, crude oil or any fraction thereof, nuclear fuel, natural gas or synthetic gas.
 
Section 2.26 Questionable Payments. To the knowledge of the Company, neither the Company nor any current director, officer or, to the knowledge of the Company, current agent, employee or other person associated with or acting on behalf of the Company, has used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payments to government officials or employees from corporate funds; established or maintained any unlawful or unrecorded fund of corporate monies or other assets; made any false or fictitious entries on the books of record of any such corporations; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment.
 
Section 2.27 Obligations to or by Stockholders. Except as set forth in Schedule 2.27 hereto, the Company has no liability or obligation or commitment to any Stockholder or any Affiliate or “associate” (as such term is defined in Rule 405 under the Securities Act) of any Stockholder, nor does any Stockholder or any such Affiliate or associate have any liability, obligation or commitment to the Company.
 
Section 2.28 Duty to Make Inquiry. To the extent that any of the representations or warranties in this Article II are qualified by “knowledge” or “belief,” the Company represents and warrants that “knowledge” and “belief” are limited to the actual knowledge of Merriellyn Kett, without additional inquiry or investigation.
 
Section 2.29 Disclosure. There is no fact relating to the Company that the Company has not disclosed to Parent and Acquisition Corp. in writing that has had or is currently having a material and adverse effect or, insofar as the Company can now foresee, will materially and adversely affect the Condition of the Company. No representation or warranty by the Company herein and no information disclosed in the schedules or exhibits hereto by the Company contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading.
 
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION CORP.
 
Parent and Acquisition Corp. represent and warrant to the Company as follows. Notwithstanding anything to the contrary contained herein, disclosure of items in the Parent OTC/SEC Documents (as defined below) shall be deemed to be disclosure of such items for all purposes under this Agreement, including, without limitation, for all applicable representations and warranties of Parent and Acquisition Corp. EXCEPT AS SET FORTH IN THIS AGREEMENT, THE PARENT AND ACQUISTION CORP. MAKES NO EXPRESS WARRANTY, NO WARRANTY OF MERCHNTABILITY, NO WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, AND NO IMPLIED STATUTORY WARRANTY WHATSOEVER. The representations, warranties and covenants of Parent and Acquisition Corp. contained in this Article shall not survive the Closing Date, and any and all breaches of such representations and warranties shall be deemed as of the Closing Date.
 
 
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Section 3.01 Organization and Standing. Parent is a corporation duly organized and existing in good standing under the laws of the State of New Jersey. Parent has heretofore delivered to the Company complete and correct copies of its Certificate of Incorporation and By -Laws as now in effect. Parent has and Acquisition Corp. will have full corporate power and authority to carry on their respective businesses as they are now being conducted and as now proposed to be conducted and to own or lease their respective properties and assets. Parent does not own any subsidiaries (except Parent’s future ownership of Acquisition Corp., Pacific Comtel, Inc., Pacific Comtel-Monterey, Inc., Global Digital Services, Inc. and Bronco Communications, Inc.) or direct or indirect interest (by way of stock ownership or otherwise) in any firm, corporation, limited liability company, partnership, association or business. Parent will own all of the issued and outstanding capital stock of Acquisition Corp. free and clear of all Liens, and Acquisition Corp. will have no outstanding options, warrants or rights to purchase capital stock or other securities of Acquisition Corp., other than the capital stock owned by Parent. Unless the context otherwise requires, all references in this Article III to “Parent” shall be treated as being a reference to Parent and Acquisition Corp. taken together as one enterprise.
 
Section 3.02 Qualification. Parent is duly qualified to conduct business as a foreign corporation and is in good standing in each jurisdiction wherein the nature of its activities or its properties owned or leased makes such qualification necessary, except where the failure to be so qualified would not have a material adverse effect on the condition, properties, assets, liabilities or business operations of Parent (the “Condition of the Parent”).
 
Section 3.03 Corporate Authority. Each of Parent and/or Acquisition Corp. (as the case may be) has or will have the full corporate power and authority to enter into the Merger Documents and the other agreements to be made pursuant to the Merger Documents, and to carry out the transactions contemplated hereby and thereby. All corporate acts and proceedings required for the authorization, execution, delivery and performance of the Merger Documents and such other agreements and documents by Parent and/or Acquisition Corp. (as the case may be) have been duly and validly taken or will have been so taken prior to the Closing. Each of the Merger Documents constitutes a legal, valid and binding obligation of Parent and/or Acquisition Corp. (as the case may be), each is enforceable against it and/or them in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting creditors’ rights generally and by general principles of equity.
 
Section 3.04 Broker’s and Finder’s Fees. No person is entitled by reason of any act or omission of Parent or Acquisition Corp. to any broker’s or finder’s fees, commission or other similar compensation with respect to the execution and delivery of the Merger Documents, or with respect to the consummation of the transactions contemplated thereby, except as set forth in the Disclosures.
 
Section 3.05 Capitalization. A of the date hereof, the authorized capital stock of Parent consists of (i) 175,000,000 shares of Parent Common Stock, of which 49,608,522 shares are issued and outstanding (with fractional shares rounded up to the nearest whole share) and (ii) 1,000,000,000 shares of preferred stock, par value $0.001 per share, of which 1,000 shares are issued and outstanding. Parent has no outstanding options, rights or commitments to issue shares of Parent Stock or any other Equity Security of Parent or Acquisition Corp., and there are no outstanding securities convertible or exercisable into or exchangeable for shares of Parent Common Stock or any other Equity Security of Parent or Acquisition Corp. There is no voting trust, agreement or arrangement among any of the beneficial holders of Parent Common Stock affecting the nomination or election of directors or the exercise of the voting rights of Parent Common Stock. The offer, issuance and sale of such shares of Parent Common Stock were (a) exempt from the registration and prospectus delivery requirements of the Securities Act, (b) registered or qualified (or were exempt from registration or qualification) under the registration or qualification requirements of all applicable state securities laws and (c) accomplished in conformity with all other applicable securities laws. None of such shares of Parent Common Stock are subject to a right of withdrawal or a right of rescission under any federal or state securities or “Blue Sky” law.
 
Section 3.06 Acquisition Corp. Acquisition Corp. once formed will be a wholly-owned Delaware subsidiary of Parent that will be formed specifically for the purpose of the Merger and that will not conducted any business or acquired any property, and will not conduct any business or acquire any property prior to the Closing Date, except in preparation for and otherwise in connection with the transactions contemplated by the Merger Documents and the other agreements to be made pursuant to or in connection with the Merger Documents.
 
 
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Section 3.07 Validity of Shares. The shares of Parent Common Stock to be issued at the Closing pursuant to Section 1.06(a)(ii) hereof, when issued and delivered in accordance with the terms of the Merger Documents, shall be duly and validly issued, fully paid and non-assessable. Based in part on the representations and warranties of the Stockholders as contemplated by Article IV hereof and assuming the accuracy thereof, the issuance of the Parent Common Stock upon consummation of the Merger pursuant to Sections 1.06(a)(ii) will be exempt from the registration and prospectus delivery requirements of the Securities Act and from the qualification or registration requirements of any applicable state “Blue Sky” or securities laws.
 
Section 3.08 OTC/SEC Reporting and Compliance.
 
(a)   Parent is a non reporting company with current information available on pinksheets.com . On June 28, 2011, Parent filed with the Commission a certificate on Form 15 pursuant to Rule 12g-4(a)(2) terminating the registration of parent Common Stock and its reporting requirements under the Securities Exchange Act of 1934, as amended (“Exchange Act”).
 
(b)   Parent has made available to the Company true and complete copies of (i) Annual Company Information and Disclosure Statement pursuant to Rule 15c2-11 for the fiscal year ended December 31, 2011 and its quarterly reports for the fiscal quarters ended March 31, 2012 and June 30, 2012 filed pursuant to Rule 15c2-11 (collectively, the “Parent OTC Documents ”) filed by Parent with the OTC Markets Group, Inc. None of the Parent OTC Documents, as of their respective dates, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements contained therein not misleading.
 
(c)   Prior to and until the Closing, Parent will provide to the Company copies of any and all amendments or supplements to the Parent OTC Documents filed with the OTC Markets Group, Inc. and any and all subsequent quarterly reports filed by Parent with the OTC Markets Group, Inc. or delivered to the stockholders of Parent.
 
(d)   Parent is not an investment company within the meaning of Section 3 of the Investment Company Act of 1940, as amended.
 
(e)   The shares of Parent Common Stock are quoted on the Over-the-Counter (OTC) Pink Sheets under the symbol “GDSI” and Parent is in compliance in all material respects with all rules and regulations of the OTC Pink applicable to it and the Parent Common Stock.
 
(f)   Between the date hereof and the Closing Date, Parent shall continue to satisfy the filing requirements of the OTC Pink.
 
Section 3.09 Financial Statements. The balance sheets and statements of operations, stockholders’ equity and cash flows contained in the Parent OTC Documents (the “Parent Financial Statements”) (a) have been prepared in accordance with GAAP applied on a basis consistent with prior periods (and, in the case of unaudited financial information, on a basis consistent with year-end audits), (b) are in accordance with the books and records of Parent and (c) present fairly in all material respects the financial condition of Parent at the dates therein specified and the results of its operations and changes in financial position for the periods therein specified.
 
Section 3.10 Governmental Consents. All material consents, approvals, orders, or authorizations of, or registrations, qualifications, designations, declarations, or filings with any federal or state governmental authority on the part of Parent or Acquisition Corp. required in connection with the consummation of the Merger shall have been obtained prior to, and be effective as of, the Closing.

 
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Section 3.11 Compliance with Laws and Other Instruments. The execution, delivery and performance by Parent of the Merger Documents and the other agreements to be made by Parent or Acquisition Corp. pursuant to or in connection with the Merger Documents and the consummation by Parent and/or Acquisition Corp. of the transactions contemplated by the Merger Documents will not cause Parent and/or Acquisition Corp. to violate or contravene (a) any provision of law, (b) any rule or regulation of any agency or government, (c) any order, judgment or decree of any court or (d) any provision of their respective charters or By-laws as amended and in effect on and as of the Closing Date and will not violate or be in conflict with, result in a breach of or constitute (with or without notice or lapse of time, or both) a default under any material indenture, loan or credit agreement, deed of trust, mortgage, security agreement or other agreement or contract to which Parent or Acquisition Corp. is a party or by which Parent and/or Acquisition Corp. or any of their respective properties is bound.
 
Section 3.12 No General Solicitation. In issuing the Parent Stock in the Merger hereunder, neither Parent nor anyone acting on its behalf has offered to sell the Parent Stock by any form of general solicitation or advertising.
 
Section 3.13 Binding Obligations. The Merger Documents constitute the legal, valid and binding obligations of Parent and Acquisition Corp., and are enforceable against Parent and Acquisition Corp., in accordance with their respective terms, except as such enforcement is limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity.
 
Section 3.14 Absence of Undisclosed Liabilities . Parent has no material obligation or liability (whether accrued, absolute, contingent, liquidated or otherwise, whether due or to become due), arising out of any transaction entered into at or prior to the Closing, except (a) as disclosed in the Parent OTC Documents, (b) to the extent set forth on or reserved against in the balance sheet of Parent in the most recent Parent OTC Document filed by Parent (the “Parent Balance Sheet”) or the notes to the Parent Financial Statements, (c) current liabilities incurred and obligations under agreements entered into in the usual and ordinary course of business since the date of the Parent Balance Sheet (the “Parent Balance Sheet Date”), none of which (individually or in the aggregate) materially and adversely affects the Condition of Parent and (d) by the specific terms of any written agreement, document or arrangement attached as an exhibit to the Parent OTC Documents.
 
Section 3.15 Changes. Since the Parent Balance Sheet Date, except as disclosed in the Parent OTC Documents, Parent has not (a) incurred any debts, obligations or liabilities, absolute, accrued or, to Parent’s knowledge, contingent, whether due or to become due, except for current liabilities incurred in the usual and ordinary course of business, (b) discharged or satisfied any Liens other than those securing, or paid any obligation or liability other than, current liabilities shown on the Parent Balance Sheet and current liabilities incurred since the Parent Balance Sheet Date, in each case in the usual and ordinary course of business, (c) mortgaged, pledged or subjected to Lien any of its assets, tangible or intangible, other than in the usual and ordinary course of business, (d) sold, transferred or leased any of its assets, except in the usual and ordinary course of business, (e) cancelled or compromised any debt or claim, or waived or released any right of material value, (f) suffered any physical damage, destruction or loss (whether or not covered by insurance) that could reasonably be expected to have a material adverse effect on the Condition of the Parent, (g) entered into any transaction other than in the usual and ordinary course of business, (h) encountered any labor union difficulties, (i) made or granted any wage or salary increase or made any increase in the amounts payable under any profit sharing, bonus, deferred compensation, severance pay, insurance, pension, retirement or other employee benefit plan, agreement or arrangement, other than in the ordinary course of business consistent with past practice, or entered into an y employment agreement, (j) issued or sold any shares of capital stock, bonds, notes, debentures or other securities or granted any options (including employee stock options), warrants or other rights with respect thereto, (k) declared or paid any dividends on or made any other distributions with respect to, or purchased or redeemed, any of its outstanding capital stock, (l) suffered or experienced any change in, or condition affecting, the Condition of the Parent other than changes, events or conditions in the usual and ordinary course of its business, none of which (either by itself or in conjunction with all such other changes, events and conditions) could reasonably be expected to have a material adverse effect on the Condition of the Parent, (m) made any change in the accounting principles, methods or practices followed by it or depreciation or amortization policies or rates theretofore adopted, (n) made or permitted any amendment or termination of any material contract, agreement or license to which it is a party, (o) suffered any material loss not reflected in the Parent Balance Sheet or its statement of income for the year ended on the Parent Balance Sheet Date, (p) paid, or made any accrual or arrangement for payment of, bonuses or special compensation of any kind or any severance or termination pay to any present or former officer, director, employee, stockholder or consultant, (q) made or agreed to make any charitable contributions or incurred any non-business expenses in excess of $5,000 in the aggregate or (r) entered into any agreement, or otherwise obligated itself, to do any of the foregoing.
 
 
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Section 3.16 Tax Returns and Audits. All required federal, state and local Tax Returns of Parent have been accurately prepared in all material respects and duly and timely filed, and all federal, state and local Taxes required to be paid with respect to the periods covered by such returns have been paid to the extent that the same are material and have become due, except where the failure so to file or pay could not reasonably be expected to have a material adverse effect upon the Condition of the Parent. Parent is not and has not been delinquent in the payment of any Tax. Parent has not had a Tax deficiency assessed against it. None of Parent’s federal income, state and local income and franchise tax returns has been audited by any governmental authority. The reserves for Taxes reflected on the Parent Balance Sheet are sufficient for the payment of all unpaid Taxes payable by Parent with respect to the period ended on the Parent Balance Sheet Date. There are no federal, state, local or foreign audits, actions, suits, proceedings, investigations, claims or administrative proceedings relating to Taxes or any Tax Returns of Parent now pending, and Parent has not r eceived any notice of any proposed audits, investigations, claims or administrative proceedings relating to Taxes or any Tax Returns.
 
Section 3.17 Employee Benefit Plans; ERISA.
 
(a)   Except as set forth on Schedule 3.17(a) hereto, there are no “employee benefit plans” (within the meaning of Section 3(3) of ERISA) nor any other employee benefit or fringe benefit arrangements, practices, contracts, policies or programs other than programs merely involving the regular payment of wages, commissions, or bonuses established, maintained or contributed to by Parent. Any plans listed on Schedule 3.17(a) are hereinafter referred to as the “Parent Employee Benefit Plans.”
 
(b)   Any current and prior material documents, including all amendments thereto, with respect to each Parent Employee Benefit Plan have been given to the Company or its advisors.
 
(c)   All Parent Employee Benefit Plans are in material compliance with the applicable requirements of ERISA, the Code and any other applicable state, federal or foreign law.
 
(d)   There are no pending, or to the knowledge of Parent, threatened, claims or lawsuits which have been asserted or instituted against any Parent Employee Benefit Plan, the assets of any of the trusts or funds under the Parent Employee Benefit Plans, the plan sponsor or the plan administrator of any of the Parent Employee Benefit Plans or against any fiduciary of a Parent Employee Benefit Plan with respect to the operation of such plan.
 
(e)   There is no pending, or to the knowledge of Parent, threatened, investigation or pending or possible enforcement action by the Pension Benefit Guaranty Corporation, the Department of Labor, the Internal Revenue Service or any other government agency with respect to any Parent Employee Benefit Plan.
 
(f)   No actual or, to the knowledge of Parent, contingent liability exists with respect to the funding of any Parent Employee Benefit Plan or for any other expense or obligation of any Parent Employee Benefit Plan, except as disclosed on the financial statements of Parent or the Parent OTC Documents, and to the knowledge of Parent, no contingent liability exists under ERISA with respect to any “multi-employer plan,” as defined in Section 3(37) or Section 4001(a)(3) of ERISA.

 
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Section 3.18 Litigation. There is no legal action, suit, arbitration or other legal, administrative or other governmental proceeding pending or, to the knowledge of Parent, threatened against or affecting Parent or Acquisition Corp. or any of their respective properties, assets or businesses. To the knowledge of Parent, neither Parent nor Acquisition Corp. is in default with respect to any order, writ, judgment, injunction, decree, determination or award of any court or any governmental agency or instrumentality or arbitration authority.
 
Section 3.19 Licenses. Parent possesses from all appropriate governmental authorities all licenses, permits, authorizations, approvals, franchises and rights necessary for the Company to engage in the business currently conducted by it, all of which are in full force and effect.
 
Section 3.20 Interested Party Transactions. To the knowledge of Parent, no current officer, director or stockholder of Parent or any Affiliate or “associate” (as such term is defined in Rule 405 under the Securities Act) of any such person or of Parent has or has had, either directly or indirectly, (a) an interest in any person that (i) furnishes or sells services or products that are furnished or sold or are proposed to be furnished or sold by Parent or (ii) purchases from or sells or furnishes to Parent any goods or services, or (b) a beneficial interest in any contract or agreement to which Parent is a party or by which it or any of its assets may be bound or affected.
 
Section 3.21 Questionable Payments. To the knowledge of Parent or Acquisition Corp., neither Parent, Acquisition Corp. nor, any current director, officer, agent, employee or other person associated with or acting on behalf of Parent or Acquisition Corp. has used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payments to government officials or employees from corporate funds; established or maintained any unlawful or unrecorded fund of corporate monies or other assets; made any false or fictitious entries on the books of record of any such corporations; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment.
 
Section 3.22 Obligations to or by Stockholders. Parent has no liability or obligation or commitment to any stockholder of Parent or any Affiliate or “associate” (as such term is defined in Rule 405 under the Securities Act) of any stockholder of Parent, nor does any stockholder of Parent or any such Affiliate or associate have any liability, obligation or commitment to Parent.
 
Section 3.23 Assets and Contracts. Except as expressly set forth in this Agreement, the Parent Balance Sheet or the notes thereto, or the Parent OTC Documents, Parent is not a party to any written or oral agreement not made in the ordinary course of business that is material to Parent. Parent does not own any real property. Except as expressly set forth in this Agreement, the Parent Balance Sheet or the notes thereto, or the Parent OTC Documents, Parent is not a party to or otherwise barred by any written or oral (a) agreement with any labor union, (b) agreement for the purchase of fixed assets or for the purchase of materials, supplies or equipment in excess of normal operating requirements, (c) agreement for the employment of any officer, individual employee or other person on a full-time basis or any agreement with any person for consulting services, (d) bonus, pension, profit sharing, retirement, stock purchase, stock option, deferred compensation, medical, hospitalization or life insurance or similar plan, contract or understanding with respect to any or all of the employees of Parent or any other person, (e) indenture, loan or credit agreement, note agreement, deed of trust, mortgage, security agreement, promissory note or other agreement or instrument relating to or evidencing Indebtedness for Borrowed Money or subjecting any asset or property of Parent to any Lien or evidencing any Indebtedness, (f) guaranty of any Indebtedness, (g) lease or agreement under which Parent is lessee of or holds or operates any property, real or personal, owned by any other person , (h) lease or agreement under which Parent is lessor or permits any person to hold or operate any property, real or personal, owned or controlled by Parent, (i) agreement granting any preemptive right, right of first refusal or similar right to any person, (j) agreement or arrangement with any Affiliate or any “associate” (as such term is defined in Rule 405 under the Securities Act) of Parent or any present or former officer, director or stockholder of Parent, (k) agreement obligating Parent to pay any royalty or similar charge for the use or exploitation of any tangible or intangible property, (1) covenant not to compete or other restriction on its ability to conduct a business or engage in any other activity, (m) distributor, dealer, manufacturer’s representative, sales agency, franchise or advertising contract or commitment, (n) agreement to register securities under the Securities Act, (o) collective bargaining   agreement or (p) agreement or other commitment or arrangement with any person continuing for a period   of more than three months from the Closing Date that involves an expenditure or receipt by Parent in   excess of $1,000. Parent maintains no insurance policies or insurance coverage of any kind with respect to   Parent, its business, premises, properties, assets, employees and agents. No consent of any bank or other   depository is required to maintain any bank account, other deposit relationship or safety deposit box of   Parent in effect following the consummation of the Merger and the transactions contemplated hereby.
 
 
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Section 3.24 Employees. Other than pursuant to ordinary arrangements of employment   compensation, Parent is not under any obligation or liability to any officer, director, employee or Affiliate   of Parent.
 
Section 3.25 Duty to Make Inquiry. To the extent that any of the representations or warranties in this   Article III are qualified by “knowledge” or “belief,” Parent and Acquisition Corp. represents and warrants   that “knowledge” and “belief” are limited to the actual knowledge of William Delgado, without additional   inquiry or investigation.
 
Section 3.26 Disclosure. There is no fact relating to Parent that Parent has not disclosed to the   Company in writing that materially and adversely affects nor, insofar as Parent can now foresee, will   materially and adversely affect, the condition (financial or otherwise), properties, assets, liabilities, business   operations, results of operations or prospects of Parent. No representation or warranty by Parent herein and   no information disclosed in the schedules or exhibits hereto by Parent contains any untrue statement of a   material fact or omits to state a material fact necessary to make the statements contained herein or therein   not misleading.
 
ARTICLE IV.
ADDITIONAL REPRESENTATIONS, WARRANTIES AND
COVENANTS OF THE STOCKHOLDERS
 
Promptly after the Effective Time, Parent shall cause to be mailed to each holder of record of Company Common Stock that was converted pursuant to Section 1.06 hereof into the right to receive   Parent Stock a letter of transmittal (ÒLetter of TransmittalÓ) that shall contain additional representations,   warranties and covenants of such Stockholder, including without limitation, that (a) such Stockholder has   full right, power and authority to deliver such Company Common Stock and Letter of Transmittal, (b) the   delivery of such Company Common Stock will not violate or be in conflict with, result in a breach of or   constitute a default under, any indenture, loan or credit agreement, deed of trust, mortgage, security   agreement or other agreement or instrument to which such Stockholder is bound or affected, (c) such   Stockholder has good, valid and marketable title to all shares of Company Common Stock indicated in such   Letter of Transmittal and that such Stockholder is not affected by any voting trust, agreement or arrangement affecting the voting rights of such Company Common Stock, (d) whether such Stockholder is   an “accredited investor,” as such term is defined in Regulation D under the Securities Act and that such   Stockholder is acquiring Surviving Company Stock for investment purposes, and not with a view to selling   or otherwise distributing such Surviving Company Stock in violation of the Securities Act or the securities   laws of any state and (e) such Stockholder has had an opportunity to ask and receive answers to any   questions such Stockholder may have had concerning the terms and conditions of the Merger and the   Parent Stock and has obtained any additional information that such Stockholder has requested. Delivery   shall be effected, and risk of loss and title to the Company Common Stock shall pass, only upon delivery to   Parent (or an agent of Parent) of (x) certificates evidencing ownership thereof as contemplated by   Section 1.07 hereof (or affidavit of lost certificate), and (y) the Letter of Transmittal containing the representations, warranties and covenants contemplated by this Article IV.
 
 
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ARTICLE V.
CONDUCT OF BUSINESSES PENDING THE MERGER.
 
Section 5.01 Conduct of Business by the Company Pending the Merger. Prior to the Effective Time, unless this Agreement is terminated, Parent or Acquisition Corp. shall otherwise agree in writing, or as otherwise contemplated by this Agreement:
 
(a)   the business of the Company shall be conducted only in the ordinary course;
 
(b)   the Company shall not (i) directly or indirectly redeem, purchase or otherwise acquire or agree to redeem, purchase or otherwise acquire any shares of its capital stock; (ii) amend its Certificate of Incorporation or By-laws except to effectuate the transactions contemplated in the Disclosures or (iii) split, combine or reclassify the outstanding Company Common Stock or declare, set aside or pay any dividend payable in cash, stock or property or make any distribution with respect to any such stock;
 
(c)   the Company shall not (i) issue or agree to issue any additional shares of, or options, warrants or rights of any kind to acquire any shares of, Company Common Stock, except to issue shares of Company Common Stock in connection with any matter relating to the Disclosures; (ii) acquire or dispose of any fixed assets or acquire or dispose of any other substantial assets other than in the ordinary course of business; (iii) incur additional Indebtedness or any other liabilities or enter into any other transaction other than in the ordinary course of business; (iv) enter into any contract, agreement, commitment or arrangement with respect to any of the foregoing or (v) except as contemplated by this Agreement, enter into any contract, agreement, commitment or arrangement to dissolve, merge, consolidate or enter into any other material business combination;
 
(d)   the Company shall use its best efforts to preserve intact the business organization of the Company, to keep available the service of its present officers and key employees, and to preserve the good will of those having business relationships with it;
 
(e)   the Company will not, nor will it authorize any director or authorize or permit any officer or employee or any attorney, accountant or other representative retained by it to make, solicit, encourage any inquiries with respect to, or engage in any negotiations concerning, any Acquisition Proposal (as defined below for purposes of this paragraph). The Company will promptly advise Parent orally and in writing of any such inquiries or proposals (or requests for information) and the substance thereof. As used in this paragraph, “Acquisition Proposal” shall mean any proposal for a merger or other business combination involving the Company or for the acquisition of a substantial equity interest in it or any material assets of it other than as contemplated by this Agreement. The Company will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any person conducted heretofore with respect to any of the foregoing; and
 
(f)   the Company will not enter into any new employment agreements with any of its officers or employees or grant any increases in the compensation or benefits of its officers and employees or amend any employee benefit plan or arrangement.
 
Section 5.02 Conduct of Business by Parent and Acquisition Corp. Pending the Merger. Prior to the Effective Time, unless the Company shall otherwise agree in writing or as otherwise contemplated by this Agreement:
 
(a)   the business of Parent and Acquisition Corp. shall be conducted only in the ordinary course; provided, however, that Parent shall take the steps necessary to have discontinued its existing business without liability to Parent or Acquisition Corp. immediately following the Effective Time; and
 
(b)   neither Parent nor Acquisition Corp. will, nor will they authorize any director or authorize or permit any officer or employee or any attorney, accountant or other representative retained by them to, make, solicit, encourage any inquiries with respect to, or engage in any negotiations concerning, any Acquisition Proposal (as defined below for purposes of this paragraph). Parent will promptly advise the Company orally and in writing of any such inquiries or proposals (or requests for information) and the substance thereof. As used in this paragraph, “Acquisition Proposal” shall mean any proposal for a merger or other business combination involving Parent or Acquisition Corp. or for the acquisition of a substantial equity interest in either of them or any material assets of either of them other than as contemplated by this Agreement. Parent will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any person conducted heretofore with respect to any of the foregoing.
 
 
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ARTICLE VI.
ADDITIONAL AGREEMENTS
 
Section 6.01 Access and Information. The Company, on the one hand, and Parent and Acquisition Corp., on the other hand, shall each afford to the other and to the other’s accountants, counsel and other representatives full access during normal business hours throughout the period prior to the Effective Time to all of its properties, books, contracts, commitments and records (including but not limited to tax returns) and during such period, each shall furnish promptly to the other all information concerning its business, properties and personnel as such other party may reasonably request, provided that no investigation pursuant to this Section 6.01 shall affect any representations or warranties made herein. Each party shall hold, and shall cause its employees and agents to hold, in confidence all such information (other than such information that (a) is already in such party’s possession or (b) becomes generally available to the public other than as a result of a disclosure by such party or its directors, officers, managers, employees, agents or advisors or (c) becomes available to such party on a non-confidential basis from a source other than a party hereto or its advisors, provided that such source is not known by such party to be bound by a confidentiality agreement with or other obligation of secrecy to a party hereto or another party until such time as such information is otherwise publicly available; provided, however, that (i) any such information may be disclosed to such party’s directors, officers, employees and representatives of such party’s advisors who need to know such information for the purpose of evaluating the trans actions contemplated hereby (it being understood that such directors, officers, employees and representatives shall be informed by such party of the confidential nature of such information), (ii) any disclosure of such information may be made as to which the party hereto furnishing such information has consented in writing and (iii) any such information may be disclosed pursuant to a judicial, administrative or governmental order or request; provided, further, that the requested party will promptly so notify the other party so that the other party may seek a protective order or appropriate remedy and/or waive compliance with this Agreement and if such protective order or other remedy is not obtained or the other party waives compliance with this provision, the requested party will furnish only that portion of such information that is legally required and will exercise its best efforts to obtain a protective order or other reliable assurance that confidential treatment will be accorded the information furnished. If this Agreement is terminated, each party will deliver to the other all documents and other materials (including copies) obtained by such party or on its behalf from the other party as a result of this Agreement or in connection herewith, whether so obtained before or after the execution hereof.
 
Section 6.02 Additional Agreements. Subject to the terms and conditions herein provided, each of the parties hereto agrees to use its commercially reasonable efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement, including using its commercially reasonable efforts to satisfy the conditions precedent to the obligations of any of the parties hereto, to obtain all necessary waivers, and to lift any injunction or other legal bar to the Merger (and, in such case, to proceed with the Merger as expeditiously as possible). In order to obtain any necessary governmental or regulatory action or non-action, waiver, consent, extension or approval, each of Parent, Acquisition Corp. and the Company agrees to take all reasonable actions and to enter into all reasonable agreements as may be nece ssary to obtain timely governmental or regulatory approvals and to take such further action in connection therewith as may be necessary. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and/or directors of Parent, Acquisition Corp. and the Company shall take all such necessary action.
 
Section 6.03 Publicity. No party shall issue any press release or public announcement pertaining to the Merger that has not been agreed upon in advance by Parent and the Company, except as Parent reasonably determines to be necessary in order to comply with the rules of the principal trading exchange or market for the Parent Common Stock, provided, that in such case Parent will use its best efforts to allow the Company to review and reasonably approve any such press release or public announcement prior to its release.
 
 
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Section 6.04 Disclosure Schedules and Exhibits. On or before the Closing Date, the Company, the Parent and Acquisition Corp. will agreed upon and deliver disclosure schedules (the “Disclosure Schedules”) and Exhibits, and will have the right to supplement and amend the Disclosure Schedules and Exhibits and add additional Disclosure Schedules and Exhibits, and such Disclosure Schedules and Exhibits shall be incorporated into this Agreement as if delivered on the date of this Agreement.
 
ARTICLE VII.
CONDITIONS PRECEDENT TO PARTIES’ OBLIGATIONS
 
Section 7.01 Conditions to Parent and Acquisition Corp. Obligations. The obligations of Parent and Acquisition Corp. under the Merger Documents are subject to the fulfillment, at or prior to the Closing, of the following conditions, any of which may be waived in whole or in part by Parent:
 
(a)   The representations and warranties of the Company under this Agreement shall be deemed to have been made again on the Closing Date and shall then be true and correct in all material respects.
 
(b)   The Company shall have performed and complied in all material respects with all agreements and conditions required by this Agreement to be performed or complied with by it on or before the Closing Date.
 
(c)   There shall not exist on the Closing Date any Default (as defined below) or Event of Default (as defined below) or any event or condition that, with the giving of notice or lapse of time or both, would constitute a Default or Event of Default and, since the Company Balance Sheet Date, there shall have been no material adverse change in the Condition of the Company. For purposes of this Agreement, “Default” shall mean a default or failure in the due observance or performance of any covenant, condition or agreement on the part of a party to be observed or performed under the terms of the Merger Documents, if such default or failure in performance shall remain un-remedied for five (5) days. Furthermore, for purposes of this Agreement, “Event of Default” shall mean (i) the failure to pay any Indebtedness for Borrowed Money, or any interest or premium thereon, within five (5) days after the same shall become due, whether such Indebtedness shall become due by scheduled maturity, by required prepayment, by acceleration, by demand or otherwise, (ii) an event of default under any agreement or instrument evidencing or securing or relating to any such Indebtedness or (iii) the failure to perform or observe any material term, covenant, agreement or condition on its part to be performed or observed under any agreement or instrument evidencing or securing or relating to any such Indebtedness when such term, covenant or agreement is required to be performed or observed.
 
(d)   No action or proceeding before any court, governmental body or agency shall have been threatened, asserted or instituted to restrain or prohibit, or to obtain substantial damages in respect of, the Merger Documents or the carrying out of the transactions contemplated by the Merger Documents and the Company shall have had Merger Documents and the transactions contemplated herein.
 
(e)   The transactions contemplated by this Agreement will have been approved by ATF, DCMA and all other governmental authorities charged with licensing or overseeing products sold by the Company.
 
(f)   The Company’s plan of reorganization, as may be amended (the “Plan”), containing terms and conditions reasonably acceptable to Parent and Acquisition Corp. and providing for the consummation of the transactions contemplated herein, shall have been approved by (i) the Parent and (ii) the Bankruptcy Court, and such approval order is final for purposes of 28 U.S.C. §§ 158 and 1291 and has not been reversed, stayed, modified, vacated or amended; and as to which (i) the time to appeal or seek certiorari, review or rehearsing has expired, (ii) as to which no appeal or petition for certiorari, review or rehearing is pending or (iii) any right to appear or seek certiorari, review or rehearing has been waived.

 
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(g)   The Company shall have repaid the outstanding Bridge Loan to Parent, which will occur simultaneously with the Closing.
 
(h)   Parent and Acquisition Corp. shall have received the following:
 
(i)   copies of resolutions of the Board of Directors and the Stockholders, certified by the Secretary of the Company, authorizing and approving the execution, delivery and performance of the Merger Documents and all other documents and instruments to be delivered pursuant thereto;
 
(ii)   a certificate of incumbency executed by the Secretary of the Company certifying the names, titles and signatures of the officers authorized to execute any documents referred to in this Agreement and further certifying that the Certificate of Incorporation and By-laws of the Company delivered to Parent and Acquisition Corp. at the time of the execution of this Agreement have been validly adopted and have not been amended or modified;
 
(iii)   a certificate, dated the Closing Date, executed by the Chief Executive Officer of the Company certifying that she has no knowledge of any plan to issue any securities of the Company, and the Company has not entered into any agreement, written or oral, to issue any securities of the Company except as described in the Disclosures or this Agreement;
 
(iv)   evidence as of a recent date of the good standing and corporate existence of the Company issued by the Secretary of State of the State of Illinois and evidence that the Company is qualified to transact business as a foreign corporation and is in good standing in each state of the United States and in each other jurisdiction where the character of the property owned or leased by it or the nature of its activities makes such qualification necessary;
 
(v)   the Employment Agreement, substantially in the form of Exhibit 7.01(f)(v), duly executed by Merriellyn Kett;
 
(vi)   a Non-Disclosure, Non-Compete and Assignment Agreement, substantially in the form of Exhibit 7.01(f)(vi), duly executed by Merriellyn Kett and each person listed on Schedule 7.01(f)(vi);
 
(vii)   a Non-Disclosure, Non-Compete and Assignment Agreement, substantially in the form of Exhibit 7.01(f)(vii), duly executed by Merriellyn Kett and each person listed on Schedule 7.01(f)(vii); and
 
(viii)   such additional supporting documentation and other information with respect to the transactions contemplated hereby as Parent and Acquisition Corp. may reasonably request.
 
(i) All corporate and other proceedings and actions taken in connection with the transactions contemplated hereby and all certificates, opinions, agreements, instruments and documents mentioned herein or incident to any such transactions shall be reasonably satisfactory in form and substance to Parent and Acquisition Corp. The Company shall furnish to Parent and Acquisition Corp. such supporting documentation and evidence of the satisfaction of any or all of the conditions precedent specified in this Section 7.01 as Parent or its counsel may reasonably request.
 
Section 7.02 Conditions to the Company’s Obligations. The obligations of the Company under the Merger Documents are subject to the fulfillment, at, prior to, or contemporaneously with the Closing, of the following conditions, any of which may be waived in whole or in part by the Company.
 
(a) The representations and warranties of Parent and Acquisition Corp. under this Agreement shall be deemed to have been made again on the Closing Date and shall then be true and correct in all material respects.

 
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(b)   Parent and Acquisition Corp. shall have performed and complied in all material respects with all agreements and conditions required by the Merger Documents to be performed or complied with by them on or before the Closing Date.
 
(c)   The contribution of $2,000,000 by the Parent to the Surviving Corporation, which will occur simultaneously with the Closing.
 
(d)   There shall not exist on the Closing Date any Default or Event of Default or any event or condition that, with the giving of notice or lapse of time or both, would constitute a Default or Event of Default and, since the Parent Balance Sheet Date, there shall have been no material adverse change in the Condition of the Parent.
 
(e)   The Company’s Plan, containing terms and conditions reasonably acceptable to the Company and providing for the consummation of the transactions contemplated herein, shall have been approved by (i) the Parent and (ii) the Bankruptcy Court, and such approval order is final for purposes of 28 U.S.C. §§ 158 and 1291 and has not been reversed, stayed, modified, vacated or amended; and as to which (i) the time to appeal or seek certiorari, review or rehearsing has expired, (ii) as to which no appeal or petition for certiorari, review or rehearing is pending or (iii) any right to appear or seek certiorari, re view or rehearing has been waived.
 
(f)   The transactions contemplated by this Agreement will have been approved by ATF, DCMA and all other governmental authorities charged with licensing or overseeing products sold by the Company.
 
(g)   Merriellyn Kett will be released from any guaranty of Company debt.
 
(h)   The Company shall have received the following:
 
(i)   copies of resolutions of Parent’s and Acquisition Corp.’s respective boards of directors and the sole stockholder of Acquisition Corp., certified by their respective Secretaries, authorizing and approving, to the extent applicable, the execution, delivery and performance of the Merger Documents and all other documents and instruments to be delivered by them pursuant thereto;
 
(ii)   a certificate of incumbency executed by the respective Secretaries of Parent and Acquisition Corp. certifying the names, titles and signatures of the officers authorized to execute the documents referred to in this Agreement and further certifying that the Certificates of Incorporation and By-Laws of Parent and Acquisition Corp. appended thereto have not been amended or modified.
 
(iii)   a certificate, dated the Closing Date, executed by the President or Chief Executive Officer of each of the Parent and Acquisition Corp., certifying that (A) except for the filing of the Certificate of Merger, all consents, authorizations, orders and approvals of, and filings and registrations with, any court, governmental body or instrumentality that are required for the execution and delivery of the Merger Documents and the consummation of the Merger shall have been duly made or obtained, and all material consents by third parties required for the Merger have been obtained and (B) no action or proceeding before any court, governmental body or agency has been threatened, asserted or instituted to restrain or prohibit, or to obtain substantial damages in respect of, the Merger Documents or the carrying out of the transactions contemplated by any of the Merger Documents;
 
(iv)   a certificate of New York Stock Transfer, LLC, Parent’s transfer agent and registrar, certifying, as of the business day prior to the Closing Date, a true and complete list of the names and addresses of the record owners of all of the outstanding shares of Parent Common Stock, together with the number of shares of Parent Common Stock held by each record owner and the total number of shares of Parent Common Stock then outstanding;
 
 
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(v)   evidence as of a recent date and within five (5) days of the Effective Date of the good standing and corporate existence of each of Parent and Acquisition Corp. issued by the Secretary’s of State of the States of New Jersey and Delaware, respectively, and evidence that Parent and Acquisition Corp. are qualified to transact business as foreign corporations and are in good standing in each state of the United States and in each other jurisdiction where the character of the property owned or leased by them or the nature of their activities makes such qualification necessary; and
 
(vi) such additional supporting documentation and other information with respect to the transactions contemplated hereby as the Company may reasonably request.
 
(i)   All corporate and other proceedings and actions taken in connection with the transactions contemplated hereby and all certificates, opinions, agreements, instruments and documents mentioned herein or incident to any such transactions shall be satisfactory in form and substance to the Company. Parent and Acquisition Corp. shall furnish to the Company such supporting documentation and evidence of satisfaction of any or all of the conditions specified in this Section 7.02 as the Company may reasonably request.
 
(j)   No action or proceeding before any court, governmental body or agency shall have been threatened, asserted or instituted to restrain or prohibit, or to obtain substantial damages in respect of, the Merger Documents or the carrying out of the transactions contemplated by the Merger Documents.
 
ARTICLE VIII.
INDEMNIFICATION AND RELATED MATTERS
 
Section 8.01 Indemnification by Parent. Parent shall indemnify and hold harmless the Company and the Stockholders (together the “Company Indemnified Parties”), and shall reimburse the Company Indemnified Parties for, any loss, liability, claim, damage, expense (including, but not limited to, costs of investigation and defense and reasonable attorneys’ fees) or diminution of value (collectively, “Damages”) arising from or in connection with (a) any inaccuracy, in any material respect, in any of the representations and warranties of Parent an d Acquisition Corp. in this Agreement or in any certificate delivered by Parent and Acquisition Corp. to the Company pursuant to this Agreement, or any actions, omissions or statements of fact inconsistent with any such representation or warranty, (b) any failure by Parent or Acquisition Corp. to perform or comply in any material respect with any covenant or agreement in this Agreement, (c) any claim for brokerage or finder’s fees or commissions or similar payments based upon any agreement or understanding alleged to have been made by any such party with Parent or Acquisition Corp. in connection with any of the transactions contemplated by this Agreement, (d) taxes attributable to any transaction or event occurring on or prior to the Closing, (e) any claim relating to or arising out of any liabilities reflected in the Parent Financial Statement or with respect to accounting fees arising thereafter or (f) any litigation, action, claim, proceeding or investigation by any third party relating to or arising out of the business or operations of Parent, or the actions of Parent or any holder of Parent capital stock prior to the Effective Time.
 
Section 8.02 Survival. Except post-Closing covenants in Article I which shall survive Closing, the representations, warranties, covenants and agreements of the Company, Parent and Acquisition Corp. contained in or made pursuant to this Agreement or in any certificate delivered pursuant to this Agreement shall not survive the Closing.
 
ARTICLE IX.
TERMINATION PRIOR TO CLOSING
 
Section 9.01 Termination of Agreement. This Agreement may be terminated at any time prior to the Closing:
 
(a) by the mutual written consent of the Company, Acquisition Corp. and Parent;

 
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(b)   by the Parent if the Bankruptcy Court has not approved the initial funding of $750,000 under the Bridge Loan on or before 5:00 PM CDT on Monday, October 22, 2012
 
(c)   by the Company if the Parent has not provided initial funding of $750,000 under the Bridge Loan with the Company on or before 5:00 PM CDT on Tuesday, October 23, 2012.
 
(c) by the Company, if Parent or Acquisition Corp. (i) fails to perform in any material respect any of its agreements contained herein required to be performed by it on or prior to the Closing Date, or (ii) materially breach any of their representations, w arranties or covenants contained herein, which failure or breach is not cured within thirty (30) days after the Company has notified Parent and Acquisition Corp. of its intent to terminate this Agreement pursuant to this paragraph (b);
 
(d)   by Parent and Acquisition Corp. if the Company (i) fails to perform in any material respect any of its agreements contained herein required to be performed by it on or prior to the Closing Date or (ii) materially breaches any of its representations, warranties or covenants contained herein, which failure or breach is not cured within thirty (30) days after Parent or Acquisition Corp. has notified the Company of its intent to terminate this Agreement pursuant to this paragraph (c);
 
(e)   by either the Company, on the one hand, or Parent and Acquisition Corp., on the other hand, if there shall be any order, writ, injunction or decree of any court or governmental or regulatory agency binding on Parent, Acquisition Corp. or the Company that prohibits or materially restrains any of them from consummating the transactions contemplated hereby, provided that the parties hereto shall have used their best efforts to have any such order, writ, injunction or decree lifted and the same shall not have been lifted within ninety (90) days after entry by any such court or governmental or regulatory agency;
 
(f)   the Company’s bankruptcy proceeding has not been dismissed by February 1, 2013; or
 
(g)   by either the Company, on the one hand, or Parent and Acquisition Corp., on the other hand, if the Closing has not occurred on or prior to March 29, 2013, or such later date, which shall be no later than April 30, 2013, for any reason other than delay or nonperformance of the party seeking such termination.
 
Section 9.02 Termination of Obligations. Termination of this Agreement pursuant to this Article IX shall terminate all obligations of the parties hereunder, except for the obligations under Sections 6.01, 10.03 and 10.11; provided, however, that termination pursuant to paragraphs (b) or (c) of Section 9.01 shall not relieve the defaulting or breaching party or parties from any liability to the other parties hereto.
 
ARTICLE X.
MISCELLANEOUS
 
Section 10.01 Notices. Any notice, request or other communication hereunder shall be given in writing and shall be served either personally, by overnight delivery or delivered by mail, certified return receipt and addressed to the following addresses:
 
(a) If to Parent or Acquisition Corp.:
 
Global Digital Solutions, Inc.
9477 Greenback Lane
Folsom, CA 95630
Attention: William Delgado
 
With a copy (which shall not constitute notice) to:
 
Naccarato & Associates
1100 Quail Street, Suite 100
Newport Beach, California
92660 Attn: Owen Naccarato
 
 
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(b) If to the Company:
 
Airtronic USA, Inc.
1860 Jarvis Avenue
Elk Grove Village, IL 60007
Attention: Merriellyn Kett
 
With a copy (which shall not constitute notice) to:
 
Ginsberg Jacobs LLC
300 South Wacker Drive, Suite 2750
Chicago, IL 60606
Attn: Matthew R. Zakaras
 
and to:
 
Swanson, Martin & Bell, LLP
2525 Cabot Drive, Suite 204
Lisle, IL 60532
Attn: Charles S. Stahl, Jr.
 
Notices shall be deemed received at the earlier of actual receipt or three (3) business days following mailing.
 
Section 10.02 Entire Agreement. This Agreement, including the schedules and exhibits attached hereto and other documents referred to herein, contains the entire understanding of the parties hereto with respect to the subject matter hereof. This Agreement supersedes all prior agreements and undertakings between the parties with respect to such subject matter.
 
Section 10.03 Expenses. Each party shall bear and pay all of the legal, accounting and other expenses incurred by it in connection with the transactions contemplated by this Agreement.
 
Section 10.04 Time. Time is of the essence in the performance of the parties’ respective obligations herein contained.
 
Section 10.05 Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
 
Section 10.06 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and heirs; provided, however, that neither party shall directly or indirectly transfer or assign any of its rights hereunder in whole or in part without the written consent of the others, which may be withheld in its sole discretion, and any such transfer or assignment without said consent shall be void.
 
Section 10.07 No Third Parties Benefited. This Agreement is made and entered into for the sole protection and benefit of the parties hereto, their successors, assigns and heirs, and no other person shall have any right or action under this Agreement.

 
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Section 10.08 Counterparts. This Agreement may be executed in one or more counterparts, with the same effect as if all parties had signed the same document. Each such counterpart shall be an original, but all such counterparts together shall constitute a single agreement.
 
Section 10.09 Recitals, Schedules and Exhibits. The Recitals, Schedules and Exhibits to this Agreement are incorporated herein and, by this reference, made a part hereof as if fully set forth herein.
 
Section 10.10 Section Headings and Gender. The Section headings used herein are inserted for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. All personal pronouns used in this Agreement shall include the other genders, whether used in the masculine, feminine or neuter gender, and the singular shall include the plural, and vice versa, whenever and as often as may be appropriate.
 
Section 10.11 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware without regard to principles of conflicts of laws, except that the applicable terms of Section 1 shall be governed by the DGCL.
 
Section 10.12 Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ITS RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THE PARTIES HERETO RELATING TO THE SUBJECT MATTER HEREOF. EACH OF THE PARTIES HERETO ALSO WAIVES ANY BOND OR SURETY OR SECURITY UPON SUCH BOND THAT MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF THE OTHER PARTY. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH OF THE PARTIES HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO THIS AGREEMENT. EACH OF THE PARTIES HERETO HEREBY FURTHER ACKNOWLEDGES AND AGREES THAT EACH HAS REVIEWED OR HAD THE OPPORTUNITY TO REVIEW THIS WAIVER WITH ITS RESPECTIVE LEGAL COUNSEL, AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH SUCH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
 
Section 10.13 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same agreement.
 
Section 10.14 Facsimile or E-mail. A facsimile or e-mailed copy of an original written signature shall be deemed to have the same effect as an original written signature.
 
Section 10.15 Amendments. Any term of this Agreement may be amended with the written consent of the Company and Parent; provided, however, that if a material amendment is effected after this Agreement has been approved by the Stockholders, the affirmative vote of the Stockholders shall also be required to approve such amendment, as and to the extent required by applicable Law.
 
Section 10.16 Waivers. A waiver by one party of the performance of any covenant, agreement, obligation, condition, representation or warranty shall not be construed as a waiver by such party of any other covenant, agreement, obligation, condition, representation or warranty. A waiver by any party of the performance of any act shall not constitute a waiver by such party of the performance of any other act or an identical act required to be performed at a later date. Any waiver, permit, consent or approval of any kind or character on the part of any party of any provisions or conditions of this Agreement must be in writing and will be effective only to the extent specifically set forth in such writing. The consent of any third party beneficiary as set forth in Section 10.07 shall not be required to effect any waiver agreed to by a party.
 
 
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Section 10.17 No Strict Construction. The language used in this Agreement is deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.
 
Section 10.18 Construction. The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local or foreign statute or Law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. When a reference is made in this Agreement to an article, section, paragraph, clause, schedule or exhibit, such reference shall be deemed to be to this Agreement unless otherwise indicated. Whenever the words “include,” “includes,” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.” As used herein, words in the singular will be held to include the plural and vice versa (unless the context otherwise requires), words of one gender (or the neuter) shall be held to include the other gender (or the neuter) as the context requires, and the terms “hereof,” “herein,” and “herewith” and words of similar import will, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement.
 
Section 10.18 Dispute Resolution. The parties hereby irrevocably and unconditionally agree that any suit, action or proceeding arising out of or related to this Agreement or any related documents will be brought only in the United States District Court for the Northern District of Illinois (including the Bankruptcy Court), and the specific choice from among the foregoing will be determined by the party initiating the suit, action or proceeding. To the fullest extent permissible by law, the parties to this Agreement hereby consent to the personal jurisdiction, venue and forum of such courts and hereby irrevocably and unconditionally waive any claim or objection that it is not subject to the jurisdiction of such courts, that the venue is improper, that the forum is inconvenient or any similar objection, claim or argument. Service of process on any of the parties hereto with regard to any such action may be made and is considered legally proper by mailing the process to such person by certified mail to the address of such person as provided in this Agreement or to any subsequent address to which notices will be sent.
 
[Signature Page Follows]

 
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be binding and effective as of the day, month and year first above written.
 
 
GLOBAL DIGITAL SOLUTIONS, INC.
       
 
By:
 
    Name:  
   
Title:
 
   
 
ACQUISTION CORP.
       
 
By:
 
    Name:  
   
Title
 
   
 
AIRTRONIC USA, INC.
       
 
By:
 
    Name:  
   
Title
 
 
[SIGNATURE PAGE TO AGREEMENT OF MERGER AND PLAN OF REORGANIZATION]
 
 
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Exhibit A
 
(Certificate of Merger)
 
 
31

 
 
Exhibit B
 
(Statement of Merger)
 
 
32

 
 
Exhibit C
 
(Certificate of Incorporation)
 
 
33

 
 
Exhibit D
 
(By-Laws)

 
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Exhibit E
 
(Directors and Officers)
 
 
35

Exhibit 2.4
 
FIRST AMENDMENT TO AGREEMENT OF MERGER AND PLAN OF REORGANIZATION
 
THIS FIRST AMENDMENT TO AGREEMENT OF MERGER AND PLAN OF REORGANIZATION (this First Amendment ”), made as of August 5, 2013, by and between AIRTRONIC USA, INC., an Illinois corporation (the Company ”) and GLOBAL DIGITAL SOLUTIONS, INC., a New Jersey corporation (“Parent”).
 
WHEREAS , on or about December 17, 2012, the Company and Parent entered into an Agreement of Merger and Plan of Reorganization (the Agreement ”) whereby a to be formed subsidiary of the Parent (“ Acquisition Corp. ”) would merge with and into the Company upon the terms and conditions set forth in the Agreement; and
 
WHEREAS , the Agreement anticipated that immediately following the Closing (as defined in the Agreement), Parent (as it will exist as of the closing of the Merger) will sell up to 300 of its Units, with each Unit consisting of 10,000 shares of its preferred stock for $1.00 and 10,000 shares of its common stock for $.01, for a purchase price of $1.01 per Unit, in a private placement offering to accredited investors (the Private Placement ”) for the purpose of financing the ongoing business and operations of the Parent and the Surviving Corporation (as defined in the Agreement) following the Merger; and
 
WHEREAS , the Agreement anticipated that Parent would make a bridge loan to the Company of up to $2,000,000 with an initial funding of $750,000 (the Bridge Loan ”) with the Company receiving the initial maximum amount of $750,000 upon the terms and conditions set forth in the Bridge Loan documents; and
 
WHEREAS , the Agreement provided that contemporaneously with the Closing (as defined in the Agreement), Parent would contribute $2,000,000 to the Surviving Corporation, and the Surviving Corporation would use the proceeds to pay off the Bridge Loan and/or for working capital needs of the business; and
 
WHEREAS , on or about March 15, 2013, the Company and the Parent entered into a Bridge Loan Modification and Ratification Agreement, which modified the Bridge Loan and related documents as set forth in the Bridge Loan Modification and Ratification Agreement;
 
WHEREAS , on or about August 5, 2013, the Company and Parent entered into a Second Bridge Loan Modification and Ratification Agreement, which modified the Bridge Loan and Bridge Loan Modification and Ratification Agreement and related documents as set forth in the Second Bridge Loan Modification and Ratification Agreement and the Company issued to Parent a new 814% Secured Promissory Note in the original principal amount of $550,000 (the New Note ”) ; and
 
WHEREAS , Parent and the Company wish to amend the Agreement as hereinafter set forth.
 
NOW, THEREFORE , in consideration of the foregoing premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby covenant and agree as follows:
 
1.           Unless defined differently herein, all capitalized terms in this First Amendment shall have the same meaning as they have under the terms of the Agreement.
 
2.           Parent shall no longer be obligated to sell the Units in the Private Placement.
 
3.           Contemporaneously with the Closing (as defined in the Agreement), Parent will contribute a noninterest bearing note in such form and substance as is reasonable satisfactory to Parent (the Parent Note ”), to the Surviving Corporation in lieu of the $2,000,000 cash contribution set forth in the Agreement. The initial principal balance of the Parent Note shall be equal to $2,000,000 less the following amounts to be funded or previously funded by Parent:
 
(a)         The outstanding balance of principal, accrued interest and other amounts then due and owing under the terms of that certain 814% Secured Promissory Note with an original principal amount of $750,000 made by Company in favor of Parent as of October 22, 2012 and as amended from time to time (the Original Note ”) .
 
 
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(b)         The total amount of cash and the value of Parent’s shares of common stock, $.001 par value, that Parent shall make available for settlement of any class of claim or claim pursuant to the Company’s approved Plan of Reogranization in Company’s bankruptcy proceeding currently pending before the Bankruptcy Court, including, without limitation, Unclassified Claims, Class 1 Claims, Class 2 Claims, Class 4 Claims, Class 5 Claims and Class 6 Claims.
 
(c)         All other amounts funded or advanced by Parent to or for the benefit of the Company prior to the Closing Date.
 
4.          Contemporaneously with the Closing, the Original Note shall be marked paid and cancelled and returned to the Company by Parent. The New Note shall remain in full force and effect in accordance with its terms, as shall all security agreements, loan agreements and related documents to the extent they secure, supplement, are incorporated in or relate to the New Note.
 
5.          Section 1.08 of the Agreement is deleted in its entirety and a new Section 1.08 is inserted as follows:
 
“Section 1.08 Incentive Stock Grants. Parent shall, as of the Closing Date, reserve 4,960,852 of its then issued and outstanding shares of Parent Common Stock for incentive grants to be issued to officers and employees of the Surviving Corporation in accordance with Parent’s 2013 Equity Incentive Plan, at the direction of the President of the Surviving Corporation, in his or her sole discretion.”
 
6.           General Provisions.
 
(a)         Parent and Company agree to execute and deliver all such documents and instruments, and do all such other acts and things, as may be reasonably required by each other in the future to perfect, assure, confirm or effectuate the modification contemplated by and set forth in this First Amendment.
 
(b)         The Agreement and this First Amendment contain the entire agreement and understanding of the parties hereto with respect to the subject matter hereof and may not be amended, modified or discharged, nor any of their terms waived, except by an instrument signed in writing by the party to be bound thereby.
 
(c)          This First Amendment may be executed in any number of counterparts as may be convenient or necessary, and it shall not be necessary that the signature of all parties hereto be contained on any one counterpart hereof. Additionally, the parties hereto agree that for purposes of facilitating the execution of this First Amendment, (a) the signature pages taken from the separate individually executed counterparts of this First Amendment may be combined to form multiple fully executed counterparts, and (b) a facsimile transmission or .pdf document shall be deemed to be an original signature for all purposes. All executed counterparts of this First Amendment shall be deemed originals, but all such counterparts taken together or collectively, as the case may be, shall constitute one and the same agreement.
 
 
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IN WITNESS WHEREOF , the parties hereto have executed this First Amendment to Agreement of Merger and Plan of Reorganization as of the date first written above.
 
PARENT:
  COMPANY:  
       
GLOBAL DIGITAL SOLUTIONS, INC.,   AIRTRONIC USA, INC.,  
a New Jersey corporation 
  an Illinois corporation  
           
By:    
By:
   
  Name:     Name:  
  Title:     Title:  
 
 
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Exhibit 3.1
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 
 

Exhibit 3.2
 

 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 
 
 
 

 
 

 
 

Exhibit 3.3
 
 
 

 
 
 
 

Exhibit 3.4
 
BYLAWS OF CREATIVE BEAUTY SUPPLY, INC.
A NEW JERSEY CORPORATION
ARTICLE I
OFFICES
 
Section 1.01  Registered Office and Agent.  The name of the registered agent and the location of the registered office of the Corporation in the State of New Jersey shall be Carmine Catizone, 10 1/2 Walker Avenue, Morristown, New Jersey 07960, and such information shall be filed in the appropriate office of the State of New Jersey pursuant to applicable provisions of law.
 
Section 1.02  Corporate Offices.  The Corporation may have such corporate offices within and outside the State of New Jersey as the board of directors from time to time may direct or the Corporation may require.  The principal office of the Corporation may be fixed and so designated from time to time by the board of directors, but the location or residence of the Corporation in New Jersey shall be deemed for all purposes to be in the county in which its principal office in New jersey is maintained.  The location of the principal office of the Corporation shall be 380 Totowa Road, Totowa, New Jersey 07512.
 
Section 1.03  Records.  The Corporation shall keep correct and complete books and records of account, minutes of proceedings of its shareholders and board of directors, and such other or additional records as may be required by law.  The Corporation shall keep at its registered office or principal place of business, or at the office of its transfer agent or registrar, either within or outside New Jersey, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of the shares held by each.
 
ARTICLE II
SHAREHOLDERS' MEETINGS
 
Section 2.01  Place of Meeting.  All meetings of the shareholders shall be held at the principal office of the Corporation, unless the board of directors designates some other place either within or outside the State of New Jersey.  Unless specifically prohibited by law any meeting may be held at any place and at any time and for any purpose if consented to in writing by all of the shareholders entitled to vote at such meeting.
 
Section 2.02  Annual Meetings.  An annual meeting of shareholders shall be held of the 1st day of June of each year, unless notified of an alternate date in accordance with the provisions of these bylaws, at 3:00 p.m. for the purpose of electing directors and for the transaction of such other business as may properly come before it. If such day is a legal holiday, the meeting shall be on the next business day.
 
Section 2.03  Special Meetings.   Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the president, secretary or by the board of directors, and shall be called by the president at the request of holders of not less than 10% of all the outstanding shares of the Corporation entitled to vote at the meeting.  No business other than that specified in the notice of the meeting shall be transacted at any such special meeting.
 
Section 2.04  Notice of Meetings.  Written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose for which the meeting is called, shall be delivered not less than ten days nor more than fifty days before the date of the meeting, either personally or by mail, by or at the direction of the board of directors, the president, the secretary, or the officer or person calling the meeting to each shareholder of record entitled to vote at such meeting; except that, if the authorized shares are to be increased at least thirty days' notice shall be given.
 
 
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Section 2.05  Fixing Record Date and Closing Transfer Books.  The board of directors may fix a date not less than ten nor more than fifty days prior to any meeting as the record date for the purpose of determining shareholders entitled to notice of and to vote at such meetings, of the shareholders.  The transfer books may be closed by the board of directors for a stated period not to exceed fifty days for the purpose of determining shareholders entitled to receive payment of any dividend or in order to make a determination of shareholders for any other purpose.  In the absence of any action by the board of directors, the date upon which the board of directors adopts the resolution declaring the dividend shall be the record date.
 
Section 2.06  Voting Lists.  The officers or agent having charge of the stock transfer books for shares of the corporation shall make, at least ten days before each meeting of the shareholders, a complete record of the shareholders entitled to vote at the meeting or any adjournment thereof, arranged in alphabetical order with the address of, and the number of shares held by each.  The record, for a period of ten days before such meeting, shall be kept on file at the principal office of the Corporation whether within or outside the State f New Jersey, and shall be subject to inspection by any shareholder for any purpose germane to the meeting at any time during normal business hours.  Such record shall also be produced and kept open a the time and place of any purpose germane to the meeting during the whole time of the meeting.  The original stock transfer book shall be prima facie evidence as to the shareholders who are entitled to examine the record or transfer books or to vote any meeting of shareholders.
 
Section 2.07  Quorum.  The holders of a majority of the shares who are entitled to vote at a shareholders meeting and who are present in person or by proxy shall be necessary for and shall constitute a quorum for the transaction of business at such meetings, except as otherwise provided by statute, by the Certificate of Incorporation or these Bylaws.  If a quorum is not present or represented at a meeting of the shareholders, those present in person or represented by proxy shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented.  At an adjourned meeting where a quorum is present or represented, any business may be transacted which might have been transacted at the meeting as originally notified.
 
Section 2.08  Majority Vote; Withdrawal of Quorum.  When a quorum is present at a meeting, the vote of the holders of a majority of the issued and outstanding shares having voting power, present in person or represented by proxy, shall decide any question brought before the meeting, unless the question is one which, by express provision of the statutes, the Certificate of Incorporation or these Bylaws, requires a higher vote in which case the express provision shall govern.  The shareholders present at a duly constituted meeting may continue to transact business until adjournment, despite the withdrawal of enough shareholders holding, in the aggregate, issued and outstanding shares having voting power to leave less than a quorum.
 
Section 2.09  Proxies.  At all meetings of shareholders, a shareholder may vote in person or by proxy executed in writing by the shareholder or by his or her duly authorized attorney in fact. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided by the proxy.  Each proxy shall be filed with the secretary  of the Corporation before or at the time of the meeting.
 
 
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Section 2.10  Voting.  Each issued and outstanding share is entitled to its respective vote and each fractional share is entitled to a corresponding fractional vote on each matter submitted to a vote at a meeting of shareholders.  The vote of a majority of the shares voting on any matter at a meeting of shareholders at which a quorum is present shall be the act of the shareholders on the matter, unless the vote of a greater number is required by law, the Certificate of Incorporation, or these Bylaws.  Voting on all matters except the election of directors shall be by voice or by show of hands, unless the holders of one-tenth of the shares represented at the meeting shall, prior to the voting on any matter, demand a ballot vote on that particular matter.
 
(A) Neither treasury shares nor shares held by another Corporation if the majority of the shares entitled to vote for the election of directors of such other Corporation is held by the Corporation shall be voted at any meeting or counted in determining the total number of issued and outstanding shares at any given time.
 
(B) Shares standing in the name of another Corporation, domestic or foreign, may be voted by such officer, agent or proxy as the Bylaws of that Corporation may prescribe, or, in the absence of such provision, as the board of directors of that Corporation may determine.
 
(C) Shares held by an administrator, executor, guardian, or conservator may be voted by him or her, either in person or by proxy, without the transfer of such shares into his name.  Shares standing in the name of a trustee may be voted by him or her, either in person or by proxy, but no trustee shall be entitled to vote shares held by him or her without a transfer of the shares into his or her name.
 
(D) Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer into his or her name if authority to do so is contained in an appropriate order of the court by which the receiver was appointed.
 
(E) A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares transferred.
 
(F) Redeemable shares which have been called for redemption shall not be entitled to vote on any matter and shall not be entitled to vote on any matter and shall not be deemed issued and outstanding shares on and after the date on which written notice of redemption has been mailed to shareholders and a sum sufficient to redeem such shares has been deposited with a bank or trust corporation with irrevocable instruction and authority to pay the redemption price to the holders of the shares upon surrender of their certificates.
 
Section 2.11 Action Without Meeting.  Any action required by statute to be taken at a meeting of the shareholders, or any action which may be taken at a meeting of the shareholders, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the holders entitled to vote with respect to the subject matter thereof and such consent shall have the same force and effect as a unanimous vote of the shareholders. The consent may be in more than one counterpart so long as each shareholder signs one of the counterparts.  The signed consent, or a signed copy shall be placed in the minutes book.
 
 
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Section 2.12 Telephone and Similar Meetings.  Shareholders may participate in and hold a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other.  Participation is such a meeting shall constitute presence in person at the meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.
 
Section 2.13  Order of Business at Meetings.  The order of business at annual meetings and so far as practicable at other meetings of shareholders shall be as follows unless changed by the board of directors: (a) call to order; (b) proof of due notice of meeting; (c) determination of quorum and examination of proxies: (d) announcement of availability of voting lists; (e) announcement of distribution of annual statement; (f) reading and disposing of minutes of last meeting of shareholders; (g) reports of officers and committees; (h) reports of directors; (l) opening of polls for voting; (m) recess; (n) reconvening, closing of polls; (o) report of voting inspectors; (p) other business; and (q) adjournment.
 
ARTICLE III
BOARD OF DIRCTORS
 
Section 3.01  General Powers.  The business and affairs of the Corporation shall be managed by its board of directors.  The directors shall in all cases act as a board of directors, and they may adopt such rules and regulations for the conduct of their meetings and the management of the Corporation as they deem proper. Such rules and regulations may not be inconsistent with these Bylaws, the Certificate of Incorporation, and the laws of New Jersey.
 
Section 3.02.  Number, Tenure and Qualifications.  The number of directors constituting the board of directors of this Corporation is two.  The number of directors of this Corporation shall not be less than three; except that there need by only as many directors as there are shareholders in the event that the issued and outstanding shares are held of record by fewer than three shareholders.  A director shall be elected by the shareholders to serve until the next annual meeting of shareholders, or until his or her death, or resignation and his or her successor is elected.  A director must be at least eighteen years of age but need not be a shareholder in the Corporation nor a resident of the State of New Jersey.
 
Section 3.03  Change in Number.  The number of directors may be increased or decreased from time to time by amendment to these Bylaws but no decrease shall have the effect of shortening the term of any incumbent director.  Any directorship to be filled by reason of an increase in the number of directors shall be filled by election at an annual meeting or at a special meeting of shareholders called for that purpose.
 
Section 3.04  Election of Directors.  The directors shall be elected at the annual meeting of shareholders and those persons who receive the highest number of votes shall be deemed to have been elected. Election of directors shall be by ballot.
 
Section 3.05  Cumulative Voting.  Directors shall be elected by majority vote.  Cumulative voting shall be permitted.
 
Section 3.06  Removal of Directors.  A meeting called expressly for the purpose of removing a director, the entire board of directors or any lessor number may be removed, with or without cause, by a vote of the holders of the majority of the shares then entitled to vote at an election of directors.  If any directors are so removed, new directors may be elected at the same meeting.
 
 
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Section 3.07  Resignation.  Subject to Section 3.02, a director may resign at any time by giving written notice to the board of directors, the president, or the secretary of the Corporation and unless otherwise specified in the notice, the resignation shall take effect upon receipt thereof by the board of directors or such officer, and the acceptance of the resignation shall not be necessary to make it effective.
 
Section 3.08  Vacancies.  A vacancy occurring in the board of directors may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the board of directors remains.  A director elected to fill a vacancy shall be elected for the unexpired term of his or her predecessor in office. Any directorship to be filled by reason of an increase in the number of directors shall be filled by election at an annual meeting of shareholders or at a special meeting of the shareholders called for that purpose.  A director chosen to fill a position resulting from an increase in the number of directors shall holder office until his or her successor(s) shall have been qualified.
 
Section 3.09  Compensation.  By resolution of the board of directors, compensation may be paid to directors for their services. Also by resolution of the board of directors, a fixed sum and expenses for actual attendance at each regular or special meeting of the board of directors may also be paid.  Nothing herein contained shall be construed to preclude any director form serving the Corporation in any other capacity and receiving compensation therefore.  Members of the executive committee or of special or standing committees may, by resolution of the board of directors, be allowed like compensation for attending committee meetings.
 
Section 3.10  First Meeting.  The first meeting of a newly elected board shall be held without further notice immediately following the annual meeting of shareholders, and it shall be a the same place, unless by unanimous consent of the directors then electing and serving, the time or place is changed.
 
Section 3.11  Regular Meetings.  Regular meetings of the board of directors may be held without notice at such time and place as shall from time to time be determined by the board of directors.
 
Section 3.12  Special Meetings.  Special meetings of the board of directors may be called by the president on three days notice to each director, either personally or by mail or by telegram.  Special meetings shall be called in like manner and on like notice on the written request of two directors.  Except as otherwise expressly provided by statute, the Certificate of Incorporation or these Bylaws, neither the business to e transacted at, nor the purpose of any special meeting need be specified in a notice or waiver of notice.
 
Section 3.13  Quorum; Majority Vote.  At meetings of the board of directors a majority of the number of directors fixed by these Bylaws shall constitute a quorum for the transaction business.  The act of a majority of the directors present at a meeting at which quorum is not present at a meeting at which quorum is not present at a meeting of the board of directors, the directors present may adjourn the meeting from time to time, without notice other than announcement at the meeting until a quorum is present.
 
Section 3.14  Procedure.  The board of directors shall keep regular minutes of its proceedings.  The minutes shall be placed in the minutes book of the Corporation.
 
Section 3.15  Action Without Meeting.  Any action required or permitted to be taken at a meeting of the board of directors may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all members of the board of directors. Such consent shall have the same force and effect as a unanimous vote at a meeting.  The signed consent, or a signed copy, shall be placed in the minutes book.  The consent may be in more than one counterpart so long as each director signs once of the counterparts.
 
 
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Section 3.16  Telephone and Similar Meetings.  Directors may participate in and hold a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other.  Participation in such a meeting shall constitute presence in person at the meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting in not lawfully called or convened.
 
Section 3.17  Interested Directors and Officers. No contract or transaction between the Corporation and one or more of its directors or officers, or any other corporation, firm, association, partnership or entity in which one or more of its directors of officers are directors or officers or are financially interested shall be either void or voidable solely because of such relationship or interest or solely because such directors or officers are present at the meeting of the board of directors or a committee thereof which authorizes, approves, or ratifies such contract or transaction or solely because their votes are counted for such purposes if:
 
(1) in fact of the common directorship or financial interest is disclosed to or known by the board of directors or committee and noted in the minutes, and the board or committee which authorizes, approves, or ratifies the contract or transaction by a vote sufficient for the purpose without counting the votes or consents of such interested directors; or
 
(2) the material facts of such relationship or financial interest is disclosed to or known by the shareholders entitled to vote thereon and they authorize, approve or ratify such contract or transaction in good faith by a majority vote or written consent of shareholders holding a majority of the shares the votes of the common or interested directors or officers shall be counted in any such vote of shareholders; or
 
(3) the contract or transaction is fair and reasonable to the Corporation.
 
(B) common or interested director may be counted in determining the presence of a quorum at a meeting of the board of directors or a committee thereof which authorizes, approves or ratifies such contract or transaction.
 
ARTICLE IV
EXECUTIVE COMMITTEE
 
Section 4.01  Designation.  The board of directors may from time to time, by resolution adopted by a majority of the whole board, designate an executive committee.
 
Section 4.02  Number; Qualification and Term.  The executive committee shall consist of one or more directors, one of whom shall be the president of the executive committee.  The executive committee shall serve at the pleasure of the board of directors.
 
Section 4.03  Authority.  The executive committee, to the extent provided in such resolution, shall have and may exercise all of the authority of the board of directors in the management of the business and affairs of the Corporation, including authority over the use of the corporate seal.  However, the executive committee shall not have the authority of the board of directors in reference to (a) amending the Certificate of Incorporation; (b) approving a plan of merger or consolidation; (c) recommending to the shareholders the sale, lease or exchange of all or substantially of the property and assets for the corporation other than in the usual and regular course of its business; (d) recommending to the shareholders a voluntary dissolution of the Corporation or a revocation thereof; (e) amending, altering, or repealing these Bylaws or adopting new Bylaws; (f) filling vacancies in or removing members of the board of directors or of any committee appointed by the board of directors; (g) electing or removing officers or members of any such committee; (h) fixing the compensation of any member of such committee; (i) altering or repealing any resolution of the board of directors which by its terms provides that it shall not be so amendable or repealable; (j) declaring a dividend; or (k) authorizing the issuance of shares of the Corporation.
 
 
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Section 4.04  Change in Number.  The number of executive committee members may be increased or decreased from time to time by resolution adopted by a majority of the board of directors.
 
Section 4.05  Removal.  Any member of the executive committee may be removed by the board of directors by the affirmative vote of the majority of the board of directors, whenever in its judgement the best interests of the Corporation will be served thereby.
 
Section 4.06  Vacancies.  A vacancy occurring in the executive committee (by death, resignation, removal or otherwise) may be filled by the board of directors in the manner providing for original designation in Bylaw Section 4.01
 
Section 4.07  Resignation.  A committee member may resign by giving written notice to the board of directors, the president or the secretary of the Corporation.  The resignation shall take effect at the time specified in it, or immediately if no time is specified. Unless it specifies otherwise, a resignation takes effect without being accepted.
 
Section 4.08  Meetings.  Time, place and notice (if any) of executive committee meetings shall be determined by the executive committee.
 
Section 4.09  Quorum; Majority Vote.  At meetings of the executive committee, a majority of the number of members designated by the board of directors shall constitute a quorum for the transaction of business.  The act of a majority of the members present at any meeting at which a quorum is present shall be the act of the executive committee, except as otherwise specifically provided by statute, the Certificate of Incorporation or these Bylaws.  If a quorum is not present at a meeting of the executive committee, the members present may adjourn the meeting from time to time, without notice other than an announcement at the meeting, until a quorum is present.
 
Section 4.10  Compensation.  By resolution of the board of directors, compensation may be paid to members of the executive committee for their services.  Also by resolution of the board of directors, a fixed sum and expenses for actual attendance at each regular or special meeting of the executive committee may also be paid.
 
Section 4.11  Procedure.  The executive committee shall keep regular minutes of its proceedings and report the same to the board of directors when required.  The minutes of the proceedings of the executive committee shall be placed in the minutes book of the Corporation.
 
Section 4.12  Action Without Meeting.  Any action required or permitted to be taken at a meeting of the executive committee may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all the members of the executive committee.  Such consent shall have the same force and effect as a unanimous vote at a meeting.  The signed consent, or a signed copy, shall be placed in the minutes book.
 
 
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Section 4.13  Telephone and Similar Meetings.  Members of the executive committee may participate in and hold a meeting by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other.  Participation in such a meeting shall constitute presence in person at the meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.
 
Section 4.14  Responsibility.  The designation of an executive committee and the delegation of authority to it shall not operate to relieve the board of directors, or any member thereof, of any responsibility imposed upon it, him or her by law.
 
ARTICLE V
NOTICE
 
Section 5.01  Method.  Whenever by statute, the Certificate of Incorporation, these Bylaws or otherwise, notice is required to be given to a shareholder, director or committee member, and no provision is made as to how the notice shall be given, it shall not be construed to mean personal notice, but any such notice may be given: (a) in writing, by United States mail, certified, return receipt requested, postage prepaid, addressed to the shareholder, director or committee member at the address appearing on the books of the Corporation; or (b) in any other method permitted by law. Any notice required or permitted to be given by mail shall be deemed given at the time when the same is deposited in the United States mails.
 
Section 5.02  Waiver.  Whenever by statute, the Certificate of Incorporation or these Bylaws, notice is required to be given to a shareholder, committee member or director, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated in such notice.  Attendance at a meeting shall constitute a waiver of notice of such meeting, except where a person attends for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.
 
ARTICLE VI
OFFICERS AND AGENTS
 
Section 6.01  Number, Qualification; Election; Term.
 
(A) The Corporation shall have: (1) a president, a vice president, a secretary and a treasurer; and (2) such other officers (including a chairman of the board of directors and additional Vice Presidents) and assistant officers and agents as the board of directors may deem necessary.
 
(B) No officer or agent need be a shareholder, a director or a resident of the state of incorporation.
 
(C) Officers named in Bylaw Section 6.01 (A) (1) shall be elected by the board of directors on the expiration of an officer's term or whenever a vacancy exists.  Officers and agents named in Bylaw Section (A) (2) may be elected by the Board of Directors at any meeting.
 
D) Unless otherwise specified by the board of directors at the time of election or appointment, or in an employment contract approved by the board of directors, each officer's and agent's term shall end at the first meeting of directors held after each annual meeting of the  shareholders.  He shall serve until the end of his or her term, or if earlier, until his or her death, resignation or removal.
 
 
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(E) Any two or more offices may be held by the same person, except that the president and the secretary shall not be the same person.
 
Section 6.02  Election and Term of Office.  The officers of the Corporation shall be elected annually by the board of directors at the first meeting of the board of directors held after each annual meeting of the shareholders.  If the election officers shall not be held at such meeting, such election shall be held as soon thereafter as convenient.  Each officer shall hold office until his or her successor shall have been duly elected and shall have qualified or until his or her death or until he or she shall resign or shall been removed in the manner hereinafter provided.
 
Section 6.03  Resignation.  Any officer may resign at any time by delivering a written resignation either to the board of directors, the president or the secretary of the Corporation.  The resignation shall take effect at the time specified therein or immediately if no time is specified.  Unless it specifies otherwise, a resignation takes effect without being accepted.
 
Section 6.04  Removal.  Any officer or agent elected or appointed by the board of directors may be removed by the board of directors, whenever, in its judgment, the best interest of the Corporation will be served thereby, but such removal shall be without prejudice to the contractual rights, if any, of the person so removed.
 
Section 6.05  Vacancies.  A vacancy in any office because of death, resignation, removal, disqualification, creation of a new office, or otherwise, may be filled by the board of directors for the unexpired portion of the term.
 
Section 6.06  Salaries and Compensation.  The salaries or other compensation of the officers of the Corporation shall be fixed from time to time by the board of directors, except that the board of directors may delegate to nay person or group of persons the duty of fixing salaries or other compensation by reason of the fact that he or she is also a director of the Corporation.
 
Section 6.07  Surety Bonds.  In the event the board of directors shall so require, any officer or agent of the Corporation shall execute to the Corporation a bond in such sums and with such surety or sureties as the board of directors may direct, conditioned upon the faithful performance of his or her duties to the Corporation, including responsibility for negligence and for the accounting for all property, monies, or securities of the Corporation which may come into his or her hands.
 
Section 6.08  President
 
(A) The president shall be the chief executive and administrative officer of the Corporation
 
(B) The president shall preside at all meetings of the shareholders, and, in the absence of the chairman of the board of directors, at meetings of the board of directors.
 
(C) The president shall exercise such duties as customarily pertain to the office of the president and shall have general and active supervision over the property, business and affairs of the Corporation and over its several officer.
 
(D) The president may appoint officers, agents, or employees other than those appointed by the board of directors.
 
 
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(E) The president may sign, execute and deliver in the name of the Corporation powers of attorney, contracts, bonds and other obligations, and shall perform such other duties as may be prescribed from time to time by the board of directors or by the Bylaws.
 
Section 6.09  Vice President.  The vice president(s) in the order of their seniority, unless otherwise determined by the board of directors, shall, in the absence or disability of the president, perform the duties and have the authority and powers as the board of directors may from time to time prescribe or as the president may from time to time delegate.
 
Section 6.10  Secretary
 
(A) The secretary shall keep the minutes of all meetings of the shareholders and of the board of directors and, to the extent ordered by the board of directors or the president, the minutes of all committees.
 
(B) The secretary shall cause notice to be given of meetings of shareholders, of the board of directors, and of any committee appointed by the board of directors.
 
(C) The secretary shall have custody of the corporate seal and general charge of the records, documents and papers of the Corporation not pertaining to the performance of the duties vested in other officers, which shall at all reasonable times be open to the examination of any director.
 
(D) secretary may sign or execute contracts with the president in the name of the Corporation and affix the seal of the Corporation thereto.
 
(E) The secretary shall perform such other duties as may be prescribed from time to time by the board of directors or the bylaws.  Section
 
6.11  Assistant Secretary.  The assistant secretaries in the order of their seniority, unless otherwise determined by the board of directors, shall, in the absence or disability of the secretary, perform the duties and have the authority and exercise the powers of the secretary.  They shall perform other duties and have such other powers as the board of directors may from time to time prescribe or as the president may from time to time delegate.
 
Section 6.12  Treasurer.
 
(A) The treasurer shall have general custody of the collection and disbursements of funds of the Corporation.
 
(B) The treasurer shall endorse on behalf of the Corporation for collection, checks, notes and other obligations, and shall deposit the same to the credit of the Corporation in such bank or banks or depositories as the board of directors may direct.
 
(C) The treasurer may sign, for the president and other persons as may be designated for the purpose by the board of directors, all bills of exchange or promissory notes of the Corporation.
 
(D) The treasurer shall enter or cause to be entered regularly in the books of the Corporation a full and accurate account of all monies received and paid by him or her on account of the Corporation; shall at all times exhibit his or her books and accounts to any director of the corporation upon application at the office of the Corporation during business hours; and, whenever required by the board of directors or the president, shall render statements of his or her accounts.  The treasurer shall perform such other duties as may be prescribed from time to time by the board of directors or by the Bylaws.
 
 
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(E) If the board of directors require, the treasurer shall give bond for the faithful performance of his or her duties in such sum and with or without such surety as shall be approved by the board of directors.
 
Section 6.13  Assistant Treasurer.  The assistant treasurers in the order of their seniority, unless otherwise determined by the board of directors, shall, in the absence or disability of the treasurer, perform the duties and have the authority and exercise the powers of the treasurer.  They shall perform such other duties and have such other powers as the board of directors may from time to time prescribe or the president may from time to time delegate.
 
Section 6.14  Registered Agent.  The Registered Agent shall serve as the agent of the Corporation for purposes of receiving service of process or any demand or notice authorized by law to be served on the Corporation.
 
Section 6.15  Other Officers.  Other officers shall perform such duties and have such powers as may be assigned to them by the board of directors or the president.
 
Section 6.16  Delegation of Duties.  If any officer of the Corporation is absent or unable to act for any other reason the board of directors may deem sufficient, the board of directors may delegate, for a period of time, some or all of the function, duties, powers and responsibilities of any officer to any other officer, agent or employee of the Corporation or other responsible person, provided a majority of the whole board of directors concurs therein.
 
ARTICLE VII
CONTRACTS, LOANS, DEPOSITS AND CHECKS
 
Section 7.01  Contracts.  The board of directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of an on behalf of the Corporation and such authority may be general or confined to specific instances.
 
Section 7.02  Loans.  No loans or advances shall be contracted on behalf of the Corporation; on negotiable paper or other evidence of its obligation under any loan or advance shall be issued in its name, and no property of the Corruption shall be mortgaged, pledged, hypothecated, or transferred as security for the payment of any loan, advance, indebtedness or liability of the Corporation unless and except as authorized by the board of directors.  Any such authorization may be general or confined to specific instances.
 
Section 7.03  Deposits.  All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, rust companies or other depositories as the board of directors may select, or as may be selected by an officer of agent authorized to do so by the board of directors.
 
Section 7.04  checks and Drafts.  All notes, drafts, acceptances, checks, endorsements, and evidences of indebtedness of the Corporation shall be signed by such officer or officers, or such agent or agents of the Corporation and in such manner as the board of directors from time to time may determine.
 
 
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ARTICLE VIII
CAPITAL STOCK
 
Section 8.01  Certificates.  Certificates representing shares of the Corporation shall be issued, in such from as the board of directors shall be issued, in such form as the board of directors shall determine, to every shareholder for the fully paid shares owned by him.  These certificates shall be signed by the president and the secretary.  They shall be consecutively numbered or otherwise identified; and the name and address of the person to whom they are issued, with the number of shares and the date of issue, shall be entered on the stock transfer books of the Corporation.
 
Section 8.02  Issuance.  Shares (both treasury and authorized but unissued) may be issued for such consideration (not less than par value) and to such persons as the board of directors may determine from time to time.  Shares may not be issued until the full amount of the consideration, fixed as provided by law, has been paid.
 
Section 8.03  Payment of Shares.
 
(A) The consideration for the issuance of shares shall consist of money paid, labor done (including the service actually performed for the Corporation) or property (tangible or intangible) actually received.  Neither promissory notes nor the promise of future services shall constitute payment for shares.
 
(B)  In the absence of fraud in the transaction, the judgment of the board of directors as to the value of consideration received shall be conclusive.
 
(C) When consideration, fixed as provided by law, ahs been paid, the shares shall be deemed to have been issued and shall be considered fully paid and nonassessable.
 
(D) The consideration received for shares shall be allocated by the board of directors, in accordance with law, between stated capital and capital surplus accounts.
 
Section 8.04  Subscriptions.  Unless otherwise provided in the subscription agreement, subscriptions for shares, whether made before or after organization of the Corporation, shall be paid in full at such time or in such installments and at such times as shall be determined by the board of directors.  Any call made by the board of directors for payment of subscriptions shall be uniform as to all shares of the same series.  In case of default in the payment on any installment or call when payment is due, the Corporation may proceed to collect the amount due in the same manner as any debt due the Corporation.
 
Section 8.05  Lien.  For any indebtedness of a shareholder to the Corporation, the Corporation shall have a first and prior lien on all dividends or other distributions declared thereon.
 
Section 8.06  Lost, Stolen or Destroyed Certificates.  The Corporation shall issue a new certificate in place of any certificate for shares previously issued if the registered owner of the certificate: (a) makes proof in affidavit form that it has been lost, destroyed or wrongfully taken; (b) requests the issuance of a new certificate before the Corporation has notice that the certificate ahs been acquired by a purchaser for value in good faith and without notice of an adverse claim; (c) gives a bond in such form, and with such surety or sureties, with fixed or open penalty, as the Corporation may direct, to indemnify the Corporation (and its transfer agent and registrar, if any) against any claim that may be made on account of the alleged loss, destruction or theft of the certificate; and (d) satisfies any other reasonable requirements imposed by the Corporation.  When a certificate has been lost, apparently destroyed or wrongfully take, and the holder of record fails to notify the Corporation within a reasonable time after he or she has notice of it, and the Corporation registers a transfer of the shares represented by the certificate before receiving such notification, the holder of record is precluded from making any claim against the Corporation for the transfer or for a new certificate.
 
 
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Section 8.07  Registration of Transfer.  The Corporation shall register the transfer of a certificate for shares presented to it for transfer if: (a) the certificate is properly endorsed by the registered owner or by his or her duly authorized attorney; (b) the signature of such person has been notarized and reasonable assurance is given that such endorsements are effective; (c) the corporation has no notice of an adverse claim or has discharged any duty to inquire into such a claim; (d) any applicable law relating to the collection of taxes has been  complied with; and (e) there is an opinion of counsel satisfactory to counsel of the Corporation that such transfer is made in accordance with all federal and state securities regulations.
 
Section 8.08  Registered Owner.  Prior to due presentment for registration of transfer of a certificate for shares, the Corporation may treat the registered owner as the person exclusively entitled to vote, to receive notices and otherwise to exercise all rights and powers of a shareholder.
 
Section 8.09  Transfer of Shares.  Transfer of shares of the Corporation shall be made only in the stock transfer books of the Corporation by the holder of record thereof or by his or her legal representative, who shall furnish proper evidence of authority to transfer, or by his attorney therein authorized by power of attorney duly executed and filed with the secretary of the Corporation and on surrender for cancellation of the certificate for such shares.  The person in whose name the shares stand on the books of the Corporation shall be deemed by the Corporation to be the owner thereof for all purposes by the stock transfer books shall be in the possession of the secretary or transfer agent or clerk of the Corporation.
 
Section 8.10  Transfer Agent and Registrar.  By resolution of the board of directors, the Corporation may from time to time appoint a transfer agent, and, if desired, a registrar, who will perform his or her duties in accordance with the terms and conditions the board of directors deems advisable; provided, however, that until and unless the board of directors appoints some other person, firm or Corporation as its transfer agent, the secretary of the Corporation shall act as transfer agent without the necessity of any formal action of the board of directors and he or she shall perform all of the duties thereof.
 
ARTICLE IX
INDEMNIFICATION
 
Section 9.01  Indemnification.
 
(A) No officer or director shall be personally liable for any obligations of the Corporation or for any duties or obligation of the Corporation or for any duties or obligations arising out of any actions or conduct of such officer or director or director performed for or on behalf of the Corporation.
 
(B) The corporation shall and does hereby indemnify and hold harmless each person and his or her heirs and administrators who shall serve at any time hereafter as a director or officer of the Corporation from and against any and all claims, judgments and liabilities to which such person shall become subject by reason of his or her having heretofore or hereafter been a director officer of the Corporation or by reason of any action alleged to have heretofore or hereafter been taken or admitted to have been taken by him or her as such director or officer and shall reimburse each such persons for all legal and other expenses reasonably incurred by him or her in connection with any such claim or liability, including power to defend such person from all suits or claims as provided for under the laws of the state of New Jersey; provided, however, that no such person shall be indemnified against, or be reimbursed for, any expense incurred in connection  with any claim or liability arising out of his or her negligence or willful misconduct.  The rights accruing to any person under the foregoing provisions of this section shall not exclude any other right to which he or she may lawfully be entitled, nor shall anything herein contained restrict the right of the Corporation to indemnify or reimburse such person in any proper case, even though not specifically herein provided. The Corporation, its director, officers, employees and agent shall be fully protected in taking any action or making any payment in reliance upon the advice of counsel.
 
 
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Section 9.02  Other Indemnification.  The indemnification herein provided shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any Bylaw, agreement, vote of shareholders, or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent, and shall inure to the benefit of the heirs, executors and administrators of such person.
 
Section 9.03  Issuance.  The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation or is or who was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against liability under the provisions of this section or the laws of the State of New Jersey.
 
Section 9.04 Settlement by Corporation.  The right of any person to be indemnified shall be subject always to the right of the corporation by its board of directors, in lieu of such indemnity, to settle any claim, action suit or proceeding at the expense of the Corporation by the payment of the amount of such settlement and the cost and expense incurred in connection therewith.
 
ARTICLE X
GENERAL PROVISIONS
 
Section 10.01  Dividends and Reserves.
 
(A) Subject to statue, the Certificate of Incorporation and these Bylaws, dividends may be declared by the board of directors at any regular or special meeting and may be paid in cash, in property, or in shares of the Corporation.  The declaration and payment shall be at the discretion of the board of directors.
 
(B) By resolution, the board of directors may create such reserve or reserves out of the earned surplus of the Corporation as the directors from time to time, in their discretion, think proper to provide for contingencies, or to equalize dividends, or to repair or maintain any property of the Corporation, or for any other purpose they think beneficial to the Corporation.  The directors may modify or abolish any such reserve in the manner in which it was created.
 
Section 10.02  Books and Records.  The Corporation shall keep correct and complete books and records  of account, shall keep minutes of the proceedings of its shareholders and board of directors, and shall keep at its registered office or principal place of business, or at the office of its transfer agent or registrar, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each.
 
 
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Section 10.03  Annual Statement.  The board of directors shall mail to each shareholder of record, at least ten days before each annual meeting a full and clear statement of the business and condition of the Corporation, including a reasonably detailed balance sheet, income statement, surplus statement, and statement of changes in financial position, for the last fiscal year and for the prior fiscal year, all prepared in conformity with generally accepted accounting principals applied on a consistent basis.
 
Section 10.04  Checks and Notes.  Checks, demands for money and notes of the Corporation shall be signed by officer(s) or other person(s) designated from time to time by the board of directors.
 
Section 10.05  Fiscal Year.  The fiscal year of the Corporation shall be fixed by resolution of the board of directors.
 
Section 10.06  Seal.  The corporate seal of the Corporation (of which there may be one or more exemplars) shall contain the name of the corporation and the name of the state of incorporation.  The seal may be use by impressing it or reproducing a facsimile of it, or otherwise.
 
Section 10.07  Amendment of Bylaws.
 
(A) These Bylaws may be altered, amended or repealed at any meeting of the board of directors at which a quorum is present, by the affirmative vote of a majority of the directors present at such meeting, provided notice of the proposed alteration, amendment, or repeal is contained in the notice of the meeting.
 
(B) These Bylaws may also be altered, amended or repealed at any meeting of the shareholders at which a quorum is present or represented, by the affirmative vote of the holders of a majority of the shares present or represented at the meeting and entitled to vote thereat, provided notice of the proposed alteration, amendment or repeal is contained in the notice of the meeting.
 
Section 10.08 Construction.  Whenever the context so requires, the masculine shall include the feminine and neuter, and the singular shall include the plural, and conversely.  If any portion of these bylaws shall be invalid or inoperative, then, so far as is reasonable and possible: (a) the remainder of these Bylaws shall be considered valid and operative and (b) effect shall be given to the intent manifested by the portion held invalid or inoperative.
 
Section 10.09  Table of Contents; Headings.  The table of contents and headings are for organization, convenience and clarity.  In interpreting these bylaws, they shall be subordinated in importance to the other written material.
 
Section 10.10  Relation to Certificate of Incorporation.  These bylaws are subject to and governed by the Certificate of Incorporation.
 
Adopted by the directors on this __ day of August, 1995.
 
Carmine Catizone, Director
 
Daniel T. Generelle, Director
 
 
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Exhibit 10.1
 
DEBTOR IN POSSESSION NOTE PURCHASE AGREEMENT
 
THIS DEBTOR IN POSSESSION NOTE PURCHASE AGREEMENT (this “Agreement”), dated as of October 22, 2012, by and between Airtronic USA Inc., an Illinois corporation (the “Company”) and Global Digital Solutions, Inc., a New Jersey corporation (the “Lender”).
 
RECITALS
 
A.           The Company is a debtor in possession under Chapter 11 of the Bankruptcy Code in Case No. 12- 09776 (“Bankruptcy Case”) that is pending in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (the “Bankruptcy Court”).
 
B.           The Company has an immediate need for funds to continue to operate its business and the Company has requested that Lender provide a post-petition bridge loan in the maximum amount of $2,000,000 (the “Maximum Amount”).
 
C.           The Lender is willing to extend a first priority secured post-petition bridge loan to the Company in the Maximum Amount, with an initial funding of $750,000 (“Initial Funding Amount”) to be made to the Company on or before 5:00 PM CDT on Tuesday, October 23, 2012, (the “Bridge Loan”), (the balance of which may or may not be loaned to the Company in the sole and absolute discretion of Lender), upon the terms and subject to the conditions set forth in the this Agreement.
 
D.           The Company is willing to sell and Lender is willing to purchase from the Company Secured Promissory Notes up to the Maximum Amount which shall accrue interest at the rate of 8 1/4% per annum, substantially in the form attached hereto as Exhibit A annexed hereto (a “Note” and, collectively with the other Notes issued hereunder, the “ Notes”), including, without limitation, the requirement that the Obligations (as defined herein) of the Company hereunder be afforded the treatment, rights and protections set forth in sections 364(c)(1), 364(c)(3), 364(d)(1) and 364(e) of the Bankruptcy Code.
 
E.           The Company’s obligations under the Notes, including without limitation its obligation to make payments of principal thereof and interest thereon, are secured by a first priority lien on all of the assets of the Company, pursuant to the terms of a Security Agreement substantially in the form attached hereto as Exhibit B annexed hereto (the “Security Agreement”).
 
NOW, THEREFORE, in consideration of the premises, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows:
 
1.            Certain Definitions.
 
(a)          When used herein (or when used in the Note or Security Agreement if not otherwise defined therein), the following terms shall have the respective meanings indicated:
 
“Account Debtor” means any Person who is or who may become obligated under, with respect to, or on account of, an Account, chattel paper, or a General Intangible.
 
“Accounts” means all “ accounts,” as such term is defined in the Code, now owned or hereafter acquired by the Company, including (a) all accounts receivable, other receivables, book debts and other forms of obligations (other than forms of obligations evidenced by Chattel Paper, or Instruments), (including any such obligations that may be characterized as an account or contract right under the Code), (b) all of the Company’ rights in, to and under all purchase orders or receipts for goods or services, (c) all of the Company’ rights to any goods represented by any of the foregoing (including unpaid sellers' rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), (d) all rights to payment due to the Company for property sold, leased, licensed, assigned or otherwise disposed of, for a policy of insurance issued or to be issued, for a secondary obligation incurred or to be incurred, for energy provided or to be provided, for the use or hire of a vessel under a charter or other contract, arising out of the use of a credit card or charge card, or for services rendered or to be rendered by the Company or in connection with any other transaction (whether or not yet earned by performance on the part of the Company), (e) all health care insurance receivables and (f) all collateral security of any kind, given by any Account Debtor or any other Person with respect to any of the foregoing.
 
 
 

 
 
“Affiliate” means, as applied to any Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, “control” means the possession, directly or indirectly, of the power to direct the management and policies of a Person, whether through the ownership of Stock, by contract, or otherwise; provided, however, that, in any event: (a) any Person which owns directly or indirectly 10% or more of the securities having ordinary voting power for the election of directors or other members of the governing body of a Person or 10% or more of the partnership or other ownership interests of a Person (other than as a limited partner of such Person) shall be deemed to control such Person, (b) each director (or comparable manager) of a Person shall be deemed to be an Affiliate of such Person, and (c) each partnership or joint venture in which a Person is a partner or joint venturer shall be deemed to be an Affiliate of such Person.
 
“Authorized Person” means any officer or other employee of the Company.
 
“Bankruptcy Code” means 11 U.S.C. §101 et al, as in effect from time to time.
 
“Board of Directors” means the Company’s board of directors.
 
“Books and Records ” means the Company’s now owned or hereafter acquired books and records (including all of its Records indicating, summarizing, or evidencing its assets (including the Collateral) or liabilities, all of its Records relating to its business operations or financial condition, and all of its goods or General Intangibles related to such information) including, without limitation, all computer programs, printed output and computer readable data in the possession or control of the Debtor, any computer service bureau or other third party.
 
“Business Day” means any day other than a Saturday, a Sunday or a day on which the New York Stock Exchange is closed or on which banks in the City of New York are required or authorized by law to be closed.
 
“Capital Lease” means a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.
 
“Capitalized Lease Obligation” means any Indebtedness represented by obligations under a Capital Lease.
 
“Change of Control” (a) a majority of the members of the Board of Directors do not constitute Continuing Directors, or (b) Merriellyn Kett ceases to directly own and control 100% of the outstanding shares of common stock of the Company.
 
“Chattel Paper” means any “chattel paper,” as such term is defined in the Code, including electronic chattel paper, now owned or hereafter acquired by the Company.
 
“Closing” and “Closing Date” have the respective meanings specified in Section 2 of this Agreement.
 
“Code” means the Illinois Uniform Commercial Code, as in effect from time to time.
 
“Collateral” means all of Company’s now owned or hereafter acquired right, title, and interest in and to each of the following: Accounts, Books and Records, Chattel Paper, Contracts, Deposit Accounts, Documents, Equipment, Fixtures, General Intangibles, Goods, Intellectual Property, Insurance Proceeds, Instruments, Inventory, Investment Property, Supporting Obligations and Letter -of-Credit Rights, Trademarks, Commercial Tort Claims, any other asset that the Company now owns or hereafter acquires or comes into the possession of, and to the extent not otherwise included, all Proceeds and products of the foregoing and all accessions to, substitutions and replacements for, and rents and profits of, each of the foregoing.
 
 
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“Collections” means all cash, checks, notes, instruments, and other items of payment (including insurance proceeds, proceeds of cash sales, rental proceeds, and tax refunds) of the Company.
 
“Commercial Tort Claims” means all “commercial tort claims,” as such term is defined in the Code, now owned or hereafter acquired by the Company
 
“Commission” means the Securities and Exchange Commission, and any successor regulatory agency.
 
“Committee” means the official statutory committee of unsecured creditors appointed in the Bankruptcy Case pursuant to Section 1102 of the Bankruptcy Code, if any.
 
“Contracts” means all “contracts,” as such term is defined in the Code, now owned or hereafter acquired by the Company, in any event, including all contracts, undertakings, or agreements (other than rights evidenced by Chattel Paper, Documents or Instruments) in or under which the Company may now or hereafter have any right, title or interest, including any agreement relating to the terms of payment or the terms of performance of any Account.
 
“Copyrights” are any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret.
 
“Entry Date” means the date of the entry of the Final Order.
 
“Equipment” means all “equipment,” as such term is defined in the Code, now owned or hereafter acquired by Borrower, wherever located and, in any event, including all of Borrower’s machinery and equipment, including processing equipment, conveyors, machine tools, data processing and computer equipment, including embedded software and peripheral equipment and all engineering, processing and manufacturing equipment, office machinery, furniture, materials handling equipment, tools, attachments, accessories, automotive equipment, trailers, trucks, forklifts, molds, dies, stamps, motor vehicles, rolling stock and other equipment of every kind and nature, trade fixtures and fixtures not forming a part of real property, together with all additions and accessions thereto, replacements therefor, all parts therefor, all substitutes for any of the foregoing, fuel therefor, and all manuals, drawings, instructions, warranties and rights with respect thereto, and all products and proceeds thereof and condemnation awards and insurance proceeds with respect thereto.
 
“Deposit Accounts” means all “deposit accounts” as such term is defined in the Code, now or hereafter held in the name of the Company.
 
“Event of Default” has the meaning specified in the Notes and the Security Agreement.
 
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
 
“Execution Date” means the date of this Agreement. “FEIN” means Federal Employer Identification Number.
 
“Final Order” means an order of the Bankruptcy Court entered in the Bankruptcy Case after the Final Hearing (as defined in the Interim Order) pursuant to Sections 363 and 364 of the Bankruptcy Code, inter alia, authorizing the Company, as debtor-in-possession, to continue to incur secured indebtedness pursuant to Section 364 of the Bankruptcy Code, this Agreement and the Loan Documents, which order shall be in form and substance satisfactory to Lender in its sole discretion.
 
“Financing Order” means the Interim Order until such time as the Final Order shall have become effective upon which event, “Financing Order” shall mean the Final Order.
 
 
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“First Day Orders” means all orders entered by the Bankruptcy Court based on the motions filed on the date of filing of the Bankruptcy Cases.
 
“Fixtures” means all “fixtures” as such term is defined in the Code, now owned or hereafter acquired by the Company.
 
“GAAP” means U.S. generally accepted accounting principles, applied on a consistent basis. Accounting principles are applied on a “consistent basis” when the accounting principles applied in a current period are comparable in all material respects to those accounting principles applied in a preceding period.
 
“General Intangibles” means all “general intangibles,” as such term is defined in the Code, now owned or hereafter acquired by the Company, including all right, title and interest that such credit party may now or hereafter have in or under any contract, all payment intangibles, customer lists, licenses, copyrights, trademarks, patents, and all applications therefor and reissues, extensions or renewals thereof, rights in intellectual property, interests in partnerships, joint ventures and other business associations, licenses, permits, copyrights, trade secrets, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, data, skill, expertise, experience, processes, models, drawings, materials and records, goodwill (including the goodwill associated with any trademark or trademark license), all rights and claims in or under insurance policies (including insurance for fire, damage, loss and casualty, whether covering personal property, real property, tangible rights or intangible rights, all liability, life, key man and business interruption insurance, and all unearned premiums), uncertificated securities, choses in action, deposit, checking and other bank accounts, rights to receive tax refunds and other payments, rights to receive dividends, distributions, cash, Instruments and other property in respect of or in exchange for pledged stock and investment property, rights of indemnification, all books and records, correspondence, credit files, invoices and other papers, including without limitation all tapes, cards, computer runs and other papers and documents in the possession or under the control of the Company or any computer bureau or service company from time to time acting for the Company.
 
“Goods” means all “goods” as defined in the Code, now owned or hereafter acquired by the Company, wherever located, including embedded software to the extent included in “goods” as defined in the Code, including, but not limited to, all Inventory.
 
“Governmental Authority” means any nation or government, any state, provincial or political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including, without limitation, any stock exchange, securities market or self-regulatory organization.
 
“Indebtedness” means (a) all obligations of the Company for borrowed money, (b) all obligations of the Company evidenced by bonds, debentures, notes, or other similar instruments and all reimbursement or other obligations of the Company in respect of letters of credit, bankers acceptances, interest rate swaps, or other financial products, (c) all obligations of the Company under Capital Leases, (d) all obligations or liabilities of others secured by a Lien on any asset of Borrower, irrespective of whether such obligation or liability is assumed, (e) all obligations of the Company for the deferred purchase price of assets (other than trade debt incurred in the ordinary course of the Company’ business and repayable in accordance with customary trade practices), and (f) any obligation of the Company guaranteeing or intended to guarantee (whether directly or indirectly guaranteed, endorsed, co-made, discounted, or sold with recourse to the Company) any obligation of any other Person.
 
Intellectual Property means all of the right, title, and interest in and to the following:
 
(a)           its Copyrights, Trademarks and Patents;
(b)           any and all trade secrets and trade secret rights, including, without limitation, any rights to unpatented inventions, know-how, operating manuals;
(c)           any and all source code;
(d)           any and all design rights which may be available;
 
 
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(e)           any and all claims for damages by way of past, present and future infringement of any of the foregoing, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the Intellectual Property rights identified above; and
(f)           all amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents.
 
“Insolvency Proceeding ” means, with respect to the Company, the Bankruptcy Case, and with respect to any other Person, any proceeding commenced by or against such Person under any provision of the Bankruptcy Code or under any other state or federal bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief.
 
“Instruments” means all “instruments,” as such term is defined in the Code, now owned or hereafter acquired by the Company, wherever located, and, in any event, including all certificated securities, all certificates of deposit, and all promissory notes and other evidences of indebtedness, other than instruments that constitute, or are a part of a group of writing s that constitute, Chattel Paper.
 
“Intangible Assets” means, with respect to any Person, that portion of the book value of all of such Person’s assets that would be treated as intangibles under GAAP.
 
“Interim Order” means the order of the Bankruptcy Court entered in the Bankruptcy Case on the date hereof, pursuant to Sections 363 and 364 of the Bankruptcy Code, inter alia, authorizing the Company to incur secured indebtedness pursuant to Section 364 of the Bankruptcy Code and to enter into this Agreement.
 
“Inventory” means all “inventory,” as such term is defined in the Code, now owned or hereafter acquired by the Company, wherever located, whether now owned or hereinafter acquired, of whatever kind, nature or description, that are held by or on behalf of the Company for sale or lease or are furnished or are to be furnished under a contract of service, or that constitute raw materials, work in process, finished goods, returned goods, or materials or supplies of any kind, nature or description used or consumed or to be used or consumed in the Company’s business or in the processing, production, packaging, promotion, delivery or shipping of the same, including all supplies and embedded software, and all names or marks affixed to or to be affixed thereto for purposes of selling same by the seller, manufacturer, lessor or licensor thereof and all Inventory which may be returned to the Company by its customers or repossessed by the Company and all of the Company’s right, title and interest in and to the foregoing (including all of the Company’s rights as a seller of goods);
 
“Investment Property” means all “investment property” as such term is defined in the Code now owned or hereafter acquired by the Company, wherever located, including (i) all securities, whether certificated or uncertificated, including stocks, bonds, interests in limited liability companies, partnership interests, treasuries, certificates of deposit, and mutual fund shares; (ii) all securities entitlements of the Company, including the rights of the Company to any securities account and the financial assets held by a securities intermediary in such securities account and any free credit balance or other money owing by any securities intermediary with respect to that account; (iii) all securities accounts of the Company; (iv) all commodity contracts of the Company; and (v) all commodity accounts held by the Company.
 
“Lender” has the meaning set forth in the preamble to this Agreement, and shall include any other Person made a party to this Agreement in accordance with the provisions of Section 9(e).
 
“Lender Expenses” means all (a) costs or expenses (including taxes, and insurance premiums) required to be paid by the Company under any of the Loan Documents that are paid or incurred by the Lender, (b) fees or charges paid or incurred by the Lender in connection with the Lender’s transactions with the Company, including, fees or charges for photocopying, notarization, couriers and messengers, telecommunication, public record searches (including tax lien, litigation, and UCC searches and including searches with the patent and trademark office, the copyright office, or the department of motor vehicles), filing, recording, publication, appraisal (including periodic Collateral appraisals or business valuations to the extent of the fees and charges (and up to the amount of any limitation) contained in this Agreement), real estate surveys, real estate title policies and endorsements, and environmental audits, (c) costs and expenses incurred by Lender in the disbursement of funds to the Company (by wire transfer or otherwise), (d) charges paid or incurred by the Lender resulting from the dishonor of checks, (e) reasonable costs and expenses paid or incurred by the Lender to correct any default or enforce any provision of the Loan Documents, or in gaining possession of, maintaining, handling, preserving, storing, shipping, selling, preparing for sale, or advertising to sell the Collateral, or any portion thereof, irrespective of whether a sale is consummated, (f) audit fees and expenses of the Lender related to audit examinations of the Company’s Books to the extent of the fees and charges (and up to the amount of any limitation) contained in this Agreement, (g) reasonable costs and expenses of third party claims or any other suit paid or incurred by the Lender in enforcing or defending the Loan Documents or in connection with the transactions contemplated by the Loan Documents or the Lender’s relationship with the Company or any guarantor of the Obligations, (h) the Le nder’s reasonable fees and expenses (including attorneys fees) incurred in advising, structuring, drafting, reviewing, administering, or amending the Loan Documents, and (i) the Lender’s reasonable fees and expenses (including attorneys fees) incurred in terminating, enforcing (including attorneys fees and expenses incurred in connection with a “workout,” a “restructuring,” or an Insolvency Proceeding concerning the Company or in exercising rights or remedies under the Loan Documents), or defending the Loan Documents, irrespective of whether suit is brought, or in taking any remedial action concerning the Collateral, as such term is defined in the Security Agreement.
 
 
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“Lender’s Liens” means the Liens granted by the Company to Lender under this Agreement or the other Loan Documents.
 
“Lender-Related Persons” means Lender together with its Affiliates, officers, directors, employees, and agents.
 
“Lien” means any interest in an asset securing an obligation owed to, or a claim by, any Person other than the owner of the asset, whether such interest shall be based on the common law, statute, or contract, whether such interest shall be recorded or perfected, and whether such interest shall be contingent upon the occurrence of some future event or events or the existence of some future circumstance or circumstances, including the lien or security interest arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement, security agreement, conditional sale or trust receipt, or from a lease, consignment, or bailment for security purposes and also including reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases, and other title exceptions and encumbrances affecting Real Property.
 
“Loan Documents” means this (i) Agreement, (ii) the Note(s), (iii) the Security Agreement, and (iv) all other agreements, documents and other instruments executed and delivered by or on behalf of the Company in connection with this Agreement and payable to Lender, the Interim Order, the Final Order, and any other agreement entered into, now or in the future, by the Company and Lender in connection with this Agreement.
 
“Maturity Date” has the meaning specified in the Notes.
 
“Material Adverse Effect” means an effect that is material and adverse to (i) the consolidated business, properties, assets, operations, results of operations, financial condition, credit worthiness or prospects of the Company taken as a whole, (ii) the ability of the Company to perform its material obligations under this Agreement or the other Transaction Documents or (iii) the rights and benefits to which an Lender is entitled under this Agreement or any of the other Transaction Documents.
 
“Obligations” means all loans, advances, debts, principal, interest (including any interest that, but for the provisions of the Bankruptcy Code, would have accrued), obligations, fees (including the fees provided for herein), charges, costs, Lender Expenses (including any fees or expenses that, but for the provisions of the Bankruptcy Code, would have accrued), lease payments, guaranties, covenants, and duties of any kind and description owing by the Company to Lender pursuant to or evidenced by the Loan Documents and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all interest not paid when due and all Lender Expenses that the Company is required to pay or reimburse by the Loan Documents, by law, or otherwise. Any reference in this Agreement or in the Loan Documents to the Obligations shall include all amendments, changes, extensions, modifications, renewals replacements, substitutions, and supplements, thereto and thereof, as applicable, both prior and subsequent to any Insolvency Proceeding.
 
 
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“Patents” means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.
 
“Permitted Indebtedness” shall mean either (a) the indebtedness of the Maker existing on the date of issuance of this Note and set forth on Schedule I hereto, and (b) any indebtedness incurred by the the Company or any successor-in-interest to the Maker in connection with a Subsequent Financing, (c) any indebtedness the proceeds of which are used to repay the Notes in full after giving of appropriate notice as set forth in Section 1(e) above and (d) any indebtedness incurred in the ordinary course of business or consented to by holders a majority of the outstanding principal and interest on the Notes, which consent shall be binding upon the Holder.
 
“Permitted Liens” means (a) Liens held by Lender, (b) Liens held by the Pre-Petition Lender, (c) Liens for unpaid taxes that either (i) are not yet delinquent, or (ii) do not constitute an Event of Default hereunder and are the subject of Permitted Protests, (d) the interests of lessors under operating leases, (e) Liens arising by operation of law in favor of warehousemen, landlords, carriers, mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course of business of the Company and not in connection with the borrowing of money, and which Liens either (i) are for sums not yet delinquent, or (ii) are the subject of Permitted Protests, (f) Liens arising from deposits made in connection with obtaining worker’s compensation or other unemployment insurance, (g) Liens or deposits to secure performance of bids, tenders, or leases incurred in the ordinary course of business of the Company and not in connection with the borrowing of money, (h) Liens granted as security for surety or appeal bonds in connection with obtaining such bonds in the ordinary course of business of the Company , (i) Liens resulting from any judgment or award that is not an Event of Default hereunder, and (j) with respect to any Real Property, easements, rights of way, and zoning restrictions that do not materially interfere with or impair the use or operation thereof by the Company.
 
“Permitted Protest” means the right of the Company to protest any Lien (other than any such Lien that secures the Obligations), taxes (other than payroll taxes or taxes that are the subject of a United States federal tax lien), or rental payment, provided that (a) a reserve with respect to such obligation is established on the Books in such amount as is required under GAAP, (b) any such protest is instituted promptly and prosecuted diligently by the Company in good faith, and (c) Lender is satisfied that, while any such protest is pending, there will be no impairment of the enforceability, validity, or priority of any of the Lender’s Liens.
 
“Permitted Subordinated Indebtedness” means has the meaning specified in the Notes with the existing Permitted Indebtedness on Schedule I hereto.
 
“Person” means natural persons, corporations, limited liability companies, limited partnerships, general partnerships, limited liability partnerships, joint ventures, trusts, land trusts, business trusts, or other organizations, irrespective of whether they are legal entities, and governments and agencies and political subdivisions thereof.
 
“Pre-Petition Lender” means Southport Bank.
 
“Proceeds” means “proceeds,” as such term is defined in the Code, including (a) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to the Company from time to time with respect to any of the Collateral, (b) any and all payments (in any form whatsoever) made or due and payable to the Company from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any Governmental Authority (or any Person acting under color of governmental authority), (c) any claim of the Company against third parties (i) for past, present or future infringement of any patent or patent license, or (ii) for past, present or future infringement or dilution of any copyright, copyright license, trademark or trademark license, or for injury to the goodwill associated with any trademark or trademark license, (d) any recoveries by the Company against third parties with respect to any litigation or dispute concerning any of the Collateral including claims arising out of the loss or nonconformity of, interference with the use of, defects in, or infringement of rights in, or damage to, Collateral, (e) all amounts collected on, or distributed on account of, other Collateral, including dividends, interest, distributions and Instruments with respect to Investment Property and pledged Stock, and (f) any and all other amounts, rights to payment or other property acquired upon the sale, lease, license, exchange or other disposition of Collateral and all rights arising out of Collateral.
 
 
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“Purchase Price” means, with respect to the Notes purchased at the Closing, the original principal amount of the Note purchased at the Closing.
 
“Real Property” means any estates or interests in real property now owned or hereafter acquired by the Company and the improvements thereto.
 
“Record” means information that is inscribed on a tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form.
 
“Remedial Action” means all actions taken to (a) clean up, remove, remediate, contain, treat, monitor, assess, evaluate, or in any way address Hazardous Materials in the indoor or outdoor environment, (b) prevent or minimize a release or threatened release of Hazardous Materials so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment, (c) perform any pre-remedial studies, investigations, or post-remedial operation and maintenance activities, or (d) conduct any other actions authorized by 42 USC § 9601.
 
“SEC” means the United States Securities and Exchange Commission and any successor thereto.
 
“Securities Act” means the Securities Act of 1933 Act, as amended, and the rules and regulations promulgated thereunder.
 
Software” means all “software” as such term is defined in the Code, now owned or hereafter acquired by the Company, other than software embedded in any category of goods, including all computer programs and all supporting information provided in connection with a transaction related to any program.
 
“Stock” means all shares, options, warrants, interests, participations, or other equivalents (regardless of how designated) of or in a Person, whether voting or nonvoting, including common stock, preferred stock, or any other “equity security” (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Exchange Act).
 
“Supporting Obligations” means all “supporting obligations” as such term is defined in the Code, including letters of credit and guaranties issued in support of Accounts, Chattel Paper, Documents, General Intangibles, Instruments, or Investment Property.
 
“Trademarks” means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business connected with and symbolized by such trademarks.
 
(b)          Other Definitional Provisions. All definitions contained in this Agreement are equally applicable to the singular and plural forms of the terms defined. The words “hereof”, “herein” and “hereunder” and words of similar import contained in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement.
 
2.            Closing.
 
Upon the terms and subject to the satisfaction or waiver of the conditions set forth her ein, the Company agrees to sell and the Lender agrees to purchase a Note with a principal amount equal to the amount set forth below such Lender’s name on the signature page hereof. The date on which the closing of such purchase and sale occurs (the “Closing”) is hereinafter referred to as the “Closing Date”. The Closing will be deemed to occur at the offices of Ginsberg Jacobs LLC, or such other place as the parties mutually agree upon, when (A) the Financing Order has been given by the Bankruptcy Court and the Pre-Petition Lender has given consent, (B) Loan Documents have been executed and delivered by the Company and the Lender, (C) each of the conditions to the Closing described in this Agreement has been satisfied or waived as specified therein and (D) payment of the Initial Funding Amount with respect to the Note being purchased by the Lender at the Closing has been made by wire transfer of immediately available funds. At the Closing, the Company shall deliver to the Lender a duly executed instrument representing the Note purchased by the Lender.
 
 
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3.            Representations and Warranties of the Company. The Company represents and warrants to the Lender as follows, in each case as of the date hereof (and as of the date of each Note):
 
(a)           The Company is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full power and authority, subject to Bankruptcy court approval, to own, lease, license and use its properties and assets and to carry out the business in which it proposes to engage.
 
(b)           The Company has the requisite corporate power and authority, subject to Bankruptcy Court approval, to execute, deliver and perform its obligations under this Agreement and to issue and sell the Notes. Except for Bankruptcy Cou rt approval, all necessary proceedings of the Company have been duly taken to authorize the execution, delivery, and performance of the Transaction Documents. Subject to Bankruptcy Court approval, the Transaction Documents have been duly authorized by the Company and, when executed and delivered by the Company, will constitute the legal, valid and binding obligation of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies.
 
(c)           Except for Bankruptcy Court approval, no consent of any party to any contract, agreement, instrument, lease or license to which the Company is a party or to which any of its properties or assets are subject is required for the execution, delivery or performance by the Company of any of the Transaction Documents or the issuance and sale of the Notes.
 
(d)           Upon Bankruptcy Court approval, the execution, delivery and performance by Company of the Transaction Documents to which it is a party have been duly authorized, and do not (i) conflict with any of the Company’s organizational documents, (ii) contravene, conflict with, constitute a default under or violate any material statute, law, rule, regulation or court decree binding upon or applicable to the Company, or its assets or properties, (iii) contrave ne, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which the Company or any of its subsidiaries, if any, or any of their property or assets may be bound or affected, (iv) require any action by, filing, registration, or qualification with, or governmental approval from, any Governmental Authority (except such governmental approvals which have already been obtained and are in full force and effect) or (v) constitute an event of default or give rise to a right to terminate under any material agreement by which the Company or any of its Subsidiaries or Affiliates is bound. Except as set forth on Schedule 3(d) hereto, the Company is not in default under any agreement to which it is a party or by which it is bound in which the default could reasonably be expected to have a material adverse effect on Company’s business.
 
(e)           Company is the sole owner of the Intellectual Property set forth on Schedule 3(e) hereto, and all related asset s and businesses, which it owns or purports to own except for (a) non-exclusive licenses granted to its customers in the ordinary course of business, and (b) material Intellectual Property licensed to Company. Each Patent which it owns or purports to own and which is material to Company’s business is valid and enforceable, and no part of the Intellectual Property which Company owns or purports to own and which is material to Company’s business has been judged invalid or unenforceable, in whole or in part. To the best of Company’s knowledge, no claim has been made that any part of the Intellectual Property violates the rights of any third party except to the extent such claim would not reasonably be expected to have a material adverse effect on Company’s business.
 
(f)           Except as set forth on Schedule 3(f) hereto, there are no actions or proceedings pending or, to the knowledge of the Company, threatened in writing by or against Company that ate not stayed by the filing of the Bankruptcy Case involving more than, individually or in the aggregate, Ten Thousand Dollars ($10,000).
 
(g)           The financial statements of the Company provided to the Lender have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that the financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and for the dates thereof and the results of operations and cash flows for the periods then ended, subject to normal, immaterial, year-end audit adjustments.
 
 
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(h)           The Company has fully disclosed its business, plans and financial condition to Lender, and has provided all materials that have been requested by Lender, including, without limitation, the following, all of which are attached hereto as schedules:
 
i.              As of and for the nine months ended September 30, 2012, the Company’s balance sheet and income statement, prepared in accordance with generally accepted accounting principles.
 
ii.             As of September 30, 2012, a detailed aging of accounts receivable and accounts payable;
 
iii.            As of September 30, 2012, a schedule of all the secured and unsecured debt and lease obligations of the Company;
 
iv.            The most recent Company filing with the Bankruptcy Court; and
 
v.             A current list of employees and their gross pay;
 
vi.            Any such other debts or obligations of the Company, including unrecorded debts and liabilities, not listed elsewhere.
 
4.            Representations, Warranties and Covenants of Lender. Lender hereby represents and
warrants to, and agrees with, the Company as follows:
 
(a)           Lender is an “Accredited Investor” as such term is defined in Rule 501(a) promulgated under the Securities Act.
 
(b)           Each of the Loan Documents to which Lender is party has been duly executed and delivered by Lender and constitutes the legal, valid and binding obligation of Lender, enforceable against Lender in accordance with its terms except as such enforceability may be limited by general principles of equity or to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies.
 
(c)           The execution, delivery and performance by Lender of the Loan Documents to which it is a party have been duly authorized, and do not (i) conflict with any of Lender’s organizational documents, (ii) contravene, conflict with, constitute a default under or violate any material statute, law, rule, regulation or court decree binding upon or applicable to Lender or its assets or properties, (iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or a ward of any Governmental Authority by which Lender or any of its property or assets may be bound or affected, (iv) require any action by, filing, registration, or qualification with, or governmental approval from, any Governmental Authority (except such governmental approvals which have already been obtained and are in full force and effect) or (v) constitute an event of default or give rise to a right to terminate under any material agreement by which Lender is bound.
 
(d)           Lender hereby acknowledges and represents that Lender is able to bear the economic risk which Lender hereby assumes.
 
(e)           Lender understands the various risks of an investment in the Company as proposed herein and can afford to bear such risks, including, without limitation, the risks of losing the entire investment.
 
 
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(f)           Lender acknowledges that Lender has been informed by the Company of, or is otherwise familiar with, the nature of the limitations imposed by the Securities Act and the rules and regulations thereunder on the transfer of the Notes. In particular, Lender agrees that no sale, assignment or transfer of any of the Notes acquired by Lender shall be valid or effective, and the Company shall not be required to give any effect to such a sale, assignment or transfer, unless (a) the sale, assignment or transfer of such Notes is registered under the Securities Act, it being understood that the Notes are not currently registered for sale and that the Company has no obligation to so register the Notes; or (b) the Notes are sold, assigned or transferred in accordance with all the requirements and limitations of an exemption from registration under the Securities Act. Lender further understands that an opinion of counsel satisfactory to the Company and other documents may be required to transfer the Notes.
 
(g)           Lender acknowledges that the Notes to be acquired will be subject to a stop transfer order and any certificate or certificates evidencing any Notes shall bear the following or a substantially similar legend and such other legends as may be required by state blue sky laws:
 
“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH SECURITIES UNDER THE SECURITIES ACT OR AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. ANY SUCH TRANSFER MAY ALSO BE SUBJECT TO COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS.”
 
(h)           Lender will acquire the Notes issued hereunder for Lender’s own account for investment and not with a view to the sale or distribution thereof or the granting of any participation therein in violation of the securities laws, and has no present intention of distributing or selling to others any of such interest or granting any participation therein in violation of the securities laws.
 
(i)           Lender is not entering into this Agreement or purchasing the Notes as a result of or subsequent to any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or presented at any seminar or meeting, or any solicitation by a person other than a representative of the Company with which Lender had a pre-existing relationship.
 
5.          Additional Covenants of the Company.
 
(a)             Notice of Event of Default. Upon the occurrence of an Event of Default, the Company shall notify the Lender(s) of the nature of such Event of Default as soon as practicable (but in no event later than five (5) Business Day after the Company becomes aware of such Event of Default).
 
(b)             Security; Effectiveness of the Security Document . Pursuant to subsections 364(c)(2) and 364(c)(2)(3) and 364(d)(1) of the Bankruptcy Code and the Financing Order, all Obligations will be secured by a first priority perfected Lien on the Collateral. The Company and the Lender hereby agree that the Security Document (as defined below) shall be deemed executed, delivered and in effect, without any further action by any party, effective as of the date (the “Release Date”) hereof. As used herein, the term “Security Document” means the Security Agreement.
 
(c)             Priority. Pursuant to Section 364(c) of the Bankruptcy Code and the Financing Order, all Obligations at all times shall constitute allowed super-priority administrative expense claims in each of the Bankruptcy Cases with priority in payment over any and all administrative expenses of the kinds specified in the Bankruptcy Code, including, without limitation, Sections 105, 326, 328, 330, 331, 503(b), 507(a), 546(c), 726 and 1112 of the Bankruptcy Code, and shall at all times be senior to the rights of the Company, and any successor trustee or any creditor, in the Bankruptcy Cases or any subsequent proceedings under the Bankruptcy Code.
 
 
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6.          Intentionally Omitted.
 
7.          Conditions Precedent to Lender’s Obligations.
 
7.1       Conditions Precedent to Lender’s Obligations at the Closing. The Lender’s obligations to
effect the Closing, including without limitation its obligation to purchase its Note at the Closing, are conditioned upon the fulfillment (or waiver by Lender in its sole and absolute discretion) of each of the following events as of the Closing Date, and the Company shall use commercially reasonable efforts to cause each of such conditions to be satisfied:
 
(a)           the representations and warranties of the Company set forth in the Loan Documents shall be true and correct in all material respects as o f such date as if made on such date (except that to the extent that any such representation or warranty relates to a particular date, such representation or warranty shall be true and correct in all material respects as of that particular date);
 
(b)           the Company shall have complied with or performed in all material respects all of the agreements, obligations and conditions set forth in the Loan Agreement that are required to be complied with or performed by the Parent or Company on or before the Closing;
 
(c)           the Company shall have executed and delivered to the Lender the Note being purchased by the Lender at the Closing;
 
(d)           the Company shall have delivered to the Lender resolutions passed by its Board of Directors to authorize the transactions contemplated hereby and by the other Transaction Documents;
 
(e)           there shall have occurred no material adverse change in the Company’s consolidated business or financial condition since the date of the Company’s most recent financial statements; and
 
(f)           there shall be no injunction, restr aining order or decree of any nature of any court or Governmental Authority of competent jurisdiction that is in effect that restrains or prohibits the consummation of the transactions contemplated hereby.
 
7.2        Conditions Precedent to the Initial Extension of Credit. The obligation of Lender (or any
member thereof) to advance the Initial Funding Amount, the Maximum Amount, or any portion thereof (or otherwise to extend any credit provided for hereunder), is subject to the fulfillment, to the satisfaction of Lender, of each of the conditions precedent set forth below:
 
(a)           The Interim Order shall be in full force and effect and shall not have been vacated, reversed, modified, amended or stayed except for modifications and amendments that are reasonably acceptable to the Lender;
 
(b)           Lender shall have a valid and perfected lien on and security interest in the Collateral having the priorities set forth herein and in the Interim Order and the Financing Order;
 
(c)           No order shall have been entered (i) for the appointment of a trustee or examiner with enlarged powers with respect to the operation of the Company’s business, or (ii) to convert the Bankruptcy Case to Chapter 7 cases or to dismiss the Bankruptcy Case;
 
(d)           All other documents and legal matters in connection with the transactions contemplated by this Agreement shall have been delivered, executed, or recorded and shall be in form and substance satisfactory to Lender.
 
7.2        Conditions Precedent to all Extensions of Credit. The obligation of the Lender to advance the Initial Funding Amount, the Maximum Amount, or any portion thereof (or to extend any other credit hereunder) shall be subject to the following conditions precedent:
 
(a)           the Interim Order (if prior to the Entry Date) or the Final Order (if on or after the Entry Date), as the case may be, shall, on the date of the entry thereof, be in form and substance satisfactory to Lender, shall be in full force and effect and shall not have been reversed, stayed, modified or amended, except for such modifications, and amendments agreed to in writing by the Lender;
 
(b)           the representations and warranties contained in this Agreement and the other Loan Documents shall be true and correct in all material respects on and as of the date of such extension of credit, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date);
 
 
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(c)            no Default or Event of Default shall have occurred and be continuing on the date of such extension of credit, nor shall either result from the making thereof; and
 
(d)           no injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the extending of such credit shall have been issued and remain in force by any Governmental Authority against the Company, Lender, or any of their Affiliates.
 
8.          Conditions to Company’s Obligations at the Closing. The Company’s obligations to affect the Closing with Lender is conditioned upon the fulfillment (or waiver by the Company in its sole and absolute discretion) of each of the following events as of the Closing Date:
 
(a)           the representations and warranties of Lender set forth in this Agreement and in the other Loan Documents to which it is a party shall be true and correct in all material respects as of such date as if made on such date (except that to the extent that any such representation or warranty relates to a particular date, such representation or warranty shall be true and correct in all material respects as of that date);
 
(b)           Lender shall have complied with or performed all of the agreements, obligations and conditions set forth in this Agreement that are required to be complied with or performed by Lender on or before the Closing;
 
(c)           there shall be no injunction, restraining order or decree of any nature of any court or Governmental Authority of competent jurisdiction that is in effect that restrains or prohibits the consummation of the transactions contemplated hereby and by the other Transaction Documents; and
 
(d)           Lender shall have executed each Loan Document to which it is a party and shall have delivered the same to the Company.
 
9.          General Provisions.
 
(a)            Choice of Law and Venue; Jury Trial Waiver.
 
(i)           THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS.
 
(ii)            THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF COOK, STATE OF ILLINOIS; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT LENDER’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE LENDER ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. COMPANY AND LENDER WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON   CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 9(a)(ii).
 
 
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(iii)         COMPANY AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. COMPANY AND THE LENDER REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
 
(b)            Notices. Any notice or other communication required or permitted to be given hereunder shall be in writing by mail, facsimile or personal delivery and shall be effective upon actual receipt of such notice. The addresses for such communications shall be as set forth below until notice is received that any such address or contact information has been changed:
 
To the Company:
Airtronic USA, Inc.
1860 Jarvis Avenue
Elk Grove Village, IL 60007
Attention: Merriellyn Kett
 
With a copy (which shall not constitute notice) to:
 
Ginsberg Jacobs LLC
300 South Wacker Drive, Suite 2750
Chicago, IL 60606
Attn: Matthew R. Zakaras
 
and to:
 
Swanson, Martin & Bell, LLP
2525 Cabot Drive, Suite 204
Lisle, IL 60532
Attn: Charles S. Stahl, Jr.
 
To Lender:
Global Digital Solutions, Inc.
9477 Greenback Lane
Folsom, CA 95630
Attention: William Delgado
 
With a copy (which shall not constitute notice) to:
 
Global Digital Solutions, Inc.
14 Saint George Pl.
Palm Beach Gardens, FL 33418
Attn: David Loppert
 
(c)             Entire Agreement. Except as otherwise provided herein, this Agreement, the Note, the Security Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof.
 
(d)             Amendment. This Agreement may only be amended, waived, discharged or terminated by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought.
 
(e)             Successors and Assigns. This Agreement shall bind and inure to the benefit of   the respective successors and assigns of each of the parties; provided, however, that neither Borrower may assign this Agreement nor any rights or duties hereunder without Lender’s prior written consent and any prohibited assignment shall be absolutely void ab initio. No consent to assignment by Lender shall release Borrower from its Obligations. Lender may assign this Agreement and the other Loan Documents and its rights and duties hereunder and thereunder and no consent or approval by Borrowers is required in connection with any such assignment.
 
 
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(f)             Severability. In case any provision of this Agreement shall be invalid, illegal or   unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected   or impaired thereby.
 
(g)             Titles and Subtitles. The titles of the Sections of this Agreement are for   convenience of reference only and are not to be considered in construing this Agreement.
 
(h)             Expenses. The Company shall bear all of its expenses and the Lender Expenses   incurred with respect to this transaction.
 
(i)             Counterparts. This Agreement may be executed in any number of counterparts,   each of which shall be an original, but all of which together shall be deemed to constitute one instrument.
 
(j)             Counsel. All parties hereto have been represented by counsel, and no inference   shall be drawn in favor of or against any party by virtue of the fact that such party’s counsel was or was not the   principal draftsman of this Agreement. Each of the parties has been provided the opportunity to be represented by   counsel of its choice and has been encouraged to seek separate representation to the extent that it deems such   desirable, but the absence of such shall not be asserted as a basis for the enforceability or interpretation of any of the   terms or provisions of this Agreement, or as a reason to seek disqualification of the Company’s counsel in any   controversy or proceeding.
 
[SIGNATURE PAGES FOLLOW]
 
 
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first-above written
 
 
"COMPANY"
AIRTRONIC USA, INC
 
       
  By: /s/ Merriellyn Kett  
    Printed Name: MERRIELLYN KETT  
    Printed Title: CEO  
 
 
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(LENDER SIGNATURE PAGE FOR NOTE PURCHASE AGREEMENT)
 
"LENDER"
GLOBAL DIGITAL SOLUTIONS, INC.
 
By: /s/ William J. Delgado  
  Printed Name: WILLIAM J. DELGADO  
  Printed Title: CEO  
 
Principal Amount of Note Purchased at Closing: $750,000.00
 
ADDRESS:
 
9477 Greenback Lane
Folsom, CA 95630
Attention: William Delgado
 
 
 
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Exhibit 10.2
 
THIS SECURITY HAS NOT 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 ACCORDA NCE 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 MAKER. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
 
8 1/4% SECURED PROMISSORY NOTE
 
$750,000 
  October 22, 2012
 
FOR VALUE RECEIVED, Airtronic USA, Inc., an Illinois corporation (the “Company” or “Maker”), with its primary offices located at 1860 Jarvis Avenue, Elk Grove Village, IL 60007, promises to pay to the order of Global Digital Solutions, Inc., (the “Lender”) or its registered assigns (with the “Lender”, the “Holder”), upon the terms set forth below, the principal sum of Seven Hundred Fifty Thousand Dollars ($750,000) plus interest on the unpaid principal sum outstanding at the rate of 8 1/4% per annum (this “Note”). Defined terms not otherwise defined herein shall have the meanings ascribed to such terms in that certain debtor in possession note purchase agreement of even date herewith among the Maker and the Holder (the “Purchase Agreement”) agreement of even date herewith among the Maker and the Holder (t he “Purchase   and in that in that certain note purchase Agreement”)..
 
1.             Payments.
 
(a)           Unless an Event of Default shall have previously occurred and be continuing, the full amount of principal and accrued interest under this Note shall be due and payable on a date (the “Maturity Date”) that shall be the date the Bankruptcy Court has discharged the Bankruptcy Case.
 
(b)            The Maker shall pay interest to the Holder on the aggregate and then outstanding principal amount of this Note at the rate of 8 1/4% per annum, payable in arrears on the earlier of (i) the Maturity Date or (ii) acceleration of this Note following an Event of Default pursuant to Section 3(b). Interest on this Note shall commence to accrue as of the date of acceptance by the Maker of the Purchase Agreement as executed and delivered by the Holder (the “Original Issue Date”).
 
(c)            Interest shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods, and shall accrue monthly commencing on the Original Issue Date until payment in full of the outstanding principal, together with all accrued and unpaid interest, and other amounts which may become due hereunder, has been made. Interest hereunder will be paid to the Person in whose name this Note is registered on the records of the Maker regarding registration and transfers of this Note.
 
(d)          All overdue accrued and unpaid principal and interest to be paid hereunder shall entail a late fee at the rate of 12% per annum (or such lower maximum amount of interest permitted to be charged under applicable law) which will accrue daily, from the date such principal and/or interest is due hereunder through and including the date of payment. Except as otherwise set forth in this Note, the Maker may not prepay any portion of the principal amount of this Note without the 10 Business Day advance written notice to the Holder.
 
2.              Secured Obligation. The obligations of the Maker under this Note are secured by all of the assets of the Maker pursuant to that certain Security Agreement, dated as of the date hereof, by and among the Maker and the Holder.
 
 
 

 
 
3.             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.             If the Maker fails to pay when due and payable, or when declared due and payable, all or any portion of the Obligations (whether of principal, interest (including any interest which, but for the provisions of the Bankruptcy Code, would have accrued on such amounts), fees and charges due Holder, reimbursement of Holder Expenses, or other amounts constituting Obligations); or
 
ii.            If the Maker fails to (a) perform, keep, or observe any covenant or other provision contained in Section 6(d)(iii) and 6(d)(iv) of the Purchase Agreement and such failure or neglect continues for a period of 10 Business Days after the date on which such failure or neglect first occurs, or (b) perform, keep, or observe any covenant or other provision contained in Sections 6(d) and (e) of the Purchase Agreement or any comparable provision contained in any of the other Loan Documents;
 
iii.           If any material portion of the Maker’s assets are attached, seized, subjected to a writ or distress warrant, levied upon, or comes into the possession of any third Person; or
 
iv.           If the Maker is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs; or
 
v.            If a notice of Lien, levy, or assessment is filed of record with respect to any of the Maker’s assets by the United States, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, or if any taxes or debts owing at any time hereafter to any one or more of such entities becomes a Lien, whether choate or otherwise, upon any of the Maker’s assets and the same is not paid before such payment is delinquent; or
 
vi.           If a judgment or other claim in an amount equal to or greater than $5,000 individually or $25,000 in the aggregate becomes a Lien or encumbrance upon any material portion of the Maker’s assets and the same is not discharged or bonded against within thirty (30) days of the date of the attachment of such lien or encumbrance; or
 
vii.          If there is a default in any material agreement to which the Maker is a party and such default (a) occurs at the final maturity of the obligations thereunder, or (b) results in a right by the other party thereto, irrespective of whether exercised, to accelerate the maturity of the Maker’s obligations thereunder, to terminate such agreement, or to refuse to renew such agreement pursuant to an automatic renewal right therein, unless in such case enforcement of such agreement is stayed by virtue of commencement of the Bankruptcy Case; or
 
viii.         If there shall be a Change of Control; or
 
ix.            If this Agreement or any other Loan Document that purports to create a Lien, shall, for any reason, fail or cease to create a valid and perfected and, except to the extent permitted by the terms hereof or thereof, first priority Lien on or security interest in the Collateral covered hereby or thereby; or
 
x.             (A) The Loan Documents and the Financing Order shall, for any reason, cease to create a valid Lien on any of the Collateral (other than any immaterial portion) purported to be covered thereby or such Lien shall cease to be a perfected Lien having the priority provided herein pursuant to Section 364 of the Bankruptcy Code against the Maker, or the Maker shall so allege in any pleading filed in any court or ( B) any material provision of any Loan Document shall, for any reason, cease to be valid and binding on the Maker or the Maker shall so state in writing; or
 
xi.             An order with respect to the Bankruptcy Case shall be entered by the Bankruptcy Court, (A) appointing a trustee or an examiner with enlarged powers relating to the operation of the Maker’s business, (B) converting the Bankruptcy Case to a Chapter 7 case, (C) dismissing or suspending the Bankruptcy Case, which order does not contain a provision for the termination of Holder ’s obligation to make Advances and the payment in full in cash of all Obligations or is not otherwise satisfactory to Holder thereunder, (D) confirming a plan or plans of reorganization in the Chapter 11 Case which does not contain a provision for the termination of all of Holder’s obligation to make Advances and payment in full in cash of all Obligations in a manner satisfactory to Holder, or (E) authorizing the use of cash collateral; or
 
 
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xii.           Other than as contemplated by the First Day Orders, there shall be any material payment on, or application by the Maker for authority to pay, any material pre-petition claim, other than payroll, other employee related expenses, ordinary course rebates and credits to customers, sales, and other “use” type taxes, insurance obligations, trade debt incurred in the ordinary course of business, and other ordinary course expenses, in each instance without the express prior written consent of Holder; or
 
xiii.            (A) The Interim Order shall not be entered by the Bankruptcy Court within 10 days of the filing thereof or cease to be in full force and effect after the date of entry thereof and the Final Order shall not have been entered prior to such cessation, or (B) the Final Order shall not have been entered by the Bankruptcy Court on or before the 35th day following the Closing Date or (C) from and after the Entry Date, the Final Order shall cease to be in full force and effect, or (D) the Maker or any of its Subsidiaries or Affiliates shall fail to comply with the terms of the Interim Order or the Final Order in any material respect, or (v) the Interim Order or the Final Order shall be amended, supplemented, stayed, reversed, vacated or otherwise modified (or the Maker applies for authority to do so) without the express prior written consent of the Holder , or an order with respect to any Bankruptcy Case shall have been entered to (x) permit any administrative expense claim or any claim (now existing or hereafter arising, of any kind or nature whatsoever) to have administrative priority as to the Maker equal or superior to the priority of Holder in respect of the Obligations or (y) to grant or permit the grant of a Lien on any Collateral, other than Permitted Liens; or
 
xiv.            An order shall be entered by the Bankruptcy Court, other than the Financing Order, granting material relief from the automatic stay to the holder or holders of any Liens on or security interests in any material assets of the Maker; or
 
xv.             An application for any of the orders described in Sections 3(a)xi, 3(a)xii, 3(a)xiii , and 3(a)xiv shall be made (A) by the Maker, or (B) in the case of Section 3(a)xi((E) only, by any other Person, and such application is expressly supported by the Maker; or
 
xvi.            Any provision of any Loan Document shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by the Maker, or a proceeding shall be commenced by the Maker, or by any Governmental Authority having jurisdiction over the Maker, seeking to establish the invalidity or unenforceability thereof, or the Maker shall deny that such Borrower has any liability or obligation purported to be created under any Loan Document. If any Event of Default occurs and shall be continuing, the full principal amount of this Note, together with all accrued interest thereon, shall become, at the Holder’s election, immediately due and payable in cash.
 
(b)           The Holder need not provide and the Maker 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 the Holder at any time prior to payment hereunder. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.
 
4.             Affirmative Covenants. The Maker covenants and agrees that, so long as any credit hereunder shall be available and until full and final payment of the Obligations, the Maker shall do all of the following:
 
(a)            Return. Cause returns and allowances, as between the Maker and its Account Debtors, to be on the same basis and in accordance with the usual customary practices of the Maker, as they exist at the time of the execution and delivery of this Agreement. If, at a time when no Event of Default has occurred and is continuing, any Account Debtor returns any Inventory to the Maker, the Maker promptly shall determine the reason for such return and, if the Maker accepts such return, issue a credit memorandum (with a copy to be sent to Holder) in the appropriate amount to such Account Debtor.
 
 
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(b)             Taxes. Cause all assessments and taxes, whether real, personal, or otherwise, due or payable by the Maker, or imposed, levied, or assessed against the Maker or any of its assets to be paid in full, before delinquency or before the expiration of any extension period, except to the extent that the validity of such assessment or tax shall be the subject of a Permitted Protest. The Maker will make timely payment or deposit of all tax payments and withholding taxes required of it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Holder with proof satisfactory to Holder indicating that the Maker has made such payments or deposits. The Maker shall deliver satisfactory evidence of payment of applicable excise taxes in each jurisdiction in which the Maker is required to pay any such excise tax.
 
(c)              Compliance with Laws and Orders. Comply with the requirements of all applicable laws, rules, regulations, and orders of any Governmental Authority, including the Fair Labor Standards Act, and the Americans With Disabilities Act, other than laws, rules, regulations, and orders the non-compliance with which, individually or in the aggregate, would not result in and reasonably could not be expected to result in a Material Adverse Effect.
 
(d)             Leases. Pay when due all rents and other amounts payable under any leases to which the Maker is a party or by the Maker’s properties and assets are bound, unless such payments are the subject of a Permitted Protest.
 
(e)              Bankruptcy Court. Use its best efforts to obtain the approval of the Bankruptcy Court of this Agreement and the other Loan Documents and deliver or cause to be delivered to Holder, all pleadings, motions and other documents filed by or on behalf of the Maker with the Bankruptcy Court.
 
(f)               Maintain Operating Accounts. Maintain its operating accounts and cash management arrangements consistent with its current procedures in accordance with the terms of the First Day Orders.
 
5.             Negative Covenants. The Maker covenants and agrees that so long as the Maker has not advanced the Maximum Amount to the Maker, and until full and final payment of the, the Maker will not do any of the following:
 
(a)             Indebtedness. Create, incur, assume, permit, guarantee, or otherwise become or remain, directly or indirectly, liable with respect to any Indebtedness, except:
 
(i)             Indebtedness evidenced by, or arising under or in connection with, this Agreement and the other Loan Documents, and
 
(ii)            refinancings, renewals, or extensions of Indebtedness permitted under clauses (b) and (c) of this Section 5 (and continuance or renewal of any Permitted Liens associated therewith) so long as: (i) the terms and conditions of such refinancings, renewals, or extensions do not, in Holder’s judgment, materially impair the prospects of repayment of the Obligations by the Maker or materially impair the Maker’s creditworthiness, (ii) such refinancings, renewals, or extensions do not result in an increase in the principal amount of, or interest rate with respect to, the Indebtedness so refinanced, renewed, or extended, (iii) such refinancings, renewals, or extensions do not result in a shortening of the average weighted maturity of the Indebtedness so refinanced, renewed, or extended, nor are they on terms or conditions that, taken as a whole, are materially more burdensome or restrictive to the Maker, and (iv) if the Indebtedness that is refinanced, renewed, or extended was by its terms subordinated in right of payment to the Obligations, then the terms and conditions of the refinancing, renewal, or extension Indebtedness must include contractual subordination terms and conditions that are at least as favorable to Holder as those that were applicable to the refinanced, renewed, or extended Indebtedness.
 
(b)            Liens. Create, incur, assume, or permit to exist, directly or indirectly, any Lien on or with respect to any of its assets, of any kind, whether now owned or hereafter acquired, or any income or profits therefrom except for Permitted Liens (including Liens that are replacements of Permitted Liens to the extent that the original Indebtedness is refinanced, renewed, or extended under Section 5(a) and so long as the replacement Liens only encumber those assets that secured the refinanced, renewed, or extended Indebtedness).
 
 
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(c)            Restrictions on Fundamental Changes.
 
(i)             Enter into any merger, consolidation, reorganization, or recapitalization, or reclassify its Stock.
 
(ii)            Liquidate, wind up, or dissolve itself (or suffer any liquidation or dissolution).
 
(iii)           Convey, sell, lease, license, assign, transfer, or otherwise dispose of, in one transaction or a series of transactions, all or any substantial part of its assets.
 
(d)            Disposal of Assets. Other than Permitted Dispositions, convey, sell, lease, license, assign, transfer, or otherwise dispose of any assets.
 
(e)            Change Name. Change its name, FEIN, corporate structure, or identity, or add any new fictitious name.
 
(f)            Guarantee. Guarantee or otherwise become in any way liable with respect to the obligations of any third Person and except for the endorsement of instruments or items of payment for deposit to the account of the Maker or which are promptly transmitted or turned over to Holder.
 
(g)            Prepayments and Amendments.
 
(i)             Except in connection with a refinancing permitted by Section 5(a), prepay, redeem, defease, purchase, or otherwise acquire any Indebtedness of the Maker, other than the Obligations in accordance with this Agreement, and
 
(ii)            Except in connection with a refinancing permitted by Section 5(a), directly or indirectly, amend, modify, alter, increase, or change any of the terms or conditions of any agreement, instrument, document, indenture, or other writing evidencing or concerning Indebtedness permitted under Sections 5(b).
 
(h)            Change of Control. Cause, permit, or suffer, directly or indirectly, any Change of Control.
 
(i)             Consignments. Consign any Inventory or sell any Inventory on bill and hold, sale or return, sale on approval, or other conditional terms of sale.
 
(j)             Distributions. Make any distribution or declare or pay any dividends (in cash or other property) on, or purchase, acquire, redeem, or retire any of the Maker’s stockholder interests in any class of stock, whether now or hereafter outstanding.
 
(k)            The Orders. Make or permit to be made any change, amendment or modification, or any application or motion for any change, amendment or modification, to the Interim Order or the Final Order except for modifications and amendments that are reasonably satisfactory to Holder.
 
(l)             Application to Bankruptcy Court. Apply to the Bankruptcy Court for the authority to take any action that is prohibited by or inconsistent with the terms of this Agreement or any of the other Loan Documents or refrain from taking any action that is required to be taken by the terms of this Agreement or any of the other Loan Documents.
 
(m)           Cancellation of Indebtedness Owed to It. Cancel any Indebtedness owed to it.
 
(n)           Chapter 11 Claims. Incur, create, assume, suffer to exist or permit any administrative expense, unsecured claim, indebtedness or other super-priority claim or lien which is pari passu with or senior to the claims or Liens of Holder against the Maker hereunder, or apply to the Bankruptcy Court for authority to do so, except for the Permitted Liens.
 
 
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(o)             Plan of Reorganization. Modify a plan of reorganization approved by Holder, or file a plan of reorganization different from the one approved by Holder, without the prior written consent of Holder.
 
(p)             Filings. File any motion, application, objection, plan or reorganization, response, adversary complaint or similar pleading in the Bankruptcy Cases that would adversely affect the right or ability of Holder or the Holders to receive indefeasible payment in full in cash of all of the Obligations.
 
6.               No Waiver of the Holder’s Rights. All payments of principal and interest shall be made without setoff, deduction or counterclaim. No delay or failure on the part of the Holder in exercising any of its options, powers or rights, nor any partial or single exercise of its options, powers or rights shall constitute a waiver thereof or of any other option, power or right, and no waiver on the part of the Holder of any of its options, powers or rights shall constitute a waiver of any other option, power or right. Maker hereby waives presentment of payment, protest, and all notices or demands in connection with the delivery, acceptance, performance, default or endorsement of this Note. Acceptance by the Holder of less than the full amount due and payable hereunder shall in no way limit the right of the Holder to require full payment of all sums due and payable hereunder in accordance with the terms hereof.
 
7.               Modifications. No term or provision contained herein may be modified, amended or waived except by written agreement or consent signed by the party to be bound thereby.
 
8.               Cumulative Rights and Remedies; Usury. The rights and remedies of the Holder expressed herein are cumulative and not exclusive of any rights and remedies otherwise available under this Note, or applicable law (including at equity). The election of the Holder to avail itself of any one or more remedies shall not be a bar to any other available remedies, which the Maker agrees the Holder may take from time to time. If it shall be found that any interest due hereunder shall violate applicable laws governing usury, the applicable rate of interest due hereunder shall be reduced to the maximum permitted rate of interest under such law.
 
9.               Use of Proceeds. Maker shall use the proceeds from this Note hereunder for working capital purposes or as otherwise contemplated by the Purchase Agreement and not for the satisfaction of any portion of the Maker’s debt (other than payment of trade payables in the ordinary course of the Maker’s business and prior practices), to redeem any of the Maker’s equity or equity-equivalent securities or to settle any outstanding litigation.
 
10.             Severability. If any provision of this Note is declared by a court of competent jurisdiction to be in any way 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 shall violate applicable laws governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum permitted rate of interest.
 
11.             Successors and Assigns. This Note shall be binding upon the Maker and its successors and shall inure to the benefit of the Holder and its successors and assigns. The term “Holder” as used herein, shall also include any endorsee, assignee or other holder of this Note.
 
12.             Lost or Stolen Promissory Note . If this Note is lost, stolen, mutilated or otherwise destroyed, the Maker shall execute and deliver to the Holder a new promissory note containing the same terms, and in the same form, as this Note. In such event, the Maker may require the Holder to deliver to the Maker an affidavit of lost instrument and customary indemnity in respect thereof as a condition to the delivery of any such new promissory note.
 
13.             Governing Law.
 
(a)           All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed by and construed and enforced in accordance with the internal laws of the State of Illinois, without regard to the principles of conflicts of law thereof. Each of the Maker and the Holder agree that all legal proceedings concerning the interpretations, enforcement and defense of this Note shall be commenced in the state and federal courts sitting in the County of Cook County, State of Illinois; (the “Illinois Courts”); provided, however, that any suit seeking enforcement against any Collateral or other property may be brought, at Holder’s option, in the courts of any jurisdiction where Holder elects to bring such action or where such Collateral or other property may be found. Maker and Holder waive, to the extent permitted under applicable law, any right each may have to assert the doctrine of forum non conveniens or to object to venue to the extent any proceeding is brought in accordance with this Section 13(a).
 
 
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(b)          Except as set forth above, each of the Maker and the Holder hereby irrevocably submit to the exclusive jurisdiction of the Illinois Courts for the adjudication of any dispute hereunder (including with respect to the enforcement of this Note), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper. Each of the Maker and the Holder hereby irrevocably waive personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to the other at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each of the Maker and the Holder hereby irrevocably waive, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Note or the transactions contemplated hereby.
 
14.             Notice. Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with Section 9(b) of the Purchase Agreement.
 
15.              Required Notice to the Holder. The Holder is to be notified by the Maker, within five (5), Business Days, in accordance with Section 14, of the existence or occurrence, of any Event of Default.
 
[SIGNATURE PAGE FOLLOWS]
 
 
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The undersigned has executed this Note as a maker and not as a surety or guarantor or in any other capacity
 
 
"MAKER"
AIRTRONIC USA, INC.
 
       
 
By:
/s/ Merriellyn Kett  
   
Printed Name:  MERRIELLYN KETT
 
   
Printed Title: CEO
 
 
 
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Exhibit 10.3
 
SECURITY AGREEMENT
 
1.             Identification.  
 
This Security Agreement (the “Agreement”), dated as of October 22, 2012 is entered into by and between Airtronic USA, Inc. an Illinois corporation (“ Debtor ”) and Global Digital Solutions, Inc., a New Jersey corporation (the “Lender”).
 
2.             Recitals.
 
2.1        At or about the date hereof, the Lender is making a loan (the “Loan”) to Debtor. It is beneficial to Debtor that the Loan is made.
 
2.2        The Loan will be evidenced by one or more secured promissory notes (“ Notes ”) issued by Debtor to Lender on the dates set forth on the Notes pursuant to a debtor in possession note purchase agreement (the “Purchase Agreement”) to which Debtor and the Lender are parties. The Notes are in an original principal amount of $750,000 and a Maximum Amount of up to $2,000,000 and were or will be executed by Debtor as “Debtor” or “Debtor” for the benefit of the Lender as the “Lender” or “Payee” thereof.
 
2.3        In consideration of the Loan made and to be made by the Lender to Debtor and for other good and valuable consideration, and as security for the performance by Debtor of its obligations under the Notes, and as security for the repayment of the Loan and all other sums due from Debtor to the Lender arising under the Loan Documents (as defined in the Purchase Agreement) and any other agreement between or among them, Debtor, for good and valuable consideration, receipt of which is acknowledged, has agreed to grant to the Lender a first priority security interest senior to all other security interests in the Collateral (as such term is defined in the Purchase Agreement and further hereinafter defined), on the terms and conditions hereinafter set forth. Obligations (as defined in the Purchase Agreement) include all future advances and loans by the Lender to Debtor that may be made pursuant to the Purchase Agreement or any other agreements.
 
2.4        Capitalized terms not defined and employed herein shall have the meanings attributed to them in the Purchase Agreement and/or the Notes.
 
3.           Creation of Security.
 
3.1        Grant of Security Interest.
 
(a)        The Debtor hereby grants to Lender, a continuing security interest in all of its right, title, and interest in all currently existing and hereafter acquired or arising Collateral in order to secure prompt repayment of any and all of the Obligations in accordance with the terms and conditions of the Loan Documents and in order to secure prompt performance by such Borrower of each of its covenants and duties under the Loan Documents. The Lender’s Liens in and to the Collateral shall attach to all Collateral and be perfected without further act on the part of Lender or the Debtor. Anything contained in this Agreement or any other Loan Document to the contrary notwithstanding, the Company has no authority, express or implied, to dispose of any item or portion of the Collateral.
 
(b)        The Debtor confirms that the security interests granted hereunder extend to all Collateral, whether arising or acquired prior to, on or after the Closing Date and secure all Obligations, whether arising prior to, on or after the Closing Date. Furthermore, to secure the payment and performance of the Obligations (whether arising prior to, on or after the Closing Date), including, without limitation, all renewals, extensions, restructurings and refinancings of any or all of the Obligations, the Debtor hereby grants to Lender, a continuing security interest, Lien and mortgage in and to all of the right, title and interest of the Company, as a pre-petition debtor and debtor-in-possession, in the Collateral, whether arising or acquired prior to, on or after the Closing Date and regardless of where located, including, without limitation, (i) all causes of action and claims of the Company’s estate against third parties, including, without limitation, claims of the Company as debtor-in-possession under the Bankruptcy Code; provided, that with respect to any Avoidance Actions, the security interest granted hereunder shall be limited to the proceeds thereof and (ii) all additions and accessions to, substitutions for, and replacements, rents, profits , products and proceeds of any of the foregoing, including, without limitation, the proceeds of any insurance policies covering any of the above -described property. As provided in the Financing Order, (i) the Obligations shall have the highest administrative priority under Section 364(c)(1) of the Bankruptcy Code, and shall have priority over all other costs and expenses of administration of any kind, including, without limitation, those specified in, or ordered pursuant to, Sections 105, 326, 330, 331, 503(b), 506(c), 507(b) or 726 or any other provision of the Bankruptcy Code or otherwise (whether incurred in any Bankruptcy Code, or in any other proceedings related thereto), and shall at all times be senior to the rights of the Company, any successor trustee or estate representative in any Bankruptcy Case or any subsequent case or proceeding under the Bankruptcy Code and have the highest administrative priority under Section 364(c)(1) of the Bankruptcy Code and (ii) the liens securing the Obligations will constitute first priority liens under Section 364(c)(2) of the Bankruptcy Code in and to all Collateral, notwithstanding any valid, perfected, enforceable and non-avoidable lien in existence as of the Closing Date which shall be subordinate to the lien of the Lender.
 
 
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3.2        Instruments. In the event that any Collateral, including proceeds, is evidenced by or consists of an Instrument, and if and to the extent that perfection or priority of Lender’s security interest is dependent on or enhanced by possession, the Debtor, immediately upon the request of Lender, shall endorse and deliver physical possession of such Instrument to Lender.
 
3.3        Collection of Accounts, General Intangibles, and Chattel Paper. At any time after the occurrence and during the continuation of an Event of Default, Lender or Lender’s designee may (a) notify Account Debtors of Debtor that the Accounts, Chattel Paper, or General Intangibles have been assigned to Lender or that Lender has a security interest therein, or (b)collect the Accounts, Chattel Paper, or General Intangibles directly and charge the collection costs and expenses to the Loan Account. Debtor agrees that it will hold in trust for Lender, as Lender’s trustee, any Collections that it receives and immediately will deliver said Collections to Lender in their original form as received by such Borrower.
 
3.4        Delivery of Additional Documentation Required. At any time upon the request of Lender, Debtor shall, at its own expense, deliver to Lender, any and all financing statements, original financing statements in lieu of continuation statements, fixture filings, security agreements, pledges, assignments, endorsements of certificates of title, and all other documents (the “Additional Documents”) that Lender may request in its absolute discretion, in form and substance satisfactory to Lender, to perfect and continue perfected or better perfect the Lender’s Liens in the Collateral (whether now owned or hereafter arising or acquired), to create and perfect Liens in favor of Lender in any Real Property acquired after the Closing Date, and in order to fully consummate all of the transactions contemplated hereby and under the other Loan Documents. To the maximum extent permitted by applicable law, Debtor authorizes Lender to execute any such additional documents in Debtor’s name and authorizes Lender to file such executed additional documents in any appropriate filing office. In addition, on such periodic basis as Lender shall require, Debtor shall (a) provide Lender with a report of all new patentable, copyrightable, or trademarkable materials acquired or generated by Debtor during the prior period, (b) cause all patents, copyrights, and trademarks acquired or generated by Debtor that are not already the subject of a registration with the appropriate filing office (or an application therefor diligently prosecuted) to be registered with such appropriate filing office in a manner sufficient to impart constructive notice of Debtor’s’ ownership thereof, and (c) cause to be prepared, executed, and delivered to Lender supplemental schedules to the applicable Loan Documents to identify such patents, copyrights, and trademarks as being subject to the security interests created thereunder.
 
3.5        Power of Attorney. Debtor hereby irrevocably makes, constitutes, and appoints Lender (and any of Lender’s officers, employees, or agents designated by Lender) as Debtor’s true and lawful attorney, with power to (a) if such Borrower refuses to, or fails timely to execute and deliver any of the documents described in Section 3.4, sign the name of such Borrower on any of the documents described in Section 3.4, (b) at any time that an Event of Default has occurred and is continuing, sign Debtors name on any invoice or bill of lading relating to the Collateral, drafts against Account Debtors, or notices to Account Debtors, (c) send requests for verification of Accounts, (d) endorse Debtors name on any Collection item that may come into Lender’s possession, (e) at any time that an Event of Default has occurred and is continuing, make, settle, and adjust all claims under Debtors policies of insurance and make all determinations and decisions with respect to such policies of insurance, and (f) at any time that an Event of Default has occurred and is continuing, settle and adjust disputes and claims respecting the Accounts, chattel paper, or General Intangibles directly with Account Debtors, for amounts and upon terms that Lender determines to be reasonable, and Lender may cause to be executed and delivered any documents and releases that Lender determines to be necessary. The appointment of Lender Debtor’s attorney, and each and every one of its rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully and finally repaid and performed and Lender’s obligations to extend credit hereunder are terminated.
 
 
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3.6        Right to Inspect. Lender and each Lender (through any of their respective officers, employees, or agents) shall have the right, from time to time hereafter to inspect the Books and Records and to check, test, and appraise the Collateral in order to verify Debtor’s financial condition or the amount, quality, value, condition of, or any other matter relating to, the Collateral.
 
The Lender is hereby specifically authorized, after the Maturity Date (defined in the Notes) accelerated or otherwise, and after the occurrence of an Event of Default (as defined in the Notes and the Purchase Agreement) and the expiration of any applicable cure period, to transfer any Collateral into the name of the Lender and to take any and all action deemed advisable to the Lender to remove any transfer restrictions affecting the Collateral.
 
4.           Distribution.
 
4.1        So long as an Event of Default does not exist, subject to the terms and conditions of this Security Agreement, the Purchase Agreement and the Notes, Debtor shall be entitled to exercise all voting power pertaining to any of the Collateral, provided such exercise is not contrary to the interests of the Lender and does not impair the Collateral.
 
4.2        At any time an Event of Default exists or has occurred and is continuing, all rights of Debtor, upon notice given by the Lender, to exercise the voting power and receive payments, which it would otherwise be entitled to pursuant to Section 4.1, shall cease and all such rights shall thereupon become vested in the Lender, which shall thereupon have the sole right to exercise such voting power and receive such payments.
 
All dividends, distributions, interest and other payments which are received by Debtor contrary to the provisions of Section 4.2 shall be received in trust for the benefit of the Lender as security and Collateral for payment of the Obligations, shall be segregated from other funds of Debtor, and shall be forthwith paid over to the Lender as Collateral in the exact form received with any necessary endorsement and/or appropriate stock powers duly executed in blank, to be held by the Lender as Collateral and as further collateral security for the Obligations.
 
5.            Further Action By Debtor; Covenants and Warranties.
 
5.1        Subject to the terms of this Agreement, the Purchase Agreement and the Notes, Lender at all times shall have a perfected security interest in the Collateral. Debtor represents that, other than the security interests as set forth on Schedule 5.1 , it has and will continue to have full title to the Collateral free from any liens, leases, encumbrances, judgments or other claims. the Lender’s security interest in the Collateral constitutes and will continue to constitute a first, prior and indefeasible security interest in favor of the Lender , subject only to the security interests described on Schedule 5.1. Debtor will do all acts and things, and will execute and file all instruments (including, but not limited to, security agreements, financing statements, continuation statements, etc.) reasonably requested by the Lender to establish, maintain and continue the perfected security interest of the Lender in the perfected Collateral, and will promptly on demand, pay all costs and expenses of filing and recording, including the costs of any searches reasonably deemed necessary by the Lender from time to time to establish and determine the validity and the continuing priority of the security interest of the Lender, and also pay all other claims and charges that, in the opinion of the Lender are reasonably likely to materially prejudice, imperil or otherwise affect the Collateral or the Lender ’ security interests therein.
 
5.2        Except (i) in connection with sales of Collateral, in the ordinary course of business, for fair value and in cash and (ii) for Collateral which is substituted by assets of identical or greater value (subject to the consent of the Lender) or which is inconsequential in value, Debtor will not sell, transfer, assign or pledge those items of Collateral (or allow any such items to be sold, transferred, assigned or pledged), without the prior written consent of the Lender other than a transfer of the Collateral to a wholly-owned United States formed and located subsidiary on prior notice to the Lender, and provided the Collateral remains subject to the security interest herein described. Although Proceeds of Collateral are covered by this Agreement, this shall not be construed to mean that the Lender consent to any sale of the Collateral, except as provided herein. Sales of Collateral in the ordinary course of business and as described above shall be free of the security interest of the Lender and the Lender shall promptly execute such documents (including without limitation releases and termination statements) as may be required by Debtor to evidence or effectuate the same.
 
 
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5.3        Debtor will, at all reasonable times during regular business hours and upon reasonable notice, allow the Lender or its representatives free and complete access to the Collateral and all of Debtor’s records that in any way relate to the Collateral, for such inspection and examination as the Lender reasonably deem necessary.
 
5.4        Debtor, at its sole cost and expense, will protect and defend this Security Agreement, all of the rights of the Lender hereunder, and the Collateral against the claims and demands of all other persons.
 
5.5        Debtor will promptly notify the Lender of any levy, distraint or other seizure by legal process or otherwise of any part of the Collateral, and of any threatened or filed claims or proceedings that are reasonably likely to affect or impair any of the rights of the Lender under this Security Agreement in any material respect.
 
5.6        Debtor, at its own expense, will obtain and maintain in force insurance policies covering losses or damage to those items of Collateral which constitute physical personal property, which insurance shall be of the types customarily insured against by companies in the same or similar business, similarly situated, in such amounts (with such deductible amounts) as is customary for such companies under the same or similar circumstances, similarly situated. Debtor shall make the Lender loss payee thereon to the extent of its interest in the Collateral. the Lender are hereby irrevocably (until the Obligations are indefeasibly paid in full) appointed Debtor’s attorney-in-fact to endorse any check or draft that may be payable to Debtor so that the Lender may collect the proceeds payable for any loss under such insurance. The proceeds of such insurance, less any costs and exp enses incurred or paid by the Lender in the collection thereof, shall be applied either toward the cost of the repair or replacement of the items damaged or destroyed, or on account of any sums secured hereby, whether or not then due or payable.
 
5.7        In order to protect the Collateral and the Lender’ interest therein, the Lender may, at the Lender’ option, and without any obligation to do so, pay, perform and discharge any and all amounts, costs, expenses and liabilities herein agreed to be paid or performed by Debtor upon Debtor’s failure to do so. All amounts expended by the Lender in so doing shall become part of the Obligations secured hereby, and shall be immediately due and payable by Debtor to the Lender upon demand and shall bear interest at the lesser of 12% per annum or the highest legal amount allowed from the dates of such expenditures until paid.
 
5.8        Upon the request of the Lender, Debtor will furnish to the Lender within five (5) business days thereafter, or to any proposed assignee of this Security Agreement, a written statement in form reasonably satisfactory to the Lender, duly acknowledged, certifying the amount of the principal and interest and any other sum then owing under the Obligations, whether to its knowledge any claims, offsets or defenses exist against the Obligations or against this Security Agreement, or any of the terms and provisions of any other agreement of Debtor securing the Obligations. In connection with any assignment by the Lender of this Security Agreement, Debtor hereby agrees to cause the insurance policies required hereby to be carried by Debtor, if any, to be endorsed in form satisfactory to the Lender or to such assignee, with loss payable clauses in favor of such assignee, and to cause such endorsements to be delivered to the Lender within ten (10) calendar days after request therefor by the Lender.
 
5.9        Debtor will, at its own expense, make, execute, endorse, acknowledge, file and/or deliver to the Lender from time to time such vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, reports and other reasonable assurances or instruments and take further steps relating to the Collateral and other property or rights covered by the security interest hereby granted, as the Lender may reasonably require to perfect their security interest hereunder.
 
5.10      Debtor represents and warrants that they are the true and lawful exclusive owners of the Collateral, free and clear of any liens, encumbrances and claims other than those listed on Schedule 5.1.
 
5.11      Debtor hereby agrees not to divest itself of any right under the Collateral except as permitted herein absent prior written approval of the Lender, except to a subsidiary organized and located in the United States on prior notice to the Lender provided the Collateral remains subject to the security interest herein described.
 
 
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Debtor will notify the Lender within ten (10) days of the occurrence of any change of Debtor’s name, domicile, address or jurisdiction of incorporation. The timely giving of this notice is a material obligation of Debtor.
 
6.           Performance By The Lender.
 
If Debtor fails to perform any material covenant, agreement, duty or obligation of Debtor under this Agreement, the Lender may, after any applicable cure period, at any time or times in its discretion, take action to effect performance of such obligation. All reasonable expenses of the Lender incurred in connection with the foregoing authorization shall be payable by Debtor as provided in Paragraph 9.1 hereof. No discretionary right, remedy or power granted to the Lender under any part of this Agreement shall be deemed to impose any obligation whatsoever on the Lender with respect thereto, such rights, remedies and powers being solely for the protection of the Lender.
 
7.            Event of Default.
 
An event of default (“Event of Default”) shall be deemed to have occurred hereunder upon the occurrence of any event of default as defined and described in this Agreement, in the Notes and the Purchase Agreement, and any other agreement to which Debtor and the Lender are parties. Upon and after any Event of Default, after the applicable cure period, if any, any or all of the Obligations shall become immediately due and payable at the option of the Lender, and the Lender may dispose of Collateral as provided below. A default by Debtor of any of its material obligations pursuant to this Agreement shall be an Event of Default hereunder and an “Event of Default” as defined in the Notes and Purchase Agreement.
 
8.            Disposition of Collateral.
 
Upon and after any Event of Default which is then continuing,
 
8.1        The Lender may exercise their rights with respect to each and every component of the Collateral, without regard to the existence of any other security or source of payment for, in order to satisfy the Obligations. In addition to other rights and remedies provided for herein or otherwise available to it, the Lender shall have all of the rights and remedies of a lender on default under the Uniform Commercial Code then in effect in the State of New York.
 
8.2        If any notice to Debtor of the sale or other disposition of Collateral is required by then applicable law, five (5) business days prior written notice (which Debtor agrees is reasonable notice within the meaning of Section the Code) shall be given to Debtor of the time and place of any sale of Collateral which Debtor hereby agrees may be by private sale. The rights granted in this Section are in addition to any and all rights available to the Lender under the Uniform Commercial Cod e.
 
8.3        The Lender is authorized, at any such sale, if the Lender deem it advisable to do so, in order to comply with any applicable securities laws, to restrict the prospective bidders or purchasers to persons who will represent and agree, among other things, that they are purchasing the Collateral for their own account for investment, and not with a view to the distribution or resale thereof, or otherwise to restrict such sale in such other manner as the Lender deem advisable to ensure such compliance. Sales made subject to such restrictions shall be deemed to have been made in a commercially reasonable manner.
 
8.4        All proceeds received by the Lender in respect of any sale, collection or other enforcement or disposition of Collateral, shall be applied (after deduction of any amounts payable to the Lender pursuant to Paragraph 9.1 hereof) against the Obligations. Upon payment in full of all Obligations, Debtor shall be entitled to the return of all Collateral, including cash, which has not been used or applied toward the payment of Obligations or used or applied to any and all costs or expenses of the Lender incurred in connection with the liquidation of the Collateral (unless another person is legally entitled thereto). Any assignment of Collateral by the Lender to Debtor shall be without representation or warranty of any nature whatsoever and wholly without recourse. To the extent allowed by law, the Lender may purchase the Collateral and pay for such purchase by offsetting the purchase price with sums owed to the Lender by Debtor arising under the Obligations or any other source.
 
 
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8.5        Rights of the Lender to Appoint Receiver. Without limiting, and in addition to, any other rights, options and remedies the Lender have under the Transaction Documents, the UCC, at law or in equity, or otherwise, upon the occurrence and continuation of an Event of Default, the Lender shall have the right to apply for and have a receiver appointed by a court of competent jurisdiction. Debtor expressly agrees that such a receiver will be able to manage, protect and preserve the Collateral and continue the operation of the business of Debtor to the extent necessary to collect all revenues and profits thereof and to apply the same to the payment of all expenses and other charges of such receivership, including the compensation of the receiver, until a sale or other disposition of such Collateral shall be finally made and consummated. Debtor waives any right to require a bond to be posted by or on behalf of any such receiver.
 
9.          Miscellaneous.
 
9.1        Expenses. Debtor shall pay to the Lender, on demand, the amount of any and all reasonable expenses, including, without limitation, attorneys’ fees, legal expenses and brokers’ fees, which the Lender may incur in connection with (a) sale, collection or other enforcement or disposition of Collateral; (b) exercise or enforcement of any the rights, remedies or powers of the Lender hereunder or with respect to any or all of the Obligations upon breach or threatened breach; (c) failure by Debtor to perform and observe any agreements of Debtor contained herein which are performed by the Lender, and (d) such other Lender Expenses.
 
9.2        Waivers, Amendment and Remedies. No course of dealing by the Lender and no failure by the Lender to exercise, or delay by the Lender in exercising, any right, remedy or power hereunder shall operate as a waiver thereof, and no single or partial exercise thereof shall preclude any other or further exercise thereof or the exercise of any other right, remedy or power of the Lender. No amendment, modification or waiver of any provision of this Agreement and no consent to any departure by Debtor therefrom shall, in any event, be effective unless contained in a writing signed by the Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. The rights, remedies and powers of the Lender, not only hereunder, but also under any instruments and agreements evidencing or securing the Obligations and under applicable law are cumulative, and may be exercised by the Lender from time to time in such order as the Lender may elect.
 
9.3        Notices. All notices or other communications given or made hereunder shall be in writing and shall be personally delivered or deemed delivered the first business day after being faxed (provided that a copy is delivered by first class mail) to the party to receive the same at its address set forth below or to such other address as either party shall hereafter give to the other by notice duly made under this Section:
 
To the Debtor:
Airtronic USA, Inc.
1860 Jarvis Avenue
Elk Grove Village, IL 60007
Attention: Merriellyn Kett
 
With a copy (which shall not constitute notice) to:
Ginsberg Jacobs LLC
300 South Wacker Drive, Suite 2750
Chicago, IL 60606
Attn: Matthew R. Zakaras
 
and to:
 
Swanson, Martin & Bell, LLP
2525 Cabot Drive, Suite 204
Lisle, IL 60532
Attn: Charles S. Stahl, Jr.
 
To Lender:
Global Digital Solutions, Inc.
9477 Greenback Lane
Folsom, CA 95630
Attention: William Delgado
 
With a copy (which shall not constitute notice) to:
Global Digital Solutions, Inc.
14 Saint George Pl.
Palm Beach Gardens, FL 33418
Attn: David Loppert
 
Any party may change its address by written notice in accordance with this paragraph.
 
 
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9.4        Term; Binding Effect. This Agreement shall (a) remain in full force and effect until payment and satisfaction in full of all of the Obligations; (b) be binding upon Debtor, and its successors and permitted assigns; and (c) inure to the benefit of the Lender and its successors and assigns.
 
9.5        Captions. The captions of Paragraphs, Articles and Sections in this Agreement have been included for convenience of reference only, and shall not define or limit the provisions of this agreement and have no legal or other significance whatsoever.
 
9.6        Governing Law; Venue; Severability.
 
(a)           All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Illinois, without regard to the principles of conflicts of law thereof. Each of the Debtor and the Lender agree that all legal proceedings concerning the interpretations, enforcement and defense of this Agreement shall be commenced in the state and federal courts sitting in the County of Cook County, State of Illinois; (the “Illinois Courts”); provided, however, that any suit seeking enforcement against any Collateral or other property may be brought, at Lender’s option, in the courts of any jurisdiction where Lender elects to bring such action or where such Collateral or other property may be found. Debtor and Lender waive, to the extent permitted under applicable law, any right each may have to assert the doctrine of forum non conveniens or to object to venue to the extent an y proceeding is brought in accordance with this Section 9.6(a).
 
(b)           Except as set forth above, each of the Debtor and the Lender hereby irrevocably submit to the exclusive jurisdiction of the Illinois Courts for the adjudication of any dispute hereunder (including with respect to the enforcement of this Agreement) , and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper. Each of the Debtor and the Lender hereby irrevocably waive personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to the other 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 manner permitted by law. Each of the Debtor and the Lender hereby irrevocably waive, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Note or the transactions contemplated hereby.
 
9.7        Entire Agreement. This Agreement contains the entire agreement of the parties and supersedes all other agreements and understandings, oral or written, with respect to the matters contained herein.
 
9.8       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 may be executed by facsimile signature and delivered by electronic transmission.
 
10.        Termination; Release. When the Obligations have been indefeasibly paid and performed in full pursuant to the terms of the Notes and the Purchase Agreement, this Agreement shall be terminated, and the Lender, at the request and sole expense of the Debtor, will execute and deliver to the Debtor the proper instruments (including UCC termination statements) acknowledging the termination of the Security Agreement, and duly assign, transfer and deliver to the Debtor, without recourse, representation or warranty of any kind whatsoever, such of the Collateral, as may be in the possession of the Lender.
 
 
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11.        Lender Powers.
 
11.1       Lender Powers. The powers conferred on the Lender hereunder are solely to protect the Lender’s interest in the Collateral and shall not impose any duty on it to exercise any such powers. Lender hereby agrees to comply with the International Trafficking in Arms Regulations, ATF regulations, DDTC regulations and any related regulations (collectively, the “Applicable Regulations”), and to the extent any terms and provisions in this Agreement, including the granting of any powers or authority, contravene any Applicable Regulations, such terms and provisions are hereby limited to conform with such Applicable Regulations. To the extent the terms and provisions in this Section conflict with any other provisions in this Agreement, the terms in this Section will prevail.
 
11.2     Reasonable Care. The Lender is required to exercise reasonable care in the custody and preservation of any Collateral in its possession; provided, however, that the Lender shall be deemed to have exercised reasonable care in the custody and preservation of any of the Collateral if it takes such action for that purposes as any owner thereof reasonably requests in writing at times other than upon the occurrence and during the continuance of any Event of Default, but failure of the Lender to comply with any such request at any time shall not in itself be deemed a failure to exercise reasonable care.
 
[SIGNATURE PAGE FOLLOWS]
 
 
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IN WITNESS WHEREOF, the undersigned have executed and delivered this Security Agreement, as of the date first written above.
 
 
"DEBTOR"
AIRTRONIC USA, INC
 
       
  By: /s/ Merriellyn Kett  
    Printed Name:  Merriellyn Kett  
    Printed Title: CEO  
       
 
"LENDER"
GLOBAL DIGITAL SOLUTIONS, INC.
 
       
  By:    
    Printed Name:  
    Printed Title:  
 
 
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IN WITNESS WHEREOF, the undersigned have executed and delivered this Security Agreement, as of the date first written above.
 
 
"DEBTOR"
AIRTRONIC USA, INC
 
       
  By:    
    Printed Name:  
    Printed Title:  
       
 
"LENDER"
GLOBAL DIGITAL SOLUTIONS, INC.
 
       
  By: /s/ William J. Delgado  
    Printed Name: William J. Delgado  
    Printed Title: CEO  
 
 
 
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Schedule 5.1
 
Security Interests
 
 
11

Exhibit 10.4
 
BRIDGE LOAN MODIFICATION AND RATIFICATION AGREEMENT
 
THIS BRIDGE MODIFICATION AND RATIFICATION AGREEMENT (this Agreement ”), made as of March __, 2013, by and between AIRTRONIC USA, INC., an Illinois corporation (the Company ”) and GLOBAL DIGITAL SOLUTIONS, INC., a New Jersey corporation (“Lender”).
 
WHEREAS, on or about October 18, 2012, the Company requested a credit facility from Lender under the terms, memorialized by, among other documents, (i) that certain Debtor In Possession Note Purchase Agreement between the Company and Lender (the Note Agreement ”), (ii) that certain 8 1/4 Secured Promissory Note made by the Company for the benefit of Lender (the “Note”); and (iii) that certain Security Agreement between the Company and Lender (the Security Agreement ,” and together with the Note Agreement, the Note and all other related loan documents, collectively, the Bridge Loan Documents ”). All terms used in this Agreement but not defined herein will have the meanings given to them in the Bridge Loan Documents.
 
WHEREAS, Lender is willing to provide the requested credit facility subject to the Bridge Loan Documents as amended by this Agreement.
 
NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby covenant and agree as follows:
 
1.              Modification of Bridge Loan Documents. The Bridge Loan Documents are modified as follows:
 
(a)           The Bridge Loan will continue to be evidenced by the Note, as amended by this Agreement.
 
(b)           The Initial Funding Amount will be $105,158.62, and the Company hereby acknowledges receipt of the Initial Funding Amount.
 
(c)           The Maximum Amount will be $700,000.00.
 
(d)          On the terms and subject to the conditions set forth in this Agreement and the Bridge Loan Documents (including the conditions set forth in paragraph (e) below), and provided there does not then exist an Event of Default, Lender agrees to make loans to the Company from time to time in such amounts as are set forth and in accordance with the budget attached hereto as EXHIBIT A (the “DIP Budget”), so long as the aggregate amount of such advances outstanding at any time to the Company do not exceed the Maximum Amount. Requests for loans by the Company will be made on a weekly basis. Lender shall not make any loans for amounts in excess of the amounts set forth in the DIP Budget with regard to any itemized category of expense nor shall Lender make aggregate loans to the Company in excess of the Maximum Amount, unless Lender chooses to do so in its sole discretion and any necessary and appropriate court approvals are obtained.
 
(e)          In addition to the conditions set forth in the Bridge Loan Documents, Lender’s obligation to make additional loans shall be subject to the following condition precedents: (i) Airtronic shall not fail to propose a plan for reorganization that is acceptable to Lender within the next 210 days or any shorter period prescribed by the court; (ii) no party other than Lender shall propose a plan for reorganization that is unacceptable to Lender; (iii) there shall be no material adverse change to the Company’s sales and revenue outlook, financial condition or prospects for reorganization under Chapter 11; (iv) there shall be no existing, uncured Event of Default; (v) the Lender shall not deem itself insecure for any other reason; and (vi) an order shall be entered in the Bankruptcy Case in the form and substance of the draft order attached hereto as EXHIBIT B.
 
 
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(f)          The definition of Event of Default for all of the Bridge Loan Documents shall be expanded to include: (i) any material adverse change in Airtronic’s sales and revenue outlook, financial condition or prospects for reorganization under Chapter 11; (ii) GDSI deems itself insecure for any reason; and (iii) Airtronic breaches any of the terms of the Bridge Loan Documents.
 
2.             Ratification of Loan Documents and Collateral. All of the terms, provisions, covenants, representations and warranties contained in the Bridge Loan Documents are ratified and affirmed by the Company and the Lender in all respects and will remain in full force and effect as modified by this Agreement. Lender shall execute the Bridge Loan Documents simultaneous with the execution of this Agreement. Any property or rights to or interest in the property granted as security in the Bridge Loan Documents will remain as security for the Bridge Loan, as modified by this Agreement, and the obligation of the Company. In the event there is a conflict between any of the terms of the Bridge Loan Documents and the terms of this Agreement, then the terms of this Agreement shall be controlling.
 
3.              Release of Lender. The Company hereby release, relinquish, discharge and waive any and all claims, demands, actions, causes of actions, suits, debts, costs, dues, sums of money, accounts, covenants, contracts, controversies, agreements, promises, trespasses, damages, judgments, executions, expenses and liabilities whatsoever, known or unknown, at law or in equity, irrespective of whether such arise out of contract, tort, violation of laws or regulations or' otherwise, which the Company (and its successors, assigns, legal representatives, heirs, executors or administrators) ever had, now have or hereafter can, may or shall have against Lender or its officers, directors, employees, representatives, agents, trustees, shareholders, partners, members, contractors, advisors, attorneys, subsidiaries, affiliates, predecessors, successors or assigns by reason of any matter, cause or thing whatsoever from the beginning of the world to and including the date of this Agreement arising out of, relating to, or in connection with, the Bridge Loan, the Bridge Loan Documents, this Agreement or the transactions contemplated hereunder, whether known or unknown as of the date hereof.
 
4.              General Provisions.
 
(a)          Each of the Loan Documents is hereby modified to the extent necessary so that the term Bridge Loan Documents ,” as such term may be used therein, will be deemed to include this Agreement.
 
(b)          Lender's rights under this Agreement will be in addition to all of the rights of Lender under the Bridge Loan Documents.
 
(c)          This Agreement is subject to enforcement by Lender at law or in equity, including, without limitation, actions for damages or specific performance.
 
(d)          The Company agrees to execute and deliver all such documents and instruments, and do all such other acts and things, as may be reasonably required by Lender in the future to perfect, assure, confirm or effectuate the modification contemplated by and set forth in this Agreement.
 
(e)          The Bridge Loan Documents as modified and this Agreement contain the entire agreement and understanding of the parties hereto with respect to the subject matter hereof and may not be amended, modified or discharged, nor any of their terms waived, except by an instrument signed in writing by the party to be bound thereby.
 
 
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IN WITNESS WHEREOF, the parties hereto have executed this Bridge Loan Modification and Ratification Agreement as of the date first written above.
 
LENDER:
  COMPANY:  
           
GLOBAL DIGITAL SOLUTIONS, INC.,  
AIRTRONIC USA, INC.,
 
a New Jersey corporation  
an Illinois corporation
 
         
By: /s/ William J. Delgado  
By:
   
  Name: William J. Delgado     Name:  
  Title: CEO     Title:  
           
         
         
         
     
Address
 
 
 
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IN WITNESS WHEREOF, the parties hereto have executed this Bridge Loan Modification an Ratification Agreement as of the date first written above.
 
LENDER:
  COMPANY:  
           
GLOBAL DIGITAL SOLUTIONS, INC.,  
AIRTRONIC USA, INC.,
 
a New Jersey corporation  
an Illinois corporation
 
         
By:    
By:
/s/ Merriellyn Kett, CEO  
  Name:     Name: Merriellyn Kett  
  Title:     Title: Chief Executive Officer  
        Address: 1860 Jarvis Avenue Elk Grove Village IL 60007 USA  
 
 
4


Exhibit 10.5
 
SECOND BRIDGE LOAN MODIFICATION AND RATIFICATION AGREEMENT
 
THIS SECOND BRIDGE LOAN MODIFICATION AND RATIFICATION AGREEMENT (this Agreement ”) is made as of August 5, 2013, by and between AIRTRONIC USA, INC., an Illinois corporation (the Company ”) and GLOBAL DIGITAL SOLUTIONS, INC., a New Jersey corporation (“Lender”).
 
WHEREAS, on or about October 22, 2012, the Company requested a credit facility from Lender under the terms, memorialized by, among other documents, (i) that certain Debtor In Possession Note Purchase Agreement between the Company and Lender (the Note Agreement ”), (ii) that certain 81/4% Secured Promissory Note made by the Company for the benefit of Lender (the Original Note ”); and (iii) that certain Security Agreement between the Company and Lender (the Security Agreement ).
 
WHEREAS, on or about March 15, 2013, the Company and Lender entered into that certain Bridge Loan Modification and Ratification Agreement (the First Modification ”). The First Modification, this Agreement, the Original Note, the Note Agreement, the Security Agreement, the Kett Security Agreement (defined below), the New Note (defined below) and all other related loan documents and amendments thereto are collectively referred to as the Bridge Loan Documents .” All capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Note Agreement as amended by the First Modification.
 
WHEREAS, the Company has requested that the amount of its credit facility under the Bridge Loan Documents be increased by $550,000.
 
WHEREAS, Lender is willing to provide the requested credit facility in exchange for, among other consideration, the Company’s execution of a new 81/4% Secured Promissory Note in favor of Lender dated as of August 5, 2013 for the original principal amount of $550,000 (the New Note ”), Merriellyn Kett’s execution of the Intellectual Property Security Agreement between her and Lender of even date with the New Note (the Kett Security Agreement ”), the Company’s execution of the First Amendment to Agreement of Merger and Plan of Reorganization between Company and Lender of even date herewith (the First Amendment ”), and the Company’s execution of this Agreement.
 
NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby covenant and agree as follows:
 
1.           Modification of Bridge Loan Documents. The Bridge Loan Documents are modified as follows:
 
(a)         Any funding of the Bridge Loan in excess of $700,000 shall be evidenced by the New Note.
 
(b)         The Maximum Amount will be $1,250,000.
 
(c)         On the terms and subject to the conditions set forth in this Agreement and the Bridge Loan Documents (including the conditions set forth in paragraph (d) below), and provided there does not then exist an Event of Default, Lender agrees to make loans to the Company from time to time in such amounts as are set forth and in accordance with the revised 270 day budget attached hereto as EXHIBIT A (the “DIP Budget”), so long as the aggregate amount of such advances outstanding at any time to the Company do not exceed the Maximum Amount. Requests for loans by the Company will be made on a weekly basis. Lender shall not make any loans for amounts in excess of the amounts set forth in the DIP Budget with regard to any itemized category of expense nor shall Lender make aggregate loans to the Company in excess of the Maximum Amount, unless Lender chooses to do so in its sole discretion and any necessary and appropriate court approvals are obtained.
 
 
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(d)         In addition to the conditions set forth in the Bridge Loan Documents, Lender’s obligation to make additional loans shall be subject to the following condition precedents: (i) no party other than Lender shall propose a plan for reorganization that is unacceptable to Lender; (ii) there shall be no material adverse change to the Company’s sales and revenue outlook, financial condition or prospects for reorganization under Chapter 11; (iii) there shall be no existing, uncured Event of Default; (iv) the Lender shall not deem itself insecure for any other reason; (v) an order shall be entered in the Bankruptcy Case in the form and substance of the draft order attached hereto as EXHIBIT B; and (vi) fully executed originals of the New Note, Kett Security Agreement, and the First Amendment, all in form and substance acceptable to Lender, must be delivered to Lender.
 
2.              Ratification of Loan Documents and Collateral. All of the terms, provisions, covenants, representations and warranties contained in the Bridge Loan Documents are ratified and affirmed by the Company and the Lender in all respects and will remain in full force and effect as modified by this Agreement. Any property or rights to or interest in the property granted as security in the Bridge Loan Documents will remain as security for the Bridge Loan, as modified by this Agreement, and the obligation of the Company. In the event there is a conflict between any of the terms of any other Bridge Loan Document and the terms of this Agreement, then the terms of this Agreement shall be controlling.
 
3.              Release of Lender. The Company hereby release, relinquish, discharge and waive any and all claims, demands, actions, causes of actions, suits, debts, costs, dues, sums of money, accounts, covenants, contracts, controversies, agreements, promises, trespasses, damages, judgments, executions, expenses and liabilities whatsoever, known or unknown, at law or in equity, irrespective of whether such arise out of contract, tort, violation of laws or regulations or' otherwise, which the Company (and its successors, assigns, legal representatives, heirs, executors or administrators) ever had, now have or hereafter can, may or shall have against Lender or its officers, directors, employees, representatives, agents, trustees, shareholders, partners, members, contractors, advisors, attorneys, subsidiaries, affiliates, predecessors, successors or assigns by reason of any matter, cause or thing whatsoever from the beginning of the world to and including the date of this Agreement arising out of, relating to, or in connection with, the Bridge Loan, the Bridge Loan Documents, this Agreement or the transactions contemplated hereunder, whether known or unknown as of the date hereof.
 
4.              General Provisions.
 
(a)         All of the Bridge Loan Documents shall be modified so that the terms “Bridge Loan Documents” and “Loan Documents” shall include all of the Bridge Loan Documents as defined in this Agreement.
 
(b)         Lender's rights under this Agreement will be in addition to all of the rights of Lender under the Bridge Loan Documents.
 
(c)         This Agreement is subject to enforcement by Lender at law or in equity, including, without limitation, actions for damages or specific performance.
 
(d)         The Company agrees to execute and deliver all such documents and instruments, and do all such other acts and things, as may be reasonably required by Lender in the future to perfect, assure, confirm or effectuate the modification contemplated by and set forth in this Agreement.
 
(e)         The Bridge Loan Documents as modified and this Agreement contain the entire agreement and understanding of the parties hereto with respect to the subject matter hereof and may not be amended, modified or discharged, nor any of their terms waived, except by an instrument signed in writing by the party to be bound thereby.
 
 
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IN WITNESS WHEREOF, the parties hereto have executed this Second Bridge Loan Modification and Ratification Agreement as of the date first written above.
 
LENDER:
  COMPANY:  
       
GLOBAL DIGITAL SOLUTIONS, INC.,   AIRTRONIC USA, INC.,  
a New Jersey corporation 
  an Illinois corporation  
           
By:    
By:
   
  Name:     Name:  
  Title:     Title:  
           
         
         
         
     
Address
 
 
 
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APPENDIX A
Budget
 
 
4

Exhibit 10.6
 
THIS SECURITY HAS NOT 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 MAKER. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
 
8 1/4% SECURED PROMISSORY NOTE
 
$550,000 
    August 5, 2013
 
FOR VALUE RECEIVED, Airtronic USA, Inc., an Illinois corporation (the “Company” or “Maker”), with its primary offices located at 1860 Jarvis Avenue, Elk Grove Village, IL 60007, promises to pay to the order of Global Digital Solutions, Inc., (the “Lender”) or its registered assigns (with the “Lender”, the “Holder”), upon the terms set forth below, the principal sum of Five Hundred Fifty Thousand Dollars ($550,000) plus interest on the unpaid principal sum outstanding at the rate of 8 1/4% per annum (this “Note”). Defined terms not otherwise defined herein shall have the meanings ascribed to such terms in that certain debtor in possession note purchase agreement dated as of October 22, 2012 among the Maker and the Holder (the Purchase Agreement ”) and modified by that certain First Bridge Loan Modification and Ratification Agreement between Lender and Maker dated as of March 15, 2013 (“ First Modification ”) and that certain Second Bridge Loan Modification and Ratification Agreement between Lender and Maker of even date herewith (“ Second Modification ”) .
 
1.             Payments.
 
(a)           Unless an Event of Default shall have previously occurred and be continuing, the full amount of principal and accrued interest under this Note shall be due and payable on March 31, 2014 (the “Maturity Date” ). Notwithstanding the foregoing, the Company shall make partial payments of principal and interest on the Note as contemplated in the DIP Budget attached as exhibit A to the Second Modification.
 
(b)           The Maker shall pay interest to the Holder on the aggregate and then outstanding principal amount of this Note at the rate of 8 1/4% per annum, payable in arrears on the earlier of (i) the Maturity Date or (ii) acceleration of this Note following an Event of Default pursuant to Section 3(b). Interest on this Note shall commence to accrue as of the date an advance on funds is made by Lender pursuant to the terms of this Note.
 
(c)           Interest shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods, and shall accrue monthly commencing on the Original Issue Date until payment in full of the outstanding principal, together with all accrued and unpaid interest, and other amounts which may become due hereunder, has been made. Interest hereunder will be paid to the Person in whose name this Note is registered on the records of the Maker regarding registration and transfers of this Note.
 
 
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(d)          All overdue accrued and unpaid principal and interest to be paid hereunder shall entail a late fee at the rate of 12% per annum (or such lower maximum amount of interest permitted to be charged under applicable law) which will accrue daily, from the date such principal and/or interest is due hereunder through and including the date of payment. Except as otherwise set forth in this Note, the Maker may not prepay any portion of the principal amount of this Note without the 10 Business Day advance written notice to the Holder.
 
2.               Secured Obligation. The obligations of the Maker under this Note are secured by all of the assets of the Maker pursuant to the Security Agreement between Maker and Lender dated as of October 22, 2012 (the Security Agreement ”) and the Security Agreement between Merriellyn Kett and Lender of even date herewith (the Kett Security Agreement ”).
 
3.              Events of Default.
 
(a)            Event of Default ”, wherever used herein, means anyone 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.           If the Maker fails to pay when due and payable, or when declared due and payable, all or any portion of the Obligations (whether of principal, interest (including any interest which, but for the provisions of the Bankruptcy Code, would have accrued on such amounts), fees and charges due Holder, reimbursement of Holder Expenses, or other amounts constituting Obligations); or
 
ii.          If the Maker fails to (a) perform, keep, or observe any covenant or other provision contained in Section 6(d)(iii) and 6(d)(iv) of the Purchase Agreement and such failure or neglect continues for a period of 10 Business Days after the date on which such failure or neglect first occurs, or (b) perform, keep, or observe any covenant or other provision contained in Sections 6(d) and (e) of the Purchase Agreement or any comparable provision contained in any of the other Loan Documents;
 
iii.         If any material portion of the Maker’s assets are attached, seized, subjected to a writ or distress warrant, levied upon, or comes into the possession of any third Person; or
 
iv.         If the Maker is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs; or
 
v.          If a notice of Lien, levy, or assessment is filed of record with respect to any of the Maker’s assets by the United States, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, or if any taxes or debts owing at any time hereafter to any one or more of such entities becomes a Lien, whether choate or otherwise, upon any of the Maker’s assets and the same is not paid before such payment is delinquent; or
 
vi.         If a judgment or other claim in an amount equal to or greater than $5,000 individually or $25,000 in the aggregate becomes a lien of encumbrance upon any material portion of the Maker’s assets and the same is not discharged or bonded against within thirty (30) days of the date of the attachment of such lien or encumbrance; or
 
 
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vii.        If there is a default in any material agreement to which the Maker is a party and such default (a) occurs at the final maturity of the obligations thereunder, or (b) results in a right by the other party thereto, irrespective of whether exercised, to accelerate the maturity of the Maker’s obligations thereunder, to terminate such agreement, or to refuse to renew such agreement pursuant to an automatic renewal right therein, unless in such case enforcement of such agreement is stayed by virtue of commencement of the Bankruptcy Case; or
 
viii.       If there shall be a Change of Control; or
 
ix.          If this Agreement or any other Loan Document that purports to create a Lien, shall, for any reason, fail or cease to create a valid and perfected and, except to the extent permitted by the terms hereof or thereof, first priority Lien on or security interest in the Collateral covered hereby or thereby; or
 
x.           (A) The Loan Documents and the Financing Order shall, for any reason, cease to create a valid Lien on any of the Collateral (other than any immaterial portion) purported to be covered thereby or such Lien shall cease to be a perfected Lien having the priority provided herein pursuant to Section 364 of the Bankruptcy Code against the Maker, or the Maker shall so allege in any pleading filed in any court or (B) any material provision of any Loan Document shall, for any reason, cease to be valid and binding on the Maker or the Maker shall so state in writing; or
 
xi.          An order with respect to the Bankruptcy Case shall be entered by the Bankruptcy Court, (A) appointing a trustee or an examiner with enlarged powers relating to the operation of the Maker’s business, (B) converting the Bankruptcy Case to a Chapter 7 case, (C) dismissing or suspending the Bankruptcy Case, which order does not contain a provision for the termination of Holder’s obligation to make Advances and the payment in full in cash of all Obligations or is not otherwise satisfactory to Holder thereunder, (D) confirming a plan or plans of reorganization in the Chapter 11 Case which does not contain a provision for the termination of all of Holder’s obligation to make Advances and payment in full in cash of all Obligations in a manner satisfactory to Holder, or (E) authorizing the use of cash collateral; or
 
xii.         Other than as contemplated by the First Day Orders, there shall be any material payment on, or application by the Maker for authority to pay, any material pre-petition claim, other than payroll, other employee related expenses, ordinary course rebates and credits to customers, sales, and other “use” type taxes, insurance obligations, trade debt incurred in the ordinary course of business, and other ordinary course expenses, in each instance without the express prior written consent of Holder; or
 
xiii.        (A) The Interim Order shall not be entered by the Bankruptcy Court within 10 days of the filing thereof or cease to be in full force and effect after the date of entry thereof and the Final Order shall not have been entered prior to such cessation, or (B) the Final Order shall not have been entered by the Bankruptcy Court on or before the 35th day following the Closing Date or (C) from and after the Entry Date, the Final Order shall cease to be in full force and effect, or (D) the Maker or any of its Subsidiaries or Affiliates shall fail to comply with the terms of the Interim Order or the Final Order in any material respect, or (v) the Interim Order or the Final Order shall be amended, supplemented, stayed, reversed, vacated or otherwise modified (or the Maker applies for authority to do so) without the express prior written consent of the Holder, or an order with respect to any Bankruptcy Case shall have been entered to (x) permit any administrative expense claim or any claim (now existing or hereafter arising, of any kind or nature whatsoever) to have administrative priority as to the Maker equal or superior to the priority of Holder in respect of the Obligations or (y) to grant or permit the grant of a Lien on any Collateral, other than Permitted Liens; or
 
 
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xiv.        An order shall be entered by the Bankruptcy Court, other than the Financing Order, granting material relief from the automatic stay to the holder or holders of any Liens on or security interests in any material assets of the Maker; or
 
xv.         An application for any of the orders described in Sections 3(a)xi , 3(a)xii , 3(a)xiii , and 3(a)xiv shall be made (A) by the Maker, or (B) in the case of Section 3(a)xi((E) only, by any other Person, and such application is expressly supported by the Maker; or
 
xvi.        Any provision of any Loan Document shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by the Maker, or a proceeding shall be commenced by the Maker, or by any Governmental Authority having jurisdiction over the Maker, seeking to establish the invalidity or unenforceability thereof, or the Maker shall deny that such Borrower has any liability or obligation purported to be created under any Loan Document.
 
xvii.       Any material adverse change in Company’s sales and revenue outlook, financial condition or prospects for reorganization under Chapter 11; or
 
xviii.      Lender deems itself insecure for any reason; or
 
xix.        Company breaches any of the terms of any Loan Document.
 
(b)           If any Event of Default occurs and shall be continuing, the full principal amount of this Note, together with all accrued interest thereon, shall become, at the Holder's election, immediately due and payable in cash. The Holder need not provide and the Maker 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 the Holder at any time prior to payment hereunder. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.
 
4.             Affirmative Covenants. The Maker covenants and agrees that, so long as any credit hereunder shall be available and until full and final payment of the Obligations, the Maker shall do all of the following:
 
(a)             Return. Cause returns and allowances, as between the Maker and its Account Debtors, to be on the same basis and in accordance with the usual customary practices of the Maker, as they exist at the time of the execution and delivery of this Agreement. If, at a time when no Event of Default has occurred and is continuing, any Account Debtor returns any Inventory to the Maker, the Maker promptly shall determine the reason for such return and, if the Maker accepts such return, issue a credit memorandum (with a copy to be sent to Holder) in the appropriate amount to such Account Debtor.
 
(b)             Taxes. Cause all assessments and taxes, whether real, personal, or otherwise, due or payable by the Maker, or imposed, levied, or assessed against the Maker or any of its assets to be paid in full, before delinquency or before the expiration of any extension period, except to the extent that the validity of such assessment or tax shall be the subject of a Permitted Protest. The Maker will make timely payment or deposit of all tax payments and withholding taxes required of it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Holder with proof satisfactory to Holder indicating that the Maker has made such payments or deposits. The Maker shall deliver satisfactory evidence of payment of applicable excise taxes in each jurisdiction in which the Maker is required to pay any such excise tax.
 
 
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(c)             Compliance with Laws and Orders. Comply with the requirements of all applicable laws, rules, regulations, and orders of any Governmental Authority, including the Fair Labor Standards Act, and the Americans With Disabilities Act, other than laws, rules, regulations, and orders the non-compliance with which, individually or in the aggregate, would not result in and reasonably could not be expected to result in a Material Adverse Effect.
 
(d)             Leases. Pay when due all rents and other amounts payable under any leases to which the Maker is a party or by the Maker's properties and assets are bound, unless such payments are the subject of a Permitted Protest.
 
(e)             Bankruptcy Court. Use its best efforts to obtain the approval of the Bankruptcy Court of this Agreement and the other Loan Documents and deliver or cause to be delivered to Holder, all pleadings, motions and other documents filed by or on behalf of the Maker with the Bankruptcy Court.
 
(f)              Maintain Operating Accounts. Maintain its operating accounts and cash management arrangements consistent with its current procedures in accordance with the terms of the First Day Orders.
 
5.             Negative Covenants. The Maker covenants and agrees that so long as the Lender has not advanced the Maximum Amount to the Maker, and until full and final payment of the Obligations, the Maker will not do any of the following:
 
(a)            Indebtedness. Create, incur, assume, permit, guarantee, or otherwise become or remain, directly or indirectly, liable with respect to any Indebtedness, except:
 
(i)          Indebtedness evidenced by, or arising under or in connection with, this Agreement and the other Loan Documents, and
 
(ii)         Refinancings, renewals, or extensions of Indebtedness permitted under clauses (b) and (c) of this Section 5 (and continuance or renewal of any Permitted Liens associated therewith) so long as: (i) the terms and conditions of such refinancings, renewals, or extensions do not, in Holder’s judgment, materially impair the prospects of repayment of the Obligations by the Maker or materially impair the Maker’s creditworthiness, (ii) such refinancings, renewals, or extensions do not result in an increase in the principal amount of, or interest rate with respect to, the Indebtedness so refinanced, renewed, or extended, (iii) such refinancings, renewals, or extensions do not result in a shortening of the average weighted maturity of the Indebtedness so refinanced, renewed, or extended, nor are they on terms or conditions that, taken as a whole, are materially more burdensome or restrictive to the Maker, and (iv) if the Indebtedness that is refinanced, renewed, or extended was by its terms subordinated in right of payment to the Obligations, then the terms and conditions of the refinancing, renewal, or extension Indebtedness must include contractual subordination terms and conditions that are at least as favorable to Holder as those that were applicable to the refinanced, renewed, or extended Indebtedness.
 
(b)           Liens. Create, incur, assume, or permit to exist, directly or indirectly, any Lien on or with respect to any of its assets, of any kind, whether now owned or hereafter acquired, or any income or profits therefrom except for Permitted Liens (including Liens that are replacements of Permitted Liens to the extent that the original Indebtedness is refinanced, renewed, or extended under Section 5(a) and so long as the replacement Liens only encumber those assets that secured the refinanced, renewed, or extended Indebtedness).
 
 
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(c)            Restrictions on Fundamental Changes.
 
(i)          Enter into any merger, consolidation, reorganization, or recapitalization, or reclassify its Stock.
 
(ii)         Liquidate, wind up, or dissolve itself (or suffer any liquidation or dissolution).
 
(iii)        Convey, sell, lease, license, assign, transfer, or otherwise dispose of, in one transaction or a series of transactions, all or any substantial part of its assets.
 
(d)           Disposal of Assets. Other than with Holder’s express written consent, convey, sell, lease, license, assign, transfer, or otherwise dispose of any assets.
 
(e)           Change Name. Change its name, FEIN, corporate structure, or identity, or add any new fictitious name.
 
(f)            Guarantee. Guarantee or otherwise become in any way liable with respect to the obligations of any third Person and except for the endorsement of instruments or items of payment for deposit to the account of the Maker or which are promptly transmitted or turned over to Holder.
 
(g)           Prepayments and Amendments.
 
(i)          Except in connection with a refinancing permitted by Section 5(a), prepay, redeem, defease, purchase, or otherwise acquire any Indebtedness of the Maker, other than the Obligations in accordance with this Agreement, and
 
(ii)         Except in connection with a refinancing permitted by Section 5(a), directly or indirectly, amend, modify, alter, increase, or change any of the terms or conditions of any agreement, instrument, document, indenture, or other writing evidencing or concerning Indebtedness permitted under this Note.
 
(h)            Change of Control. Cause, permit, or suffer, directly or indirectly, any Change of Control.
 
(i)             Consignments. Consign any Inventory or sell any Inventory on bill and hold, sale or return, sale on approval, or other conditional terms of sale.
 
j)              Distributions. Make any distribution or declare or pay any dividends (in cash or other property) on, or purchase, acquire, redeem, or retire any of the Maker's stockholder interests in any class of stock, whether now or hereafter outstanding.
 
(k)             The Orders. Make or permit to be made any change, amendment or modification, or any application or motion for any change, amendment or modification, to the Interim Order or the Final Order except for modifications and amendments that are reasonably satisfactory to Holder.
 
 
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(l)              Application to Bankruptcy Court. Apply to the Bankruptcy Court for the authority to take any action that is prohibited by or inconsistent with the terms of this Agreement or any of the other Loan Documents or refrain from taking any action that is required to be taken by the terms of this Agreement or any of the other Loan Documents.
 
(m)             Cancellation of Indebtedness Owed to It. Cancel any Indebtedness owed to it.
 
(n)             Chapter 11 Claims. Incur, create, assume, suffer to exist or permit any administrative expense, unsecured claim, indebtedness or other super-priority claim or lien which is pari passu with or senior to the claims or Liens of Holder against the Maker hereunder, or apply to the Bankruptcy Court for authority to do so, except for the Permitted Liens.
 
(o)             Plan of Reorganization. Modify a plan of reorganization approved by Holder, or file a plan of reorganization different from the one approved by Holder, without the prior written consent of Holder.
 
(p)             Filings. File any motion, application, objection, plan or reorganization, response, adversary complaint or similar pleading in the Bankruptcy Cases that would adversely affect the right or ability of Holder or the Holders to receive indefeasible payment in full in cash of all of the Obligations.
 
6.              No Waiver of the Holder's Rights. All payments of principal and interest shall be made without setoff, deduction or counterclaim. No delay or failure on the part of the Holder in exercising any of its options, powers or rights, nor any partial or single exercise of its options, powers or rights shall constitute a waiver thereof or of any other option, power or right, and no waiver on the part of the Holder of any of its options, powers or rights shall constitute a waiver of any other option, power or right. Maker hereby waives presentment of payment, protest, and all notices or demands in connection with the delivery, acceptance, performance, default or endorsement of this Note. Acceptance by the Holder of less than the full amount due and payable hereunder shall in no way limit the right of the Holder to require full payment of all sums due and payable hereunder in accordance with the terms hereof.
 
7.               Modifications. No term or provision contained herein may be modified, amended or waived except by written agreement or consent signed by the party to be bound thereby.
 
8.              Cumulative Rights and Remedies: Usury. The rights and remedies of the Holder expressed herein are cumulative and not exclusive of any rights and remedies otherwise available under this Note, or applicable law (including at equity). The election of the Holder to avail itself of anyone or more remedies shall not be a bar to any other available remedies, which the Maker agrees the Holder may take from time to time. If it shall be found that any interest due hereunder shall violate applicable laws governing usury, the applicable rate of interest due hereunder shall be reduced to the maximum permitted rate of interest under such law.
 
9.              Use of Proceeds. Maker shall use the proceeds from this Note hereunder for working capital purposes or as otherwise contemplated by the Purchase Agreement and not for the satisfaction of any portion of the Maker’s debt (other than payment of trade payables in the ordinary course of the Maker's business and prior practices), to redeem any of the Maker’s equity or equity-equivalent securities or to settle any outstanding litigation.
 
10.             Severability. If any provision of this Note is declared by a court of competent jurisdiction to be in any way 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 shall violate applicable laws governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum permitted rate of interest.
 
 
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11.            Successors and Assigns. This Note shall be binding upon the Maker and its successors and shall inure to the benefit of the Holder and its successors and assigns. The term “Holder” as used herein, shall also include any endorsee, assignee or other holder of this Note.
 
12.           Lost or Stolen Promissory Note. If this Note is lost, stolen, mutilated or otherwise destroyed, the Maker shall execute and deliver to the Holder a new promissory note containing the same terms, and in the same form, as this Note. In such event, the Maker may require the Holder to deliver to the Maker an affidavit of lost instrument and customary indemnity in respect thereof as a condition to the delivery of any such new promissory note.
 
13.           Governing Law.
 
(a)           All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed by and construed and enforced in accordance with the internal laws of the State of Illinois, without regard to the principles of conflicts of law thereof. Each of the Maker and the Holder agree that all legal proceedings concerning the interpretations, enforcement and defense of this Note shall be commenced in the state and federal courts sitting in the Cook County, Illinois; (the " Illinois Courts" ); provided , however , that any suit seeking enforcement against any Collateral or other property may be brought, at Holder’s option, in the courts of any jurisdiction where Holder elects to bring such action or where such Collateral or other property may be found. Maker and Holder waive, to the extent permitted under applicable law, any right each may have to assert the doctrine of forum non conveniens or to object to venue to the extent any proceeding is brought in accordance with this Section 13(a).
 
(b)           Except as set forth above, each of the Maker and the Holder hereby irrevocably submit to the exclusive jurisdiction of the Illinois Courts for the adjudication of any dispute hereunder (including with respect to the enforcement of this Note), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper. Each of the Maker and the Holder hereby irrevocably waive personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to the other at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each of the Maker and the Holder hereby irrevocably waive, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Note or the transactions contemplated hereby.
 
14.           Notice. Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with Section 9(b) of the Purchase Agreement.
 
15.           Required Notice to the Holder. The Holder is to be notified by the Maker, within five (5), Business Days, in accordance with Section 14, of the existence or occurrence, of any Event of Default.
 
[SIGNATURE PAGE FOLLOWS]
 
 
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The undersigned has executed this Note as a maker and not as a surety or guarantor or in any other capacity.
 
 
“MAKER”
AIRTRONIC USA, INC.
 
       
 
By:
   
   
Printed Name:
 
   
Printed Title:
 
 
 
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Exhibit 10.7
 
INTELLECTUAL PROPERTY SECURITY AGREEMENT
 
1.             Identification.
 
This Intellectual Property Security Agreement (the “Agreement”), dated as of August 5, 2013 is entered into by and between Merriellyn Kett, an individual (“Grantor”) and Global Digital Solutions, Inc., a New Jersey corporation (“GDSI” or the “Lender”).
 
2.             Recitals.
 
2.1         On or about March 15, 2013, the Lender made or committed to make a loan to Airtronic USA, Inc. (“Debtor”), as evidenced by: (a) the Bridge Loan Modification and Ratification Agreement dated March 15, 2013 (“First Modification”); (b) the Debtor in Possession Note Purchase Agreement dated October 22, 2012 (“Purchase Agreement”); (c) the Security Agreement dated October 22, 2012 (“Security Agreement”); and (d) the 8 14 % Secured Promissory Note dated October 22, 2012 (“Original Note”) (collectively, the “Original Loan Documents”).
 
2.2        As provided in the Original Note, the maturity date of the Original Note is “the date the Bankruptcy Court has discharged the Bankruptcy Case.” The Debtor filed its plan of reorganization (the “Plan”) in the Bankruptcy Case, as that term is defined in the Purchase Agreement. GDSI consented to the filing of the plan, and approved of all of the terms and conditions contained therein. Pursuant to the Plan, as may be amended with GDSI’s consent, on the GDSI Transaction Closing Date (as defined in the Plan), the GDSI Transaction (as defined in the Plan) shall be consummated, at which time, among other things, GDSI will acquire 70% of the issued and outstanding capital stock of the Debtor, as reorganized, and all amounts due and owing under the Original Note shall be credited to the GDSI Note Receivable (as defined in the Plan) in the original principal amount of $2 million.
 
2.2        Thereafter, Lender made or committed to make further loans to Debtor pursuant to the 814% Secured Promissory Note dated as of August 5, 2013 (“New Note”) and the Second Bridge Loan Modification and Ratification Agreement between Lender and Debtor dated as of August 5, 2013 (“Second Modification”) (collectively with the Original Loan Documents, the “Loan Documents”).
 
2.3         Grantor is Chief Executive Officer of the Debtor and signatory to the Loan Documents on behalf of the Debtor.
 
2.4         In consideration of the loans made by Lender to Debtor pursuant to the Loan Documents or otherwise (the “Loan”) and for other good and valuable consideration, and as security for the performance by Debtor of its obligations under the Loan Documents, and as security for the repayment of the Loan and all other sums due from Debtor to the Lender arising under the Loan Documents and any other agreement between or among them, Grantor, for good and valuable consideration, receipt of which is acknowledged, desires to grant to the Lender a first priority security interest senior to all other security interests in the Intellectual Property Collateral (as such term is defined herein), on the terms and conditions hereinafter set forth. Obligations (as defined in the Purchase Agreement) include all future advances and loans by the Lender to Debtor that may be made pursuant to the Purchase Agreement, Loan Documents or any other agreements.
 
 
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2.5         Capitalized terms not defined but employed herein shall have the meanings attributed to them in the Loan Documents and the Plan. In the event of a conflict between defined terms in the Loan Documents and defined terms in the Plan, defined terms in the Loan Documents shall prevail.
 
3.           Creation of Security.
 
3.1         Grant of Security Interest.
 
As collateral security for the prompt and complete payment and performance of all of Debtor’s present or future Obligations under the Loan Documents and repayment of the Loan, Grantor hereby grants a first priority security interest, senior to all other security interests, in all of Grantor’s right, title and interest in, to, and under her registered intellectual property collateral (all of which shall collectively be referred to as the “Intellectual Property Collateral”), including, without limitation, the following:
 
(a)         Any and all patents, patent applications, and like protections, including without limitation improvements, divisions, continuations, renewals, reissues, extensions, and/or continuations-in-part of the same, set forth on Exhibit A hereto (collectively, the “Patents”);
 
(b)         Any and all trademark and/or service mark rights, slogans, trade dress, trade names, and trade styles, whether registered or not, applications to register, and registrations of same and like protections, and the entire goodwill of the business of Debtor connected with and symbolized by such trademarks, set forth on Exhibit B hereto (collectively, the “Trademarks”);
 
(c)         Any and all claims for damages by way of past, present, and/or future infringements of any of the Copyrights, Patents and Trademarks described above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the rights described above;
 
(d)         Any and all amendments, extensions, or renewals of any of the Copyrights, Patents and Trademarks; and
 
(e)         Any and all proceeds and products of the foregoing rights, including without limitation all payments under any insurance policy or policies or any indemnity or warranty payable in respect of any of the foregoing.
 
 
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Provided, however , that notwithstanding any of the other provisions herein (and notwithstanding any recording of the Lender’s Lien made in the United States Patent and Trademark Office, United States Copyright Office, or other registry office in any other jurisdiction), this Agreement shall not constitute a grant of security interest in any property to the extent that such grant of a security interest is prohibited by any rule of law, statute or regulation or is prohibited by, or constitutes a breach or default under or results in the termination of or gives rise to any right of acceleration, modification or cancellation under any contract, license, agreement, instrument or other document evidencing or giving rise to Grantor’s right to use such property, or would result in the forfeiture of Grantor’s rights in the property including, without limitation, any Trademark applications filed in the United States Patent and Trademark Office on the basis of Grantor’s “intent to use” such Trademark, unless and until acceptable evidence of use of the Trademark has been filed with and accepted by the United States Patent and Trademark Office pursuant to Section 1(c) or Section 1(d) of the Lanham Act, 15 U.S.C. 1051, et seq. , to the extent that granting a lien in such Trademark application prior to such filing would adversely affect the enforceability or validity of such Trademark application.
 
Furthermore, notwithstanding any other provisions herein, this Agreement shall not grant a security interest in any property unless and until Lender has advanced $550,000 to Debtor pursuant to the New Note.
 
3.2        Additional Security Interests. This security interest in the Intellectual Property Collateral is granted in conjunction with the security interest granted to Lender under the Security Agreement and/or other Loan Documents. The rights and remedies of Lender with respect to the security interest in the Intellectual Property Collateral are in addition to those set forth in the Loan Documents, and those which are now or hereafter available to Lender as a matter of law or equity. Each right, power, and remedy of Lender provided for herein or in the Loan Documents, or now or hereafter existing at law or in equity, shall be cumulative and concurrent and shall be in addition to every right, power, or remedy provided for herein and the exercise by Lender of any one or more of the rights, powers, or remedies provided for in this Intellectual Property Security Agreement, or any of the other Loan Documents, or now or hereafter existing at law or in equity, shall not preclude the concurrent or later exercise by any person or entity, including Lender, of any or all other rights, powers, or remedies.
 
3.3        Authorizations. Grantor irrevocably authorizes Lender to file at any time in any relevant jurisdiction any initial financing statements with respect to the Intellectual Property Collateral or any part thereof and amendments thereto that contain the information required by Article 9 of the Uniform Commercial Code, or the analogous legislation of each applicable jurisdiction for the filing of any financing statement or amendment. Lender is further authorized to file with the United States Patent and Trademark Office or United States Copyright Office (or any successor office or any similar office in any other country or jurisdiction) such documents as may be necessary or advisable for the purposes of perfecting, confirming, continuing, enforcing, or protecting its security interest in the Intellectual Property Collateral, without the signature of Grantor, and naming Grantor as debtor and Lender as secured party.
 
4.           Covenants and Warranties. Grantor represents, warrants, covenants, and agrees as follows:
 
(a)         This Agreement creates, and in the case of any After-Acquired Intellectual Property (as defined in Section 4(f), below), will create, at the time Grantor first has rights in such After-Acquired Intellectual Property, in favor of Lender, in each case, a valid and perfected first priority security interest and collateral assignment in the Intellectual Property Collateral in the United States securing the payment and performance of the Obligations evidenced in the Loan Documents.
 
 
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(b)         Grantor is now an owner of the Intellectual Property Collateral, free and clear of any and all liens, assignments, prior security interests, or otherwise, except for non-exclusive licenses granted by Grantor to Debtor’s customers in the ordinary course of business, and has full power and authority to grant a first-priority security interest in the Intellectual Property Collateral to Lender hereunder, without the consent of any other person or entity.
 
(c)         Performance of this Agreement does not conflict with or result in a breach of any material agreement to which Grantor is a party or otherwise bound. Grantor shall remain liable to perform all obligations under the terms of any contract, agreement, or instrument relating to the Intellectual Property Collateral (in whole or in part), and Grantor agrees to indemnify and hold harmless Lender from and against any and all liability for such performance or failure to perform.
 
(d)         During the term of this Agreement, Grantor will not: (1) transfer or otherwise encumber any interest in the Intellectual Property Collateral, except for non-exclusive licenses granted by Grantor in the ordinary course of Debtor’s business or as otherwise permitted by this Agreement; (2) divest herself of any right under, in, or to the Intellectual Property Collateral except as permitted herein, absent prior written approval of the Lender; or (3) enter into any agreement that would materially impair or conflict with Grantor’s obligations under this Agreement without Lender’s express written consent, which consent will not be unreasonably withheld. Notwithstanding anything to the contrary herein, nothing in this Agreement prevents Grantor from disposing of, discontinuing the use or maintenance of, failing to pursue, or otherwise allowing to lapse, terminate, or be put into the public domain, any Intellectual Property Collateral if Grantor determines in her reasonable business judgment that such discontinuance is desirable in the conduct of her or Debtor’s business.
 
(e)         To the best of Grantor’s knowledge, each of the Trademarks, Patents, and Copyrights is valid and enforceable, and no part of the Intellectual Property Collateral has been judged invalid or unenforceable, in whole or in part, and no claim has been made in writing that any part of the Intellectual Property Collateral violates the rights of any third party.
 
(f)          Grantor shall advise Lender of any ownership right of Grantor in or to any Trademark, Patent, or Copyright arising after the date of this Agreement (“After-Acquired Intellectual Property”). Grantor agrees that, should she obtain an ownership or other interest in After-Acquired Intellectual Property: (1) the provisions of this Agreement shall automatically apply thereto; and (2) any such After-Acquired Intellectual Property shall automatically become part of the Intellectual Property Collateral subject to the terms and conditions of this Agreement.
 
 
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(g)         Grantor shall, at her own expense: (1) protect, defend, and maintain the validity and enforceability of the Trademarks, Patents, and Copyrights, including, but not limited to, timely filing and paying all maintenance fees for Patents and all renewal fees for Trademarks and/or Copyrights; (2) use reasonable commercial efforts to detect infringements of the Trademarks, Patents, or Copyrights and promptly advise Lender in writing of material infringements detected; and (3) not allow any Trademarks, Patents, or Copyrights to be abandoned, forfeited, dedicated to the public or placed into the public domain, or otherwise become invalid or unenforceable, without the written consent of Lender, which shall not be unreasonably withheld.
 
(h)         Grantor shall take such further actions as Lender may reasonably request from time to time to perfect or continue the perfection of Lender’s security interest in the Intellectual Property Collateral, including, but not limited to, the payment of any fees and/or taxes required in connection with the granting of the security interest in the Intellectual Property Collateral to Lender, and the filing of any financing statements or other documents in connection herewith or therewith.
 
(i)           To Grantor’s knowledge, no authorization, approval, or other action by, and no notice to or filing with, any United States governmental authority or United States regulatory body is required either: (1) for the grant by Grantor of the security interest granted under this Agreement, or for the execution, delivery, or performance of this Agreement by Grantor in the United States; or (2) for the perfection in the United States or the exercise by Lender of its rights and remedies under this Agreement.
 
(j)           All information heretofore, herein, or hereafter supplied to Lender by or on behalf of Grantor with respect to the Intellectual Property Collateral is true and correct in all material respects.
 
(k)         Grantor will promptly notify Lender in writing of: (1) any event that materially adversely affects the value of the Intellectual Property Collateral; (2) any event that adversely affects the ability of Grantor to dispose of any material Intellectual Property Collateral; (3) any event that materially adversely affects the rights and remedies of Lender in relation to the Intellectual Property Collateral; and (4) any threatened or filed legal, equitable, or administrative claims or proceedings that are reasonably likely to affect or impair any of the rights of the Lender under this Agreement or in the Intellectual Property Collateral in any material respect.
 
(l)          Grantor, at her sole cost and expense, will protect and defend this Agreement, all of the rights of the Lender hereunder, and the Intellectual Property Collateral against the claims and demands of all other persons or entities.
 
5.           Performance By Lender. If Grantor fails to perform any material covenant, agreement, duty or obligation of Grantor under this Agreement, Lender may, at any time or times in its discretion, take action to effect performance of such obligation. All amounts expended by the Lender in so doing shall become part of the Debtor’s obligations secured hereby, and shall be immediately due and payable by Grantor to the Lender upon demand and shall bear interest at the highest legal amount allowed by law from the dates of such expenditures until paid. No discretionary right, remedy or power granted to the Lender under any part of this Agreement shall be deemed to impose any obligation whatsoever on the Lender with respect thereto, such rights, remedies and powers being solely for the protection of the Lender.
 
 
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6.            Further Assurances; Attorney in Fact.
 
(a)         On a continuing basis, Grantor will, at any time upon request by Lender, make, execute, acknowledge, and deliver, and file and record in the proper filing and recording places in the United States, all such instruments, including appropriate financing and continuation statements and collateral agreements and filings with the United States Patent and Trademark Office and the Register of Copyrights, and take all such action as may reasonably be requested by Lender, to perfect Lender’s security interest in all Licenses, Copyrights, Patents, and Trademarks and otherwise to carry out the intent and purposes of this Agreement, or for assuring and confirming to Lender the grant or perfection of a security interest in all Intellectual Property Collateral, provided that Grantor shall not be required to register any Intellectual Property Collateral that Grantor determines, consistent with reasonable business practices, need not be registered.
 
(b)         In addition to Section 6(a) above, Grantor shall not register any Copyrights in the United States Copyright Office unless Grantor: (1) has given at least fifteen (15) days’ prior written notice to Lender of Grantor’s intent to register such Copyrights and has provided Lender with a copy of the application Grantor intends to file with the United States Copyright Office; (2) executes a security agreement or such other documents as Lender may reasonably request in order to maintain the perfection and priority of Lender’s security interest in the Copyrights Grantor proposes to register with the United States Copyright Office; and (3) records such security agreement or other such documents with the United States Copyright Office contemporaneously with filing the Copyright application(s) with the United States Copyright Office. Grantor shall promptly provide to Lender evidence of the recording of the security agreement or other such documents necessary for Lender to maintain the perfection and priority of its security interest in such Copyrights.
 
(c)         Grantor shall provide written notice to Lender of any application filed by Grantor in the United States Patent and Trademark Office for a patent or to register a trademark or service mark within thirty (30) days of any such filing.
 
(d)         Grantor hereby irrevocably makes, constitutes, and appoints Lender (and any of Lender’s officers, employees, or agents designated by Lender) as Grantor’s attorney-in-fact, with full authority in the place and stead of Grantor and in the name of Grantor, Lender, or otherwise, from time to time in Lender’s discretion, upon Grantor’s failure or inability to do so, to take any action and to execute any instrument which Lender may deem reasonably necessary or advisable to accomplish the purposes of this Agreement, including: (1) to modify, in Lender’s sole discretion, this Agreement without first obtaining Grantor’s approval of or signature to such modification, by amending Exhibit A, Exhibit B, or Exhibit C hereto, as appropriate, to include reference to any right, title, or interest in any Copyrights, Patents, Licenses or Trademarks acquired by Grantor after the execution of this Agreement, or to delete any reference to any right, title, or interest in any Copyrights, Patents, or Trademarks in which Grantor no longer has or claims any right, title, or interest; and (2) to file, in Lender’s sole discretion, one or more financing or continuation statements and/or amendments thereto, or other notice filings or notations in appropriate filing offices, relative to any of the Intellectual Property Collateral, without notice to Grantor, within all appropriate jurisdictions, as Lender deems appropriate, in order to perfect or protect Lender’s interest in the Intellectual Property Collateral.
 
 
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In addition, on such periodic basis as Lender shall require, Grantor shall: (x) provide Lender with a report of all new patentable, copyrightable, or trademarkable materials acquired or generated by Grantor during the prior period; (y) cause all Patents, Copyrights, and/or Trademarks acquired or generated by Grantor that are not already the subject of a registration with the appropriate filing office (or an application therefor diligently prosecuted) to be registered with such appropriate filing office in a manner sufficient to impart constructive notice of Grantor’s ownership thereof; and (z) cause to be prepared, executed, and delivered to Lender supplemental schedules to the Exhibits to this Agreement to identify such Patents, Copyrights, Licenses and/or Trademarks as being subject to the security interests created hereunder.
 
7.             Event of Default.
 
An event of default (“Event of Default”) shall be deemed to have occurred hereunder upon the occurrence of any event of default as defined in the Loan Documents, except an Event of Default under this Agreement shall not be triggered solely because Lender deems itself insecure. Upon and after any Event of Default, after the applicable cure period, if any, any or all of the Obligations shall become immediately due and payable at the option of the Lender, and the Lender may dispose of the Intellectual Property Collateral as provided below. A default by Debtor of any of its material obligations pursuant to any of the Loan Documents, or a default of Grantor of any of her material obligations pursuant to this Agreement, shall also constitute an Event of Default hereunder and an “Event of Default” as defined in the Loan Documents.
 
8.            Remedies Upon Default.
 
8.1         Upon and after any Event of Default which is then continuing, and if such Event of Default is not cured by Grantor within seven (7) days after receipt of written notice thereof from Lender, then the Lender may exercise its rights with respect to each and every component of the Intellectual Property Collateral, without regard to the existence of any other security or source of payment, in order to satisfy the Obligations. In addition to other rights and remedies provided for herein or otherwise available to it, the Lender shall have all of the rights and remedies of a lender on default under the Uniform Commercial Code then in effect in the State of Illinois.
 
 
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8.2         If an Event of Default occurs and is continuing, and if such Event of Default is not cured by Grantor within seven (7) days after receipt of written notice thereof from Lender, Grantor agrees to deliver each item of Intellectual Property Collateral to Lender on demand, and Lender shall have the right, at the same or different times, with respect to any Intellectual Property Collateral, on demand, to cause its security interest in any Intellectual Property Collateral to become an assignment, transfer, and conveyance of any or all such Intellectual Property Collateral by Grantor to Lender, or to license or sublicense, whether special, general or otherwise, and whether on an exclusive or non-exclusive basis, any such Intellectual Property Collateral throughout the world on such terms and conditions and in such manner as Lender shall determine, and, generally, to exercise any and all rights afforded to a secured party with respect to the Obligations under the Uniform Commercial Code in any applicable jurisdiction or other applicable law. The use of any such license or sublicense by Lender may be exercised, at Lender’s option, during the continuation of an Event of Default; provided , that any permitted license, sublicense, or other transaction entered into by Lender in accordance herewith shall be binding upon Grantor notwithstanding any subsequent cure of an Event of Default. Notwithstanding the foregoing, nothing in this Section shall require Grantor to grant any license that is prohibited by any rule of law, statute or regulation or is prohibited by, or constitutes a breach or default under or results in the termination of or gives rise to any right of acceleration, modification, or cancellation under any contract, license, agreement, instrument or other document evidencing, giving rise to a right to use or theretofore granted, to the extent permitted by the Loan Documents, with respect to such property.
 
Without limiting the generality of the foregoing, if an Event of Default occurs and is continuing, and if such Event of Default is not cured by Grantor within seven (7) days after receipt of written notice thereof from Lender, Grantor agrees that the Lender shall have the right, subject to applicable law and the notice requirements described in Section 8.3 below, to sell or otherwise dispose of all or any part of the Intellectual Property Collateral securing the Obligations at a public or private sale, for cash, upon credit, or for future delivery as Lender shall deem appropriate. Each such purchaser at any sale of Intellectual Property Collateral shall hold the property sold absolutely, free from any claim or right on the part of the Grantor, and Grantor hereby waives (to the extent permitted by law) all rights of redemption, stay and appraisal which Grantor now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted.
 
8.3         Lender shall give Grantor five (5) days’ written notice (which Grantor agrees is reasonable notice within the meaning of the Uniform Commercial Code or other applicable law) of the Lender’s intention to make any sale of Intellectual Property Collateral. Such notice, in the case of a public sale, shall state the time and place for such sale. Any such public sale shall be held at such time or times as within ordinary business hours and at such place or places as Lender may fix and state in the notice (if any) of such sale. At any such sale, the Intellectual Property Collateral, or portion thereof, to be sold may be sold in one lot as an entirety or in separate parcels, as the Lender may determine in its sole discretion. The Lender shall not be obligated to make any sale of any Intellectual Property Collateral if Lender shall determine not to do so, regardless of the fact that notice of sale of such Intellectual Property Collateral shall have been given. The Lender may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. In case any sale of all or any part of the Intellectual Property Collateral is made on credit or for future delivery, the Intellectual Property Collateral so sold may be retained by the Lender until the sale price is paid by the purchaser or purchasers thereof, but the Lender shall not incur any liability in case any purchaser or purchasers shall fail to take up and pay for the Intellectual Property Collateral so sold and, in case of any such failure, such Intellectual Property Collateral may be sold again upon like notice. As an alternative to exercising the power of sale herein conferred upon it, Lender may proceed by a suit or suits at law or in equity to foreclose this Agreement and to sell the Intellectual Property Collateral or any portion thereof pursuant to a judgment or decree of a court or courts having competent jurisdiction or pursuant to a proceeding by a court-appointed receiver. Any sale pursuant to the provisions of this Section shall be deemed to conform to the commercially reasonable standards as provided in Section 9-610(b) of the Illinois Uniform Commercial Code or its equivalent in other jurisdictions. The rights granted in this Section are in addition to any and all rights available to the Lender under the Uniform Commercial Code.
 
 
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8.4        All proceeds received by the Lender in respect of any sale, collection or other enforcement or disposition of Intellectual Property Collateral shall be applied (after deduction of any amounts payable to the Lender pursuant to the terms of this Agreement) against the Obligations. Upon payment in full of all Obligations, Grantor shall be entitled to the return of all Intellectual Property Collateral which has not been used or applied toward the payment of Obligations or used or applied to any and all costs or expenses of the Lender incurred in connection with the liquidation of the Intellectual Property Collateral (unless another person is legally entitled thereto).
 
9.          Miscellaneous.
 
9.1         Expenses. Grantor shall pay to the Lender, on demand, the amount of any and all reasonable expenses, including, without limitation, attorneys’ fees, legal expenses and brokers’ fees, which the Lender incurs in connection with: (a) the sale, collection or other enforcement or disposition of the Intellectual Property Collateral; (b) the exercise or enforcement of any the rights, remedies or powers of the Lender hereunder or with respect to any or all of the Obligations upon breach or threatened breach; and (c) failure by Grantor to perform and/or observe any agreements of Grantor contained herein which are performed by the Lender. Notwithstanding the foregoing, nothing in this Section 9.1 is intended to or shall alter the terms of Section 5 above.
 
9.2        Waivers, Amendment, and Remedies. No course of dealing by the Lender and no failure by the Lender to exercise, or delay by the Lender in exercising, any right, remedy or power hereunder shall operate as a waiver thereof, and no single or partial exercise thereof shall preclude any other or further exercise thereof or the exercise of any other right, remedy or power of the Lender. No amendment, modification or waiver of any provision of this Agreement and no consent to any departure by Grantor therefrom shall, in any event, be effective unless contained in a writing signed by the Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. The rights, remedies and powers of the Lender, not only hereunder, but also under any instruments and agreements evidencing or securing the Obligations and under applicable law are cumulative, and may be exercised by the Lender from time to time in such order as the Lender may elect.
 
 
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9.3        Notices. All notices or other communications given or made hereunder shall be in writing and shall be personally delivered or deemed delivered the first business day after being faxed (provided that a copy is delivered by first class mail), or two business days after being sent via FedEx or other nationally recognized overnight delivery service for overnight delivery to the party to receive the same at the address set forth below or to such other address as either party shall hereafter give to the other by notice duly made under this Section:
 
To Grantor :
 
Merriellyn Kett
c/o Airtronic USA, Inc.
1860 Jarvis Avenue
Elk Grove Village, IL 60007
 
With a copy (which shall not constitute notice) to:
 
Swanson, Martin & Bell, LLP
2525 Cabot Drive, Suite 204
Lisle, IL 60532
Attn: Charles S. Stahl, Jr.
 
and to:
 
Kamensky Rubinstein Hochman & Delott LLP
7250 North Cicero Avenue, Suite 200
Lincolnwood, IL 60712
Attn: Lee J. Levin
 
To Lender :
 
Global Digital Solutions, Inc.
777 South Flagler Drive, Suite 800W
West Palm Beach, FL 33401
Attn: Richard J. Sullivan
 
With a copy (which shall not constitute notice) to:
 
Global Digital Solutions, Inc.
14 Saint George Pl.
Palm Beach Gardens, FL 33418
Attn: David A. Loppert
 
and to:
 
Greiman, Rome & Griesmeyer, LLC
24115 West 103 rd Street, Suite B
Naperville, IL 60564
Attn: Beau T. Greiman, Esq.
 
 
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Any party may change its address by written notice in accordance with this Section.
 
9.4        Term; Binding Effect. This Agreement shall: (a) remain in full force and effect until payment and satisfaction in full of all of the Obligations; (b) be binding upon Grantor, and her heirs, successors, and permitted assigns; and (c) inure to the benefit of the Lender and its successors and assigns.
 
9.5         Captions. The captions of Paragraphs, Articles and Sections in this Agreement have been included for convenience of reference only, and shall not define or limit the provisions of this Agreement and have no legal or other significance whatsoever.
 
9.6          Governing Law; Venue; Severability.
 
(a)         All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Illinois, without regard to the principles of conflicts of law thereof. The Grantor and the Lender each agree that all legal proceedings concerning the interpretation, enforcement and defense of this Agreement shall be commenced in the state and/or federal courts sitting in the County of Cook, State of Illinois (the “Illinois Courts”). Grantor and Lender waive, to the extent permitted under applicable law, any right each may have to assert the doctrine of forum non conveniens or to object to venue to the extent any proceeding is brought in accordance with this Section.
 
(b)         Except as set forth above, each of the Grantor and the Lender hereby irrevocably submit to the exclusive jurisdiction of the Illinois Courts for the adjudication of any dispute hereunder (including with respect to the enforcement of this Agreement), and hereby irrevocably waive, and agree not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, or that such suit, action or proceeding is improper. The Grantor and the Lender each hereby irrevocably waive personal service of process and consent to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to the other 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 manner permitted by law. Each of the Grantor and the Lender hereby irrevocably waive, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
 
9.7         Integration. This Agreement, together with the Loan Documents, comprises the complete and integrated agreement of the parties on the subject matter of this Agreement and supersedes all prior agreements, written or oral, on the subject matter of this Agreement. This Agreement was drafted with the joint participation of Grantor and Lender and shall be construed neither for nor against either party.
 
 
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9.8         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 may be executed by facsimile signature and delivered by electronic transmission.
 
10.           Termination; Release. When the Obligations have been indefeasibly paid and performed in full pursuant to the terms of the Loan Documents, this Agreement shall be terminated, and the Lender, at the request and sole expense of the Grantor, will execute and deliver to the Grantor the proper instruments (including UCC termination statements) acknowledging the termination of the Agreement, and duly assign, transfer and deliver to the Grantor, without recourse, representation or warranty of any kind whatsoever, such of the Intellectual Property Collateral, as may be in the possession of the Lender.
 
11.             Lender Powers. The powers conferred on the Lender hereunder are solely to protect the Lender’s interest in the Intellectual Property Collateral and shall not impose any duty on it to exercise any such powers. Lender hereby agrees to comply with the International Trafficking in Arms Regulations, ATF regulations, DDTC regulations and any related regulations (collectively, the “Applicable Regulations”), and to the extent any terms and provisions in this Agreement, including the granting of any powers or authority, contravene any Applicable Regulations, such terms and provisions are hereby limited to conform with such Applicable Regulations. To the extent the terms and provisions in this Section conflict with any other provisions in this Agreement, the terms in this Section will prevail.
 
[SIGNATURE PAGE FOLLOWS]
 
 
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IN WITNESS WHEREOF, the undersigned have executed and delivered this Intellectual Property Security Agreement, as of the date first written above.
 
 
GRANTOR”
 
MERRIELLYN KETT
 
     
     
     
 
LENDER”
 
     
 
GLOBAL DIGITAL SOLUTIONS, INC.
 
     
 
By:
   
  Printed Name:     
  Printed Title:    
 
 
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EXHIBIT A
 
PATENTS
 
Patent Name
Application No.
Filing Date
Applicant Name
       
1. Improved Rocket-Propelled Grenade Launcher with Picatinny Rail Mount System
61607751
March 7, 2012
Merriellyn Kett
2. Improved Grenade Launcher with Extended Receiver and Picatinny Rail Mount System
61601840
Feb. 22, 2012
Merriellyn Kett
 
 
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EXHIBIT B
 
TRADEMARKS
 
Word Mark
Serial No.
Filing Date
Status
       
1.     MK 777 Airtronic USA
85415967
Sept. 6, 2011
Live
       
2.     Airtronic USA
85385141
Feb. 21, 2012
Live
       
3.     MK 777
85385153
July 29, 2011
Live
       
4.     RPG-7(USA)
85385162
July 29, 2011
Live
 
 
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Exhibit 10.8
 
PROMISSORY NOTE PURCHASE AGREEMENT
 
This Promissory Note Purchase Agreement (this “Agreement”) is made as of the ____ day of December, 2012 by and among Global Digital Solutions, Inc., a New Jersey corporation (the “Company”), and the investor listed on Schedule A hereto (the “Investor”).
 
RECITALS
 
The Company desires to sell and issue an aggregate principal amount of Seven Hundred Fifty Thousand Dollars ($750,000) in a secured promissory note, and the Investor desires to purchase the secured promissory note, in substantially the form attached hereto as Exhibit A (the “Note”), which shall be redeemed for cash on the terms stated therein, upon the terms and subject to the conditions set forth in this Agreement (the “Offering”). The Note, and the equity securities issuable upon exercise of the warrants (as hereinafter defined) issued to the Investor in conjunction with the funding of the Note are collectively referred to herein as the “Securities”.
 
AGREEMENT
 
In consideration of the mutual promises contained herein and other good and valuable consideration, receipt of which is hereby acknowledged, the parties to this Agreement agree as follows:
 
1 .              Purchase and Sale of the Note.
 
(a)             Sale and Issuance of the Note and Issuance of Warrant. Subject to the terms and conditions of this Agreement, the Investor agrees to purchase at the Closing (as defined herein), and the Company agrees to sell and issue to the Investor at the Closing, a Note in the principal amount of Seven Hundred Fifty Thousand Dollars ($750,000) for a purchase price equal to such amount (the “Purchase Price”). At Closing the Company shall issue to the Investor a warrant to purchase three million (3,000,000) shares of the Company’s restricted shares of common stock, $.001 par value, for a term of 3 years at an exercise price of $.15 per share executed by the Company and registered in the name of the Investor (the “Warrant”),
 
(b)             Closings. The purchase and sale of the Note (the “Closing”) shall take place at the principal offices of Kopelowitz, Ostrow, Ferguson, Weiselberg, Keechl, 200 S.W. 1st Avenue, Suite 1200, Fort Lauderdale, Florida 33301, on the date hereof, or at such other place, time or date as the Company may decide in its sole discretion.
 
(c)             Company Deliverables. At the Closing, and as a condition to Closing, the Company shall deliver to the Investor (i) the Note duly executed by Company and registered in the name of the Investor, in substantially the form attached hereto as Exhibit A (the “Note”), (ii) a counterpart signature page to this Agreement, (iii) a counterpart signature page to the Security Agreement in substantially the form attached hereto as Exhibit B (the “Security Agreement”), (iv) the Warrant duly executed by Company and registered in the name of the I nvestor in substantially the form attached hereto as Exhibit C (v) executed copies of (A) the Debtor In Possession Note Purchase Agreement by and between the Company and Airtronic USA, Inc., an Illinois corporation (“Airtronic”) dated as of October 22, 2102, (B) the Secured Promissory Note dated October 22, 2012 made by Airtronic to the Company, (C) the Security Agreement dated October 22, 2012 between Airtronic and the Company, (D) the Interim Order approving the Debtor In Possession Note Purchase Agreement and related documents dated October 19, 2012 and (E) the Agreement of Merger and Plan of Reorganization by and between the Company and Airtronic dated as of October__, 2012.
 
 
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(d)             Other Deliverables. At the Closing, and as a condition to Closing, Bay Acquisition LLC shall deliver to the Investor (iii) a counterpart signature page to the Security Agreement, evidencing its pledge of the Additional Collateral as defined therein.
 
(e)             Investor Deliverables. At the Closing, and as a condition to Closing, the Investor shall deliver to the Company (i) a wire transfer to a bank designated by the Company equal to the Purchase Price, (ii) a counterpart signature page to this Agreement, (iii) a counterpart signature page to the Security Agreement, (iv), and a completed and signed Accredited Investor Declaration, the form of which is attached hereto as Exhibit E , (“Accredited Investor Declaration”, and together with this Agreement, the Note, the Warrant, and the Security Agreement, the “ Transaction Documents”).
 
2 .             Representations and Warranties of the Company. The Company hereby represents and warrants to the Investors that as of the Closing:
 
(a)             Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of New Jersey. The Company has all requisite corporate power and authority to own and operate its properties and assets, to execute and deliver this Agreement, the Security Agreement and the Note, to issue and sell the Securities, to carry out the provisions of this Agreement, the Security Agreement, and the Note, and to carry on its business as presently conducted. The Company is duly qualified and is authorized to do business and is in good standing as a foreign corporation in every jurisdiction in which the failure to so qualify would have a material adverse effect on its business, assets, results of operation, prospects, condition (financial or otherwise) or liabilities.
 
(b)            Subsidiaries. Except for those subsidiaries set forth on Exhibit F , the Company does not own or control, directly or indirectly, any equity security or other interest of any other corporation, limited partnership or other business entity. The Company is not a participant in any joint venture, partnership or similar arrangement.
 
(c)             Authorization; Binding Obligations. All corporate action on the part of the Company, its directors, officers and shareholders necessary for the authorization of this Agreement, the Security Agreement, and the Note, and the performance of all obligations of the Company hereunder and thereunder has been duly taken and has not been revoked. This Agreement, the Security Agreement, and the Note, when executed and delivered, will be valid and binding obligations of the Company enforceable in accordance with their terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights and (ii) as limited by general principles of equity.
 
 
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(d)             Litigation. There is no action, suit, proceeding or investigation pending or, to the Company’s knowledge, threatened against the Company that questions the validity of this Agreement, the Security Agreement, and the Note or the right of the Company to enter into any of such agreements, or to consummate the transactions contemplated hereby or thereby. The foregoing includes, without limitation, actions, suits, proceedings or investigations pending or, to the Company’s knowledge, threatened or any basis therefor known by the Company involving the prior employment of any of the Company’s employees, their use in connection with the Company’s business of any information or techniques allegedly proprietary to any of their former employers or their obligations under any agreements with prior employers.
 
3 .             Representations and Warranties of the Investors. The Investor hereby represents and warrants to the Company, on its own behalf that as of the Closing:
 
(a)             Organization and Good Standing; Requisite Power and Authority . The Investor is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. Investor has all requisite power and authority to execute and deliver the Transaction Documents and to carry out their respective provisions. All actions on the Investor’s part required for the lawful execution and delivery of the Transaction Documents have been taken and the Investor has its principal place of business at the address set forth on the signature page hereof and has not been formed for the specific purpose of acquiring the Note. Upon their execution and delivery, the Transaction Documents will constitute a valid and binding obligation of the Investor, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights, and (ii) as limited by general principles of equity.
 
(b)             Investment Representations. The Investor understands that the Securities have not been registered under the United States Securities Act of 1933, as amended, or any similar federal statute and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time (the “Securities Act”). The Investor also understands that the Securities are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon the Investor’s representations contained in this Agreement.
 
(c)             Investor Bears Economic Risk. The Investor has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. The Investor is aware that an investment in the Securities is highly speculative and subject to substantial risks. The Investor is capable of bearing the high degree of economic risk and burdens of this investment, including but not limited to the complete loss of all contributed capital, the lack of a public market and limited transferability of the Note, which may make the liquidation of this investment impossible for the indefinite future. The financial condition of the Investor is such that the Investor is under no present or contemplated future need to dispose of any portion of the Securities to satisfy any existing or contemplated undertaking, need or indebtedness. The Investor acknowledges that the Investor must bear the economic risk of this investment indefinitely unless the Securities are registered pursuant to the Securities Act, or an exemption from registration is available. The Investor understands that the Company has no present intention of registering the Securities. The Investor also understands that there is no assurance that any exemption from registration under the Securities Act will be available and that, even if available, such exemption may not allow the Investor to transfer all or any portion of the Securities under the circumstances, in the amounts or at the times the Investor might propose.
 
 
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(d)             Information Made Available. The Investor acknowledges that the Company has made available to the Investor and the Investor’s representatives and advisors, if any, the opportunity to ask questions and receive answers relating to the Offering, the Securities and the Company and to obtain any additional information the Company possesses or could obtain without unreasonable effort or expense to verify the accuracy of the information furnished to the Investor. The Investor confirms that all documents requested by the Investor have been made available to the Investor’s satisfaction, and that the Investor has been furnished all of the additional information concerning this investment which has been requested. Neither the Company nor any other person has made any representation, warranty or guarantee of any kind, relating to projections or otherwise, with respect to the Company, its business, or its affairs, except as set forth in this Agreement. The Investor has had an opportunity to ask questions of and receive answers from authorized persons acting on behalf of the Company to verify the accuracy and completeness of such information. In making a decision to purchase the Securities, the Investor has relied, in part, upon the Companies publicly filed information, including its annual report filed with the OTC markets.
 
(e)             Acquisition for Own Account. The Investor is acquiring the Securities for its own account as principal, not as a nominee or agent, for investment purposes only, and not with a view to, or for, resale, distribution or fractionalization thereof in whole or in part and no other person has a direct or indirect beneficial interest in the Securities. Further, the Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities.
 
(f)             Investor Can Protect Its Interest. The Investor represents that by reason of its, or of its management’s, business or financial experience, the Investor has the capacity to protect its own interests in connection with the transactions contemplated in this Agreement. The offer to sell the Securities was directly communicated to the Investor by the Company in such a manner that the Investor was able to ask questions of and receive answers from the Company or a person acting on its behalf concerning the terms and conditions of this transaction. At no time was the Investor presented with or solicited by or through any leaflet, public promotional meeting, television advertisement or any other form of general advertising or solicitation in connection and concurrently with such communicated offer.
 
(g)             Accredited Investor. The Investor is an “accredited investor” as such term is defined in Rule 501 of Regulation D promulgated under the Securities Act.
 
(h)             Restrictions on Transfer. The Investor understands that the Securities may not be sold or transferred, unless the Securities are registered pursuant to the Securities Act or unless approved by the Company, which approval may be conditioned upon receipt of an opinion of legal counsel, reasonably satisfactory to the Company, to the effect that such sale or transfer is exempt from the registration requirements of the Securities Act, and provided further that any transfer of the Securities in accordance with the foregoing shall be subject to the condition precedent that the transferee in each case agrees in writing to be subject to the terms of this Agreement, and is able to make the representations and warranties contained herein without exception, to the same extent as if the transferee were the original Purchaser hereunder . The Company has no obligation to effect a registration of the Securities for resale by the Investor.
 
 
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(i)              Forward Looking Statements. Investor acknowledges and agrees that, when used in any materials provided by the Company, the words “expect,” “estimate,” “project,” “intend” and similar expressions are intended to identify forward looking statements regarding events and financial trends which may affect the Company’s future operating results and financial condition. Such statements, along with any financial projections or projections of operations or results which may have been shown to or discussed with the Investor are “forward-looking statements” within the meaning of Section 27A of the Securities Act and Sectio n 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results, performance or achievements of the Company to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and other important factors include, among others, the general economic and business conditions, competition, and unavailability of qualified personnel.
 
(j)              Tax Consequences . The Investor acknowledges that the Company has not made any representation or warranty regarding the tax consequences to the Investor arising from the purchase of the Securities in accordance with this Agreement and that the Company shall in no event be liable to the Investor for any adverse tax liability that may arise as a result of the Investor purchasing the Securities in accordance with this Agreement. The Investor acknowledges that the Company has urged the Investor to seek the counsel of the Investor’s own legal or tax advisors with regard to the income tax consequences arising from the purchase of the Securities in accordance with this Agreement.
 
(k)             Indemnification. The Investor hereby agre es to indemnify the Company and its officers, directors, shareholders, employees, agents and attorneys against and hold each of them harmless from any and all losses, claims, demands, liabilities and expenses (including reasonable legal or other expenses, including reasonable attorneys’ fees) arising out of, based upon or related to (i) any sale or disposition of the Securities by the Investor in a violation of the Securities Act or any other securities laws, (ii) any untrue statement or alleged untrue statement of a material fact made by Investor and contained in the Transaction Documents, or (iii) any breach by Investor of any representation, warranty, covenant or agreement made by Investor in the Transaction Documents.
 
(l)              Legend. The Investor understands that upon exercise of the Warrant, in whole or in part, each certificate representing the equity securities issuable thereunder will be endorsed with a legend substantially as follows:
 
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES LAWS, OR THE AVAILABILITY OF AN EXEMPTION FROM THE REGISTRATION PROVISIONS OF THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS.
 
 
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5 .             Miscellaneous .
 
(a)             Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida, as to matters within the scope thereof. The parties agree that any action brought by either party under or in relation to this Agreement, including without limitation to interpret or enforce any provision of this Agreement, shall be brought in, and each party agrees to and does hereby submit to the jurisdiction and venue of, any state or federal court located in either Broward County or Palm Beach County, Florida.
 
(b)             Survival. The representations, warranties, covenants and agreements made herein shall survive the closing of the transactions contemplated hereby.
 
(c)             Assignment; Successors and Assigns. The Company may not assign this Agreement, or any rights or obligations hereunder, by operation of law or otherwise, without the consent of a the Investor. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon the parties hereto and their respective successors, assigns, heirs, executors and administrators and shall inure to the benefit of and be enforceable by each person who shall be a permitted holder of the Securities (in accordance with their terms) from time to time.
 
(d)             Entire Agreement. This Agreement, the exhibits hereto and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subject matter hereof and thereof, and no party shall be liable or bound to any other in any manner by any oral or written representations, warranties, covenants and agreements except as specifically set forth herein and therein. Each party expressly represents and warrants that it is not relying on any oral or written representations, warranties, covenants or agreements outside of this Agreement, the exhibits hereto and the other documents delivered pursuant hereto.
 
(e)             Severability. In the event one or more of the provisions of this Agreement should, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.
 
 
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(f)             Amendment and Waiver. Except as otherwise expressly set forth in this Agreement, any term of this Agreement may be amended or terminated and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only in writing in one or more counterparts signed by the Company and the Requisite Majority. Any amendment, termination or waiver effected in accordance with this Section shall be binding upon each Investor even if they do not execute such consent, each future holder of the Securities and the Company. No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision.
 
(g)             Delays or Omissions; Remedies Cumulative . It is agreed that no delay or omission to exercise any right, power or remedy accruing to any party, upon any breach, default or noncompliance by another party under this Agreement shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of or in any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent or approval of any kind or character on any party’s part of any breach, default or noncompliance under this Agreement or any waiver on such party’s part of any provisions or conditions of the Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies under this Agreement or otherwise afforded to any party shall be cumulative and not alternative.
 
(h)             Broker’s Fees. Each party hereto represents and warrants that no agent, broker, investment banker, person or firm, acting on behalf of or under the authority of such party hereto is or will be entitled to any broker’s or finder’s fee or any other commission directly or indirectly in connection with the transactions contemplated herein. Each party hereto further agrees to indemnify each other party for any claims, losses or expenses incurred by such other party as a result of the representation in this Section being untrue.
 
(i)             Notices. Any notice or other communication required or permitted to be given hereunder shall be in writing, by mail, facsimile or personal delivery, and shall be effective upon actual receipt of such notice. The addresses for such communications shall be as set forth below until notice is received that any such address or contact information has been changed:
 
(A)          If to the Company, at
 
Global Digital Solutions, Inc.
9477 Greenback Lane
Folsom, CA 95630
Attention: William Delgado
 
With a copy (which shall not constitute notice) to:
 
Global Digital Solutions, Inc.
14 Saint George Pl.
Palm Beach Gardens, FL 33418
Attn: David Loppert
 
 
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(B)          If to the Investor, at the address listed on Schedule A
 
With a copy (which shall not constitute notice) to:
 
Kopelowitz, Ostrow, Ferguson,
Weiselberg, Keechl
200 S.W. 1st Avenue, Suite 1200
Fort Lauderdale, Florida 33301
Attn: Scott Weiselberg
 
(j)              Expenses. Each party shall pay all its respective costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Agreement.
 
(k)             Attorneys’ Fees. In the event that any suit or action is instituted under or in relation to this Agreement, including without limitation to enforce any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all reasonable fees, costs and expenses of appeals.
 
(l)              Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.
 
(m)             Timely Performance. Time is of the essence as to the performance of the obligations required of the respective parties under this Agreement.
 
(n)             Pronouns. All pronouns contained herein, and any variations thereof, shall be deemed to refer to the masculine, feminine or neutral, singular or plural, as to the identity of the parties hereto may require.
 
(o)             Usury Exemption. Nothing in this Agreement, the Note, or in any other agreement deemed to pertain to this Agreement or the Note shall require the Company to pay interest at a rate in excess of the maximum rate permitted by applicable law. Any interest payable hereunder or under any other instrument relating to the indebtedness evidenced by the Note that is in excess of the maximum rate permitted by applicable law shall, in the event of acceleration of maturity, late payment, prepayment, or otherwise, be appl ied to a reduction of the unpaid indebtedness evidenced by the Note and not to the payment of interest, or if such excessive interest exceeds the unpaid balance of such unpaid indebtedness, such excess shall be refunded to the Company. To the extent not prohibited by applicable law, determination of the maximum rate permitted by applicable law shall at all times be made by amortizing, prorating, allocating and spreading in equal parts during the full term of the indebtedness evidenced hereby, all interest at any time contracted for, charged or received from the Company in connection with the indebtedness evidenced hereby, so that the actual rate of interest on account of such indebtedness is uniform throughout the term thereof. This section shall control every other provision of this Agreement, the Note and all other agreements deemed to be related to this Agreement or the Note.
 
 
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(p)             Counterparts . This Agreement may be executed in multiple counterparts, all of which when taken together shall be considered one and the same agreement, it being understood that all parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by the signature page being sent via e-mail as a portable data format (pdf.) file or image file attachment, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such signature page were an original thereof.
 
(q)             Counsel. All parties hereto have been represented by counsel, and no inference shall be drawn in favor of or against any party by virtue of the fact that such party’s counsel was or was not the principal draftsman of this Agreement. Each of the parties has been provided the opportunity to be represented by counsel of its choice and has been encouraged to seek separate representation to the extent that it deems such desirable, but the absence of such shall not be asserted as a basis for the enforceability or interpretation of any of the terms or provisions of this Agreement, or as a reason to seek disqualification of the Company’s counsel in any controversy or proceeding.
 
[Signature Pages Follow]

 
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The parties have executed this Promissory Note Purchase Agreement as of the date first written above.
 
 
COMPANY:
 
     
 
Global Digital Solutions, Inc.
 
       
 
By:
  /s/ William J. Delgado  
      Name: William J. Delgado  
      Title: CEO  
         
 
INVESTOR:
 
 
[See attached Counterpart Signature Pages]
 
     
 
For purposes of Section 1(d) only
 
     
  BAY ACQUISITION, LLC  
         
 
By:
   
    Name:    
    Title:    
 
 
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The parties have executed this Promissory Note Purchase Agreement as of the date first written above.
 
 
COMPANY:
 
     
 
Global Digital Solutions, Inc.
 
       
 
By:
   
    Name:    
    Title:    
         
 
INVESTOR:
 
 
[See attached Counterpart Signature Pages]
 
     
 
For purposes of Section 1(d) only
 
     
  BAY ACQUISITION, LLC  
         
 
By:
/s/ Richard J. Sullivan  
    Name: Richard J. Sullivan  
    Title: Managing Partner  
 
 
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COUNTERPART SIGNATURE PAGE TO
ROMISSORY NOTE PURCHASE AGREEMENT (the "Agreement")
by and between Global Digital Solutions, Inc. and the Investor
 
By execution of this Counterpart Signature Page, the undersigned agrees to become a party to and be bound by the terms of the Agreement, and the undersigned shall be deemed an "Investor" under the Agreement.
 
Principal Amount of Secured Promissory Note subscribed for:                                                                                                
 
Manner in Which Title is to be Held (check one)
 
_____ Individual Ownership ____ Partnership
____ Community Property 
____ Corporation
____ Tenants in common (both parties must sign)
____ Trust
____ Joint Tenant with Right of Survivorship (both parties must sign)
 
____ Other (please indicate)
 
 
INDIVIDUAL INVESTORS   ENTITY INVESTORS
         
/s/ Gabriel A. de los Rayes    
Signature (Individual)
  Name of Entity
         
Gabriel A. de los Rayes   By: /s/ Gabriel A. de los Rayes
Name(s) (Typed or Printed)
    Name: Gabriel A. de los Rayes
      Title: President
         
         
Signature of co-Tenant (if applicable)
       
         
         
Name of Co-Tenant (Typed or Printed)
       
         
Address to which correspondence should be
directed:
  Address to which correspondence should be
directed:
     
     
   
City, State and Zip Code
         
    Telephone No.:  
    Fax No.  
    Email:  
         
     
Tax Identification No. / Social Security No.
 
Employer Identification No.
 
 
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SCHEDULE A
 
LIST OF INVESTORS
 
NAME      ADDRESS  
         
Gabriel De Los Reyes
    17795 SW 158 th Street  
     
Miami, FL 33187
 
 
 
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EXHIBIT A
 
FORM OF SECURED PROMISSORY NOTE
 
 
14

Exhibit 10.9
 
NEITHER THIS SECURITY NOR THE SECURITIES ISSUABLE UPON THE EXERCISE OF WARRANTS ISSUED IN CONNECTION HEREWITH 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.
 
SECURED PROMISSORY NOTE
 
$750,000.00 
December __, 2012
 
For value received, Global Digital Solutions, Inc., a New Jersey company (the “Maker” or “Company”), promises to pay to Gabriel De Los Reyes or his permitted assign (the “Holder”), the principal sum of Seven Hundred Fifty Thousand Dollars ($750,000.00) together with interest thereon from the date of issuance of this Note. Simple interest shall accrue from the date of issuance of this Note on the unpaid principal amount at a rate equal to eight and one quarter percent (8 1/4%) per annum based on a 365-day year, payable upon maturity; provided, however, that upon the occurrence of, and during the continuance of, an Event of Default (as defined herein), interest shall accrue from the date of such Event of Default on the unpaid principal amount of this Note at a rate equal to twelve percent ( 12%) per annum, based on a 365- day year. This Note is issued pursuant to, and is subject to the terms and conditions of, that certain Promissory Note Purchase Agreement dated as of the date hereof by and between the Company and the Holder (the “Purchase Agreement”).
 
1.            Maturity; Payment. To the extent not previously redeemed in accordance with the terms of this Note, the Company shall repay the outstanding principal balance of this Note, and any accrued but unpaid interest then due and payable on this Note, in full on May 1, 2013 (the “Maturity Date”). All payments shall be made in lawful money of the United States of America at such place as the Holder hereof may from time to time designate in writing to the Company. All payments received shall be applied first to the accrued and unpaid interest then due and payable on this Note and then against the outstanding principal balance of th is Note.
 
2.            Prepayment. The outstanding principal balance payable to the Holder hereunder may be prepaid at any time, without penalty. All prepayments so permitted shall be applied in the order provided in Section 1 .
 
3.             Not Used.
 
 
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4.            Secured Obligation. The obligations of the Company under this Note are secured
by all of the assets of the Company pursuant to that certain Security Agreement, dated as of the date hereof, by and among the Company and the Holder.
 
5.            Default. For purposes of this Note, the term “Event of Default” shall include any of the following:
 
(a)           The failure by the Company to pay the principal and interest therein in full on the Maturity Date;
 
(b)           A material breach by the Company of any other term or provision of this Note or the Purchase Agreement; provided, however that the Company shall have ten (10) days to cure such default after the Company received written notice from the Holder of the occurrence thereof; and
 
(c)           The filing of a petition in bankruptcy or under any similar insolvency law by the Company, the making of an assignment for the benefit of creditors by the Company, or if any voluntary petition in bankruptcy or under any similar insolvency law is filed against the Company and such petition is not dismissed within sixty (60) days after the filing thereof.
 
If the Event of Default is pursuant to Sections 5(a) or 5(c) , or if the Company is unable to cure its Event of Default under Section 5(b) within such ten (10) day period, the Holder may, at its option and for so long as such default is continuing, accelerate repayment of the portion of the unpaid principal balance of this Note, in which case such unpaid principal balance and all interest accrued thereon shall be due and payable immediately.
 
The Holder shall have all rights and remedies available to it upon any Event of Default.
 
6.           Not Used.
 
7.           Miscellaneous.
 
7.1           Waiver of Presentment and Notice. The Company and all endorsers, sureties, guarantors and accommodation parties of this Note, and all other persons liable or to become liable for all or any part of the indebtedness evidenced hereby, hereby waive, jointly and severally, presentment, demand, protest, notice of dishonor, diligence and all other notices, any release or discharge arising from any extension of time, discharge of a prior party, or other cause of release or discharge other than actual payment in full hereof.
 
7.2           Amendments and Waivers. Any term of this Note may be amended or modified, and obligations of the Company and the rights of Holders may be waived, only with the written consent of the Company and the Holder. Any amendment or waiver effected in accordance with this Section 7.2 shall be binding upon the Company, the Holder and each transferee of any Note. A waiver with reference to one event shall not be construed as continuing or as a bar to or waiver of any right or remedy as to a subsequent event. No delay or omission of Holder to exercise any right, whether before or after an Event of Default hereunder, shall impair any such right or shall be construed to be a waiver of any right or Default, and the acceptance at any time by Holder of any past-due amount shall not be deemed to be a waiver of the right to require prompt payment when due of any other amounts then or thereafter due and payable.
 
 
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7.3           Transfer; Successors and Assigns. The terms and conditions of this Note shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Notwithstanding the foregoing, the Holder may not assign, pledge or otherwise transfer this Note without the prior written consent of the Company.
 
7.4           Time is of the Essence. Time is of the essence hereof. Upon any Event of Default hereunder, Holder may exercise all rights and remedies provided for herein and by law or equity, including, but not limited to, the right to immediate payment in full of this Note.
 
7.5           Usury. Nothing in this Note shall require the Company to pay interest at a rate in excess of the maximum rate permitted by applicable law. Any interest payable hereunder or under any other instrument relating to the indebtedness evidenced hereby that is in excess of the maximum rate permitted by applicable law shall, in the event of acceleration of maturity, late payment, prepayment, or otherwise, be applied to a reduction of the unrepaid indebtedness evidenced hereby and not to the payment of interest, or if such excessive interest exceeds the unpaid balance of such unrepaid indebtedness, such excess shall be refunded to the Company. To the extent not prohibited by applicable law, determination of the maximum rate permitted by applicable law shall at all times be made by amortizing, prorating, allocating and spreading in equal parts during the full term of the indebtedness evidenced hereby, all interest at any time contracted for, charged or received from the Company in connection with the indebtedness evidenced hereby, so that the actual rate of interest on account of such indebtedness is uniform throughout the term thereof.
 
7.6           Attorney’s Fees. It is expressly agreed that if this Note is referred to any attorney or if suit is brought to collect or interpret this Note or any part hereof or to enforce or protect any rights conferred upon the Holder by this Note or any other document evidencing or securing this Note, then the Company covenants and agrees to pay all reasonable costs, including reasonable attorneys’ fees and expenses, incurred by Holder in connection therewith.
 
7.7           Governing Law; Jurisdiction. This Note and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Florida, without giving effect to principles of conflicts of law. The Company and Holder agree that all legal proceedings concerning the interpretation, enforcement and defense of this Note and the transactions contemplated herein shall be commenced extensively in the jurisdiction of the state or federal courts located in Broward County or Palm Beach County, Florida.
 
7.8           Loss of Note . Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Note or any Note exchanged for it, and indemnity satisfactory to the Company (in case of loss, theft or destruction) or surrender and cancellation of such Note (in the case of mutilation), the Company will make and deliver in lieu of such Note a new Note of like tenor.
 
7.9           Shareholder Status. The Holder shall not have rights as a shareholder of the Company with respect to this Note .
 
[Signature Page Follows]

 
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IN WITNESS WHEREOF, the Company has executed this Secured Promissory Note as of the date first above written.
 
 
Global Digital Solutions, Inc.
 
       
  By: /s/ William J. Delgado  
  Name: William J. Delgado  
  Title: CEO  
 
 
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Exhibit 10.10
SECURITY AGREEMENT
 
This Security Agreement (this “Agreement”) is made as of the ___ day of December, 2012 by and among Global Digital Solutions, Inc., a New Jersey corporation (the “Company”), Bay Acquisition, LLC, a New Hampshire limited liability company and the noteholder of the Company identified on Schedule A hereto (the “Noteholder”).
 
RECITALS
 
WHEREAS , the Noteholder has purchased a secured promissory note from the Company (the “Note”) pursuant to that certain Promissory Note Purchase Agreement dated as of the date hereof by and among the Company and the Noteholder (the “Purchase Agreement”);
 
WHEREAS , as a condition to the purchase of the Note and as security for the performance by the Company of its obligations under the Note, including the payment of the interest and principal of the Note, the Company has agreed to grant a security interest in the Collateral (hereinafter defined) in favor of the Noteholder as provided herein.
 
WHEREAS , as a condition to the purchase of the Note and as security for the performance by the Company of its obligations under the Note, including the payment of the interest and principal of the Note, Bay Acquisition LLC has agreed to provide and grant a security interest in the Additional Collateral (hereinafter defined) in favor of the Noteholder as provided herein.
 
NOW, THEREFORE, in consideration of the promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
 
1.           Grant of Security Interests. In order to secure the payment and the performance of all the Obligations (as defined below) of the Company, subject to Section 14 of this Agreement:
 
(a)         the Company hereby grants and conveys to the Noteholder a continuing first priority lien security interest in the following:
 
All of the tangible assets of the Company and its operating subsidiaries, if any, of every kind and nature including, without limitation, all accounts, equipment, accessions, fixtures, inventory, goods, investment property, chattel paper, instruments, documents, rights to proceeds under letters of credit, letter-of-credit rights, supporting obligations, commercial tort claims, deposit accounts (including money, cash and cash equivalents), and all of the intangible assets of the Company and its operating subsidiaries, if any, including, without limitation, general intangibles, payment intangibles and software of the Company and any of its operating subsidiaries and all “Intellectual Property” (as defined below) used in connection with the operation of the Company’s business and any of its operating subsidiaries’ businesses, wherever located, now owned or hereafter acquired (hereinafter collectively called the “Collateral”).
 
 
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(b)         Bay Acquisition LLC hereby grants and conveys to the Noteholder a continuing first priority lien security interest in the following:
 
That certain tract of land situated in the Town of Martin, County of Floyd, and State of Kentucky, all as more fully described as a portion of Lots 17, 19, 42, 43, 44 and all of Lot 18 of Block F of the New Addition to Martin, Kentucky as shown on the plat on file in the County of Floyd Clerk’s office, which land is more particularly described on Exhibit A attached hereto and made a part hereof, together with the buildings, improvements and fixtures thereon and all the tenements, hereditaments, appurtenances, and rights of way incident and belonging thereto (collectively, the “Property”), together with that certain Lease Agreement attached hereto as Exhibit B (the “Lease”). The Property and the Lease are hereinafter collectively called the “Additional Collateral”.
 
For the purposes of this Agreement, the term “Obligations” means: (i) all amounts (whether principal, interest or otherwise) at any time due and owing by the Company to the Noteholder under the Note; (ii) all other debts, liabilities, duties and/or obligations of the Company to the Noteholder arising prior to, on or after the date of this Agreement, that arise under or in connection with the Note; (iii) all costs and expenses incurred by the Noteholder in the collection of any of the indebtedness described in this sentence or in connection with the enforcement of any of the duties and obligations of the Company to the Noteholder under the Note, including all court costs and expenses and all reasonable attorneys’ fees and expenses; and (iv) all future advances made by the Noteholder for the maintenance, protection, preservation or enforcement of, or realization upon, the Collateral or any portion of the Collateral. For purposes of this Agreement, the term “Intellectual Property” means (A) inventions, ideas or conceptions of potentially patentable subject matter, whether or not patentable, whether or not reduced to practice, whether or not yet made the subject of a pending patent application or applications, (B) patents and patent applications (including any continuations, continuations-in-part, divisionals, reissues, renewals and applications for any of the foregoing) ((A) and (B) collectively, “Patents”), (C) trademarks, service marks, trade dress, designs, logos, trade names, corporate names and general intangibles of like nature, whether or not registered, including all common law rights and registrations and applications for registration thereof, together with all goodwill relating to the foregoing (collectively, “ Trademarks”), (D) copyrights, whether or not registered, and registrations and applications for registration thereof, and all rights therein provided by multinational treaties or conventions (collectively, “Copyrights”), (E) trade secrets and confidential, technical or business information (including, without limitation, ideas, formulas and compositions), (F) technology (including, without limitation, know-how and show-how), production processes and techniques, research and development information, drawings, specifications, designs, sketches, design archives, plans, proposals, technical data, copyrightable works, financial, marketing and business data, pricing and cost information, business and marketing plans and customer and supplier lists and information, whether or not confidential, whether current or historical, (G) all rights to obtain and apply for Patents, and to register Trademarks and Copyrights, (H) all rights to sue, recover and retain damages (and costs and attorneys’ fees) for present and past infringement of any of the Intellectual Property rights hereinabove set out, and (I) all common law rights with respect to the Intellectual Property hereinabove set out.
 
 
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2.           Filing; Further Assurances. The Company, and Bay Acquisition LLC, will, at the Company’s expense, execute, deliver, file and record (in such manner and form as the Noteholder may require), and hereby expressly permits and authorizes the Noteholder to file and record, any financing statements (including any amendments and continuations), any photographic or other reproduction of any financing statement (including any amendments and continuations) or this Agreement (which shall be sufficient as a financing statement hereunder), any specific assignments or other paper that may be reasonably necessary or desirable, or that the Noteholder may reasonably request, in order to create, preserve, perfect or validate any security interests granted pursuant to Section 1 of this Agreement (the “Security Interests”) or to enable the Noteholder to exercise and enforce its rights hereunder with respect to any of the Collateral or the Additional Collateral. The Company shall pay all filing costs associated with perfection of interests created under and filings as a result of the issuance of the Note and this Agreement.
 
3.           Representations and Warranties of the Company. The Company hereby represents and warrants to the Noteholder that:
 
(a)         the Company is the owner of the Collateral free from any lien, security interest or encumbrance;
 
(b)         no financing statement covering the Collateral is on file in any public office, other than the financing statements filed pursuant to this Agreement;
 
(c)         this Agreement, coupled with the filing of appropriate UCC financing statements, creates in favor of the Noteholder a valid and perfected first priority security interest in all of the Collateral;
 
(d)         the Company is not subject to any voluntary or involuntary petition under the federal bankruptcy laws or any state insolvency law or the appointment of a receiver, fiscal agent or similar officer by a court for its business or property;
 
(e)         there is no action, suit, investigation or proceeding (or any basis therefor) pending against, or to the knowledge of the Company, threatened against or affecting, any of the Collateral, before any court or arbitrator or any governmental body, agency or official; and
 
(f)          to the knowledge of the Company, there is no material fact directly relating to the business, operations, condition or prospects of the Company (including any competitive developments but other than facts which relate to general economic or industry trends or conditions) that materially adversely affects the same that has not been disclosed to Noteholder.
 
 
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4.           Representations and Warranties of Bay Acquisition LLC. Bay Acquisition LLC hereby represents and warrants to the Noteholder that:
 
(a)          it is the owner of the Additional Collateral free from any lien, security interest or encumbrance;
 
(b)         no financing statement covering the Additional Collateral is on file in any public office, other than the financing statements filed pursuant to this Agreement;
 
(c)         this Agreement, coupled with the filing of appropriate UCC financing statements, creates in favor of the Noteholder a valid and perfected first priority security interest in all of the Additional Collateral;
 
(d)         it is not subject to any voluntary or involuntary petition under the federal bankruptcy laws or any state insolvency law or the appointment of a receiver, fiscal agent or similar officer by a court for its business or property;
 
(e)         there is no action, suit, investigation or proceeding (or any basis therefor) pending against, or to the knowledge of Bay Acquisition LLC, threatened against or affecting, any of the Collateral, before any court or arbitrator or any governmental body, agency or official; and
 
(f)          to the knowledge of Bay Acquisition LLC, there is no material fact directly relating to the business, operations, condition or prospects of the Bay Acquisition LLC (including any competitive developments but other than facts which relate to general economic or industry trends or conditions) that materially adversely affects the same that has not been disclosed to Noteholder.
 
5.           Covenants of the Company. The Company hereby covenants and agrees with Noteholder that the Company:
 
(a)         will defend the Collateral against all claims and demands of all persons at any time claiming any interest therein;
 
(b)         will promptly pay any and all taxes, assessments, maintenance fees and governmental charges upon the Collateral prior to the date penalties are attached thereto, except to the extent that such taxes, assessments, maintenance fees and charges shall be contested in good faith by the Company;
 
(c)         will immediately notify the Noteholder of any event causing a substantial loss or diminution in the value of all or any material part of the Collateral and the amount or an estimate of the amount of such loss or diminution;
 
(d)         will keep the Collateral free from any additional lien, security interest or encumbrance and in good order and repair, reasonable wear and tear excepted, and will not waste or destroy the Collateral or any part thereof;
 
(e)         will not use the Collateral in violation of any law, statute or ordinance;
 
(f)          will cooperate, cause or assist the Noteholder to preserve and perfect the Noteholder ’s security interest in any of the Collateral, including but not limited to the execution, filing or recordation of any documents with the United States Patent and Trademark Office that the Noteholder deems necessary in order to perfect the Noteholder ’s security interest in the Intellectual Property of the Company and the Company’s execution, filing or recordation of any UCC-3’s or such other instruments and documents promptly terminating any subsequent liens on the Collateral in order to preserve and protect the priority of the Noteholder’s security interest in the Collateral prior to the rights of all third persons and entities; and
 
 
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(g)         grants to Noteholder a power of attorney for the sole and limited purpose of executing any documents on behalf of the Company which the Noteholder deems reasonably necessary to perfect its security interest in the Collateral (such power, coupled with an interest, is irrevocable until such time as the Obligations hereby secured are satisfied in full).
 
6.           Covenants of Bay Acquisition LLC. Bay Acquisition LLC hereby covenants and agrees with Noteholder that it:
 
(a)         will defend the Additional Collateral against all claims and demands of all persons at any time claiming any interest therein;
 
(b)         will promptly pay any and all taxes, assessments, maintenance fees and governmental charges upon the Additional Collateral prior to the date penalties are attached thereto, except to the extent that such taxes, assessments, maintenance fees and charges shall be contested in good faith by it;
 
(c)         will immediately notify the Noteholder of any event causing a substantial loss or diminution in the value of all or any material part of the Additional Collateral and the amount or an estimate of the amount of such loss or diminution;
 
(d)         will keep the Additional Collateral free from any additional lien, security interest or encumbrance and in good order and repair, reasonable wear and tear excepted, and will not waste or destroy the Additional Collateral or any part thereof;
 
(e)         will not use the Additional Collateral in violation of any law, statute or ordinance;
 
(f)          will cooperate, cause or assist the Noteholder to preserve and perfect the Noteholder’s security interest in the Additional Collateral, and its execution, filing or recordation of any UCC-3’s or such other instruments and documents promptly terminating any subsequent liens on the Additional Collateral in order to preserve and protect the priority of the Noteholder’s security interest in the Additional Collateral prior to the rights of all third persons and entities; and
 
(g)         grants to Noteholder a power of attorney for the sole and limited purpose of executing any documents on its behalf which the Noteholder deems reasonably necessary to perfect its security interest in the Additional Collateral (such power, coupled with an interest, is irrevocable until such time as the Obligations hereby secured are satisfied in full).
 
 
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7.           Records Relating to Collateral. The Company will keep its records concerning the Collateral at the Company’s office located at 9477 Greenback Lane, Folsom, CA 95630, or at such other place or places of business or residence as the Noteholder and the Company mutually agree in writing, which approval shall not be unreasonably withheld. The Company will hold and preserve such records and will permit the Noteholder at any time during normal business hours to examine and inspect the Collateral and to make abstracts from such records, and will furnish to the Noteholder such information and reports regarding the Collateral as the Noteholder may from time to time reasonably request.
 
8.           Records Relating to Additional Collateral. Bay Acquisition LLC will keep its records concerning the Additional Collateral at its office located at 777 South Flagler Drive, Suite 800, West Tower, West Palm Beach, FL 33401, or at such other place or places of business or residence as the Noteholder and Bay Acquisition LLC mutually agree in writing, which approval shall not be unreasonably withheld. Bay Acquisition LLC will hold and preserve such records and will permit the Noteholder at any time during normal business hours to examine and inspect the Additional Collateral and to make abstracts from such records, and will furnish to the Noteholder such information and reports regarding the Additional Collateral as the Noteholder may from time to time reasonably request.
 
9.            General Authority. The Company and Bay Acquisition LLC each hereby conditionally appoints the Noteholder the Company’s and Bay Acquisition LLC’s respective lawful attorney-in-fact, with full power of substitution, in the name of the Company, and in the name of Bay Acquisition LLC, for the sole use and benefit of the Noteholder, at the Company’s expense, to exercise all of the following powers with respect to the Collateral or the Additional Collateral, as the case may be, upon an Event of Default hereunder:
 
(a)          to demand, sue for, collect, receive and give acquittance for all monies due or to become due;
 
(b)          to settle, compromise, compound, prosecute or defend any action or proceeding with respect thereto;
 
(c)          to sell, transfer, assign or otherwise deal in or with the same or the proceeds or avails thereof, as fully and effectually as if the Noteholder was the absolute owner thereof;
 
(d)          to extend the time of payment of any or all thereof and to make any allowance and other adjustments with reference thereto; and
 
(e)          to discharge any taxes, liens, security interests or other encumbrances at any time placed thereon.
 
 
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10.         Events of Default. The Company shall be in default under this Agreement upon the occurrence of any one of the following events (herein referred to as an “Event of Default”):
 
(a)          default by the Company in the due observance or performance of any material covenant or agreement contained herein or breach by the Company of any material representation or warranty herein contained; or
 
(b)          the occurrence of any default by the Company under the provisions of any of the Note, the Purchase Agreement or any other document now or hereafter evidencing any of the Obligations or securing any of the Obligations.
 
So long as the Company is not in default under the terms of this Agreement, (i) the Company shall have full right to own, utilize and possess the Collateral free from any interference or exercise of authority over such Collateral by the Noteholder, and (ii) Bay Acquisition LLC shall have full right to own, utilize and possess the Additional Collateral free from any interference or exercise of authority over such Collateral by the Noteholder.
 
11.          Remedies Upon Event of Default. If any Event of Default shall have occurred and is continuing, the Noteholder may exercise all the rights and remedies of a secured party under the Uniform Commercial Code. The Noteholder may require (a) the Company to assemble all or any part of the Collateral (b) Bay Acquisition LLC to assemble all or any part of the Additional Collateral, and make such Collateral or Additional Collateral available to the Noteholder at a place to be designated by the Noteholder, which is reasonably convenient. The Noteholder shall give the Company and Bay Acquisition LLC thirty (30) days written notice of its intention to make any public or private sale of Collateral or the Additional Collateral, which notice, in case of a public sale, shall state the time and place fixed for such sale. At any such sale, the Collateral or the Additional Collateral may be sold in one lot as an entirety or in separate parcels, as the Noteholder may determine. The Noteholder shall not be obligated to make any such sale pursuant to any such notice. The Noteholder may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be adjourned. The Noteholder may, instead of exercising the power of sale herein conferred upon it, may proceed by a suit or suits at law or in equity to foreclose the Security Interests and sell the Collateral or the Additional Collateral, or any portion thereof, under a judgment or decree of a court or courts of competent jurisdiction.
 
12.          Application of Collateral / Additional Collateral and Proceeds. The proceeds of any sale of, or other realization upon, all or any part of the Collateral or the Additional Collateral shall be applied in the following order of priorities: (a) first, to pay the expenses of such sale or other realization and all expenses, liabilities and advances incurred or made by the Noteholder in connection therewith, and any other un -reimbursed expenses for which the Noteholder is to be reimbursed pursuant to this Agreement, (b) to pay to Bay Acquisition LLC, or its successors or assigns, or as a court of competent jurisdiction may direct, any surplus then remaining from such proceeds up to the value of the Additional Collateral, and (c) to pay to the Company, or its successors or assigns, or as a court of competent jurisdiction may direct, any surplus then remaining from such proceeds.
 
 
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13.          Expenses. The Company will forthwith upon demand pay to the Noteholder:
 
(a)          the amount of any taxes which the Noteholder may have been required to pay by reason of the Security Interests (including any applicable transfer taxes) or to free any of the Collateral or Additional Collateral from any lien thereon; and
 
(b)          the amount of any and all reasonable out-of-pocket expenses, including the reasonable fees and disbursements of its counsel and of any agents not regularly in its employ, which the Noteholder may incur in connection with (i) the collection, sale or other disposition of any of the Collateral or the Additional Collateral, (ii) the exercise by the Noteholder of any of the powers conferred upon it hereunder, or (iii) any default on the Company’s part hereunder.
 
14.         Termination of Security Interests; Release of Collateral and Additional Collateral. Upon the repayment of the Note and the performance in full of all the remaining Obligations, the Obligations hereby secured shall be deemed satisfied for purposes of this Agreement, the Security Interests granted herein shall terminate and: (a) all rights to the Collateral shall revert to the Company, and (b) all rights to the Additional Collateral and shall revert to Bay Acquisition LLC. Upon any such termination of the Security Interests and release of the Collateral and the Additional Collateral, the Noteholder will, at the Company’s expense to the extent permitted by law, execute and deliver to the Company and to Bay Acquisition LLC such documents as the Company and Bay Acquisition LLC shall reasonably request to evidence the termination of the Security Interests or the release of such Collateral or Additional Collateral , as the case may be.
 
15.          Insurance. To the extent the same is insurable, the Company shall keep the Collateral, and Bay Acquis ition LLC shall keep the A dditional Collateral, insured against direct loss or damage occasioned by theft, fire, extended coverage perils and such other liabilities and hazards as the Noteholder, may reasonably require, in amounts, without co -insurance, not less than the unpaid balance of the Obligations or the full replacement value, whichever is less, and shall pay the premiums when due. The policies shall contain the standard mortgagee clause in favor of the Noteholders and a copy of all binders for such policies covering the Collateral and the Additional Collateral shall be deposited with the Noteholder. The Company and bay Acquisition LLC, as the case may be, shall promptly give notice of l oss to insurance companies, and the Noteholder. All proceeds from such insurance shall be applied, at the Noteholder’s option, to the installments of the Obligations in the inverse order of their maturities (without penalty for prepayment) or to the restoration of the improvements on the Collateral or the Additional Collateral, as applicable. In the event of foreclosure of this Agreement or other transfer of title to the Collateral or the Additional Collateral, in extinguishment of the indebtedness secured hereby, all right, title, and interest of the Company or of Bay Acquisition LLC, as applicable, in and to any insurance then in force shall pass to the purchaser or grantee.
 
16.          Notices. Any notice or other communication required or permitted to be given hereunder shall be in writing, by certified or registered mail (postage prepaid), facsimile or personal delivery. The addresses for such communications shall be as set forth below:
 
 
(i)
If to the Company, at
 
Global Digital Solutions, Inc.
9477 Greenback Lane
Folsom, CA 95630
Attention: William Delgado
 
With a copy (which shall not constitute notice) to:
 
Global Digital Solutions, Inc.
14 Saint George Pl.
Palm Beach Gardens, FL 33418
Attn: David Loppert
 
 
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(ii)
If to Bay Acquisition LLC
 
Bay Acquisition LLC
777 South Flagler Drive, Suite 800
West Tower
West Palm Beach, FL 33401
Attn: Richard Sullivan
 
 
(iii)
If to the Noteholder, at the address listed on Schedule A
 
With a copy (which shall not constitute notice) to:
 
Kopelowitz, Ostrow, Ferguson,
Weiselberg, Keechl
200 S.W. 1st Avenue, Suite 1200
Fort Lauderdale, Florida 33301
Attn: Scott Weiselberg
 
or to such other address as any party may designate by notice complying with the terms of this Section 16. Each such notice shall be deemed delivered: (a) on the date delivered if by personal delivery; (b) on the date of confirmed transmission if by telex, telecopy or other telegraphic communication; and (c) on the date upon which the return receipt is signed or delivery is refused or the notice if designated by the postal authorities as not deliverable, as the case may be, if mailed.
 
17.          Waivers. No failure on the part of the Noteholder to exercise, and no delay in exercising, and no course of dealing with respect to, any right, power or remedy under this Agreement shall operate as a waiver thereof; nor shall any single or partial exercise by the Noteholder\s of any right, power or remedy under this Agreement preclude any other right, power or remedy. The remedies in this Agreement are cumulative and are not exclusive of any other remedies provided by law. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally but only by a statement in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought.
 
 
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18.          Governing Law; Jurisdiction. Unless otherwise defined herein, or unless the context otherwise requires, all terms used herein which are defined in the Florida Uniform Commercial Code have the meanings therein stated. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Florida, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Florida or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than t he State of Delaware. The Company hereby irrevocably consents to the jurisdiction of the United States District Court for the Southern District of Florida and any Florida state court sitting in Broward County or Palm Beach County, Florida in any action or proceeding arising out of or relating to this Agreement, and hereby irrevocably agrees that all claims and disputes arising out of or relating to this Agreement may be heard and determined in such state court or, to the extent permitted by law, in such federal court. The choice of forum set forth in this Section 18 shall not be deemed to preclude the bringing of any action by the Noteholder or the enforcement by the Noteholder of any judgment obtained in such forum in any other appropriate jurisdiction. Each of the Company and the Noteholder hereby irrevocably waives, and hereby acknowledges that it is estopped from raising, the claims or defenses of lack of personal jurisdiction, improper venue or inconvenient forum to the maintenance of any such action or proceeding.
 
19.          WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE NOTEHOLDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT TO TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THE NOTES OR THIS AGREEMENT AND ANY AGREEMENT EXECUTED OR CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER THE NOTEHOLDER OR THE COMPANY.
 
20.           Heirs, Personal Representatives, Successors and Assigns. All of the grants, covenants, terms, provisions and conditions herein shall apply to, bind and inure to the benefit of the heirs, personal representatives, successors and permitted assigns of the Noteholders. None of the Company’s obligations under this Agreement may be delegated or transferred without the prior written consent of the Noteholder; and, any such purported delegation or transfer or attempt to delegate or transfer any of such obligations without the prior written consent of the Noteholder will be deemed null, void and of no force or effect.
 
21.          Severability. If any provision hereof is invalid or unenforceable in any jurisdiction, the other provisions hereof shall remain in full force and effect in such jurisdiction.
 
22.          Enumeration and Headings. The enumeration and headings contained in this Agreement are for convenience of reference only and shall not control or affect the meaning or construction of any of the provisions of this Agreement.
 
23.          Entire Agreement. This Agreement embodies the entire agreement and understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings, oral or written, relating to said subject matter.
 
 
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24.           Amendment. This Agreement may not be amended or modified in any manner except by a written agreement executed by the Company, Bat Acquisition LLC and the Noteholder.
 
25.           Counterparts . This Agreement may be executed simultaneously in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together shall constitute one and the same agreement. This Agreement may be executed by facsimile or other electronic signatures.
 
[Signature Pages Follow]
 
 
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IN WITNESS WHEREOF, this Security Agreement has been executed by the parties hereto all as of the day and year first above written.
 
 
COMPANY:
 
     
 
Global Digital Solutions, Inc.
 
       
 
By:
/s/ William J. Delgado  
   
Print Name:  William J. Delgado
 
    Print Title: CEO  
         
  BAY ACQUISITION, LLC  
         
 
By:
   
   
Print Name:
 
    Print Title:  
       
 
NOTEHOLDER:
[See attached Counterpart Signature Page]
 
 
 
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IN WITNESS WHEREOF, this Security Agreement has been executed by the parties hereto all as of the day and year first above written.
 
 
COMPANY:
 
     
 
Global Digital Solutions, Inc.
 
       
 
By:
   
   
Print Name: 
 
    Print Title:  
         
  BAY ACQUISITION, LLC  
         
 
By:
/s/ Richard J. Sullivan  
   
Print Name: Richard J. Sullivan
 
    Print Title: Managing Partner  
       
 
NOTEHOLDER:
[See attached Counterpart Signature Page]
 

 
13

 
 
COUNTERPART SIGNATURE PAGE
TO SECURITY AGREEMENT
by and among
Global Digital Solutions, Inc., Bay Acquisition LLC
and
the Noteholders who execute this
Counterpart Signature Page
 

 
By execution of this Counterpart Signature Page, the undersigned hereby agrees to become a party to the Security Agreement, and the undersigned shall be a "Noteholder" under the Security Agreement.
 
[Individual]
 
[Entities]
         
/s/ Gabriel A. de los Rayes    
Signature
  Name of Entity
         
Name: Gabriel A. de los Rayes   By: /s/ Gabriel A. de los Rayes
      Name: Gabriel A. de los Rayes
      Title: President
 
 
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SCHEDULE A
 
LIST OF NOTEHOLDERS
 
NAME      ADDRESS  
         
Gabriel De Los Reyes
    17795 SW 158 th Street  
     
Miami, FL 33187
 
 
 
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EXHIBIT A
 
 
16

Exhibit 10.11
WARRANT
 
NO.                                      
GLOBAL DIGITAL SOLUTIONS, INC. 
3,000,000 Shares
 
December __, 2012
 
WARRANT TO PURCHASE COMMON STOCK
 
VOID AFTER 5:30 P.M., EASTERN TIME
ON THE EXPIRATION DATE
 
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED WITHOUT COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.
 
FOR VALUE RECEIVED, GLOBAL DIGITAL SOLUTIONS, INC., a New Jersey corporation (the “Company”), hereby agrees to sell upon the terms and on the conditions hereinafter set forth, but no later than 5:30 p.m., Eastern Time, on the Expiration Date (as hereinafter defined) to Gabriel De Los Reyes or registered assigns (the “Holder”), under the terms as hereinafter set forth, three million (3,000,000 ) fully paid and non-assessable shares of the Company’s Common Stock, par value $0.001 per share (the “Warrant Stock”), at a purchase price of twenty five cents ($.15) per share (the “Warrant Price”), pursuant to this warrant (this “Warrant”). The number of shares of Warrant Stock to be so issued and each Warrant Price are subject to adjustment in certain events as hereinafter set forth. The term “Common Stock” shall mean, when used herein, unless the context otherwise requires, the stock and other securit ies and property at the time receivable upon the exercise of this Warrant. This Warrant is issued pursuant to, and is subject to the terms and conditions of, that certain Promissory Note Purchase Agreement dated as of the date hereof by and between the Company and the Holder (the “Purchase Agreement”).
 
1.                Exercise of Warrant.
 
a.           The Holder may exercise this Warrant according to its terms by (i) surrendering this Warrant, properly endorsed, to the Company at the address set forth in Section 10, (ii) delivering the Form of Exercise attached hereto to the Company, duly executed by the Holder, and (iii) payment in cash, certified check or bank draft to the Company of the aggregate warrant price for the number of shares of the Warrant Stock being purchased, prior to 5:30 p.m., Eastern Time, on December 31, 2015 (the “ Expiration Date”).
 
b.           This Warrant may be exercised in whole or in part so long as any exercise in part hereof would not involve the issuance of fractional shares of Warrant Stock. If exercised in part, the Company shall deliver to the Holder a new Warrant, identical in form, in the name of the Holder, evidencing the right to purchase the number of shares of Warrant Stock as to which this Warrant has not been exercised, which new Warrant shall be signed by the Chief Executive Officer, President or Chief Financial Officer of the Company. The term Warrant as used herein shall include any subsequent Warrant issued as provided herein.
 
 
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c.           No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. The Company shall pay cash in lieu of fractions with respect to the Warrants based upon the fair market value of such fractional shares of Common Stock (which shall be the closing price of such shares on the exchange or market on which the Common Stock is then traded) at the time of exercise of this Warrant.
 
d.           In the event of any exercise of the rights represented by this Warrant, a certificate or certificates for the Warrant Stock so purchased, registered in the name of the Holder, shall be delivered to the Holder within a reasonable time after such rights shall have been so exercised. The person or entity in whose name any certificate for the Warrant Stock is issued upon exercise of the rights represented by this Warrant shall for all purposes be deemed to have become the holder of record of such shares immediately prior to the close of business on the date on which the Warrant was surrendered and payment of the Warrant Price and any applicable taxes was made, irrespective of the date of delivery of such certificate, except that, if the date of such surrender and payment is a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the opening of business on the next succeeding date on which the stock transfer books are open. The Company shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on exercise of this Warrant.
 
2.                Disposition of Warrant Stock and Warrant.
 
a.           The Holder hereby acknowledges that this Warrant and any Warrant Stock purchased pursuant hereto are, as of the date hereof, not registered: (i) under the Securities Act of 1933, as amended (the “Act”), on the ground that the issuance of this Warrant is exempt from registration under Section 4(2) of the Act as not involving any public offering or (ii) under any applicable state securities law because the issuance of this Warrant does not involve any public offering; and that the Company’s reliance on the Section 4(2) exemption of the Act and under applicable state securities laws is predicated in part on the representations hereby made to the Company by the Holder that it is acquiring this Warrant and will acquire the Warrant Stock for investment for its own account, with no present intention of dividing its participation with others or reselling or otherwise distributing the same.
 
The Holder hereby agrees that it will not sell or transfer all or any part of this Warrant and/or Warrant Stock unless and until it shall first have given notice to the Company describing such sale or transfer and furnished to the Company either (i) an opinion, reasonably satisfactory to counsel for the Company, or other counsel (skilled in securities matters, selected by the Holder and reasonably satisfactory to the Company) to the effect that the proposed sale or transfer may be made without registration under the Act and without registration or qualification under any state law, or (ii) an interpretative letter from the Securities and Exchange Commission to the effect that no enforcement action will be recommended if the proposed sale or transfer is made without registration under the Act.

 
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b.           If, at the time of issuance of the shares issuable upon exercise of this Warrant, no registration statement is in effect with respect to such shares under applicable provisions of the Act, the Company may at its election require that the Holder provide the Company with written reconfirmation of the Holder’s investment intent and that any stock certificate delivered to the Holder of a surrendered Warrant shall bear a legend reading substantially as follows:
 
“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THIS CERTIFICATE THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.”
 
In addition, so long as the foregoing legend may remain on any stock certificate delivered to the Holder, the Company may maintain appropriate “stop transfer” orders with respect to such certificates and the shares represe nted thereby on its books and records and with those to whom it may delegate registrar and transfer functions.
 
3.             Reservation of Shares . The Company hereby agrees that at all times there shall be reserved for issuance such number of shares of its Common Stoc k as shall be required for issuance upon exercise of this Warrant. The Company further agrees that all shares which may be issued upon the exercise of the rights represented by this Warrant will be duly authorized and will, upon issuance and against payment of the exercise price, be validly issued, fully paid and non-assessable, free from all taxes, liens, charges and preemptive rights with respect to the issuance thereof, other than taxes, if any, in respect of any transfer occurring contemporaneously with such issuance and other than transfer restrictions imposed by federal and state securities laws.
 
4.             Exchange, Transfer or Assignment of Warrant. This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, for other Warrants of different denominations, entitling the Holder or Holders thereof to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder. U pon surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with the Form of Assignment annexed hereto duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be canceled. This Warrant may be divided or combined with other Warrants that carry the same rights upon presentation hereof at the office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof.
 
 
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5.            Capital Adjustments. This Warrant is subject to the following further provisions:
 
a.            Recapitalization, Reclassification and Succession. If any recapitalization of the Company or reclassification of its Common Stock or any merger or consolidation of the Company into or with a corporation or other business entity, or the sale or transfer of all or substantially all of the Company’s assets or of any successor corporation’s assets to any other corporation or business entity (any such corporation or other business entity being included within the meaning of the term “successor corporation”) shall be effected, at any time while this Warrant remains outstanding and unexpired, then, as a condition of such recapitalization, reclassification, merger, consolidation, sale or transfer, lawful and adequate provision shall be made whereby the Holder of this Warrant thereafter shall have the right to receive upon the exercise hereof as provided in Section 1 and in lieu of the shares of Common Stock immediately theretofore issuable upon the exercise of this Warrant, such shares of capital stock, securities or other property as may be issued or payable with respect to or in exchange for a number of outstanding shares of Common Stock equal to the number of shares of Common Stock immediately theretofore issuable upon the exercise of this Warrant had such recapitalization, reclassification, merger, consolidation, sale or transfer not taken place, and in each such case, the terms of this Warrant shall be applicable to the shares of stock or other securities or property receivable upon the exercise of this Warrant after such consummation.
 
b.             Subdivision or Combination of Shares. If the Company at any time while this Warrant remains outstanding and unexpired shall subdivide or combine its Common Stock, the number of shares of Warrant Stock purchasable upon exercise of this Warrant and each Warrant Price shall be proportionately adjusted.
 
c.             Stock Dividends and Distributions. If the Company at any time while this Warrant is outstanding and unexpired shall issue or pay the holders of its Common Stock, or take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend payable in, or other distribution of, Common Stock, then (i) each Warrant Price shall be adjusted in accordance with Section 5(d) and (ii) the number of shares of Warrant Stock purchasable upon exercise of this Warrant shall be adjusted to the number of shares of Common Stock that the Holder would have owned immediately following such action had this Warrant been exercised immediately prior thereto.
 
d.             Warrant Price Adjustment. Except as otherwise provided herein, whenever the number of shares of Warrant Stock purchasable upon exercise of this Warrant is adjusted, as herein provided, each Warrant Price payable upon the exercise of this Warrant shall be adjusted to that price determined by multiplying such Warrant Price immediately prior to such adjustment by a fraction (i) the numerator of which shall be the number of shares of Warrant Stock purchasable upon exercise of this Warrant immediately prior to such adjustment, and (ii) the denominator of which shall be the number of shares of Warrant Stock purchasable upon exercise of this Warrant immediately thereafter.
 
e.             Certain Shares Excluded. The number of shares of Common Stock outstanding at any given time for purposes of the adjustments set forth in this Section 5 shall exclude any shares then directly or indirectly held in the treasury of the Company.
 
 
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f.             Deferral and Cumulation of De Minimis Adjustments . The Company shall not be required to make any adjustment pursuant to this Section 5 if the amount of such adjustment would be less than one percent (1%) of the Warrant Price in effect immediately before the event that would otherwise have given rise to such adjustment. In such case, however, any adjustment that would otherwise have been required to be made shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to not less than one percent (1%) of the Warrant Price in effect immediately before the event giving rise to such next subsequent adjustment.
 
g.             Duration of Adjustment. Following each computation or readjustment as provided in this Section 5, each new adjusted Warrant Price and number of shares of Warrant Stock purchasable upon exercise of this Warrant shall remain in effect until a further computation or readjustment thereof is required.
 
6.             Not Used..
 
7.             Notice to Holders.
 
a.             In case:
 
(i)           the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time receivable upon the exercise of this Warrant) for the purpose of entitling them to receive any dividend (other than a cash dividend payable out of earned surplus of the Company) or other distribution, or any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right;
 
(ii)          of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation with or merger of the Company into another corporation, or any conveyance of all or substantially all of the assets of the Company to another corporation; or
 
(iii)         of any voluntary dissolution, liquidation or winding-up of the Company;
 
then, and in each such case, the Company will mail or cause to be mailed to the Holder hereof at the time outstanding a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the date on which such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding-up is to take place, and the time, if any, is to be fixed, as of which the holders of record of Common Stock (or such stock or securities at the time receivable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, conveyance, dissolution or winding-up. Such notice shall be mailed at least thirty (30) days prior to the record date therein specified, or if no record date shall have been specified therein, at least thirty (30) days prior to such specified date, provided, however, failure to provide any such notice shall not affect the validity of such transaction.
 
 
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b.             Whenever any adjustment shall be made pursuant to Section 5 hereof, the Company shall promptly make a certificate signed by its Chairman, Chief Executive Officer,   President, Vice President, Chief Financial Officer or Treasurer, setting forth in reasonable detail   the event requiring the adjustment, the amount of the adjustment, the method by which such   adjustment was calculated and each Warrant Price and number of shares of Warrant Stock   purchasable upon exercise of this Warrant after giving effect to such adjustment, and shall   promptly cause copies of such certificates to be mailed (by first class mail, postage prepaid) to   the Holder of this Warrant.
 
8.             Loss, Theft, Destruction or Mutilation . Upon receipt by the Company of evidence   satisfactory to it, in the exercise of its reasonable discretion, of the ownership and the loss, theft,   destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, of   indemnity reasonably satisfactory to the Company and, in the case of mutilation, upon surrender   and cancellation thereof, the Company will execute and deliver in lieu thereof, without expense   to the Holder, a new Warrant of like tenor dated the date hereof.
 
9 .             Warrant Holder Not a Stockholder. The Holder of this Warrant, as such, shall not   be entitled by reason of this Warrant to any rights whatsoever as a stockholder of the Company.
 
10.          Notices. Any notice required or contemplated by this Warrant shall be deemed to   have been duly given if transmitted by registered or certified mail, return receipt requested, or   nationally recognized overnight delivery service , to the Company at its principal executive   offices located at 9477 Greenback Lane, Folsom, CA, Attention: Chief Financial Officer, or to   the Holder at the name and address set forth in the Warrant Register maintained by the   Company.
 
11.          Choice of Law. THIS WARRANT IS ISSUED UNDER AND SHALL FOR   ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE   INTERNAL LAWS OF THE STATE OF FLORIDA, WITHOUT GIVING EFFECT TO   PRINCIPLES OF CONFLICTS OF LAW.
 
12.          Jurisdiction and Venue. The Company and Holder hereby agree that any dispute   which may arise between them arising out of or in connection with this Warrant shall be   adjudicated before a court located in Broward County, Florida and they hereby submit to the   exclusive jurisdiction of the federal and state courts of the State of Florida located in Broward   County with respect to any action or legal proceeding commenced by any party, and irrevocably   waive any objection they now or hereafter may have respecting the venue of any such action or   proceeding brought in such a court or respecting the fact that such court is an inconvenient   forum, relating to or arising out of this Warrant or any acts or omissions relating to the sale of the securities hereunder, and consent to the service of process in any such action or legal proceeding   by means of registered or certified mail, return receipt requested, in care of the address set forth   herein or such other address as either party shall furnish in writing to the other.
 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
 
 
- 6 -

 
 
IN WITNESS WHEREOF, the Company has duly caused this Warrant to be signed on its behalf, in its corporate name and by its duly authorized officers, as of the date first written above.
 
 
GLOBAL DIGITAL SOLUTIONS, INC.
 
       
  By: /s/ William J. Delgado  
    Name: William J. Delgado  
    Title: CEO  
 
 
- 7 -

 
 
FORM OF EXERCISE
 
(to be executed by the registered holder hereof)
 
The undersigned hereby exercises the right to purchase                            shares of common stock, par value $0.001 per share (“Common Stock”), of Global Digital Solutions, Inc. evidenced by the within Warrant Certificate for a Warrant Price of $.25 per share and herewith makes payment of the purchase price in full of $                            in cash. Kindly issue certificates for shares of Common Stock (and for the unexercised balance of the Warrants evidenced by the within Warrant Certificate, if any) in accordance with the instructions given below.
 
 
Dated:                                                  , 20       .
     
         
         
         
 
Instructions for registration of stock
     
         
         
 
Name (Please Print)
     
         
 
Social Security or other identifying Number:
     
         
 
Address:
       
   
City/State and Zip Code
     
         
 
Instructions for registration of certificate representing the unexercised balance of Warrants (if any)
     
         
         
 
Name (Please Print)
     
         
 
Social Security or other identifying Number:                                     
     
         
  Address:         
   
City, State and Zip Code
     
 
 
- 8 -

 
 
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
 
For value received, the undersigned hereby sells, assigns, and transfers unto   the right represented by the within Warrant to purchase     shares of Common Stock of Global Digital Solutions, Inc. to which the within Warrant relates,   and appoints   to transfer such right on the books of Global Digital Solutions, Inc. with full power of substitution in the premises.
 
Dated:          
     
(Signature must conform to name  
of holder as specified on the
face of the Warrant)
   
           
           
     
(Address)
   
Signed in the presence of:
       
           
 
 
 
- 9 -

Exhibit 10.12
 
AMENDMENT
 
This Amendment dated as of May 6, 2013 (this "Amendment ") hereby amends the following agreements: (i) the Promissory Note Purchase Agreement dated as of January 10, 2013 (the "Purchase Agreement") by and among Global Digital Solutions, Inc. (the "Company") and Gabriel Del Los Reyes (the "Noteholder"), (ii) the Secured Promissory Note dated as of January 10, 2013 (the "Note") by and among the Company and the Noteholder, (iii) the Security Agreement dated as of January 10, 2013 (the "Security Agreement") by and among the Company and the Noteholder, and (iv) a Warrant dated as of January 10, 2013 by and among the Company and the Noteholder (the 'Warrant"). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Purchase Agreement.
 
WHEREAS, pursuant to the terms of the Note, the Maturity date is May 1, 2013; and
 
WHEREAS, the Company wishes to (i) extend the Maturity Date of the Note to July 1, 2013, (ii) convert the Note into shares of the Company's common stock at the Maturity Date at a conversion price of $25; and (iii) issue to the Noteholder warrants to acquire an additional three million shares of the Company's common stock at an exercise price of $.10 per share for a period of three years from the issue date hereof; and
 
WHEREAS, the Noteholder, has agreed to the foregoing amendments requested by the Company.
 
NOW THEREFORE, in consideration of the premises, the mutual agreements contained herein and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the undersigned agree as follows:
 
1.               Extension of the Maturity Date. The Maturity Date is hereby extended to July 1, 2013.
 
2.               Conversion of Note. At the Maturity date, contingent upon the bankruptcy court having approved the Plan of Reorganization for Airtronic USA Inc., the Company shall convert the Note into shares of its common stock at a conversion price of $.25.
 
3.            Issue of Warrants. The Company shall amend the Warrant to reduce the exercise price form $.15
per share to $.10 per share.
 
4.               Remaining Provisions. Except as modified and amended herein, all of the terms and conditions of the Purchase Agreement, the Note, the Security Agreement, and the Warrant shall remain in full force and effect and all references to such documents shall be deemed to refer to such documents as modified by this Amendment.
 
5.               Counterparts. This Amendment may be executed in one or more counterparts (including facsimile counterparts), each of which shall, for all purposes, be deemed an original and all of such counterparts, taken together, shall constitute one and the same Amendment.
 
6.               Governing Law. This Amendment and the rights of the parties hereto shall be interpreted in accordance with the laws of the State of Florida, without giving effect to principles of conflict of laws.
 
[SIGNATURE PAGE FOLLOWS]
 
 
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IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first written above.
 
 
GLOBAL DIGITAL SOLUTIONS, INC.
 
       
  By: /s/ William J. Delgado  
  Name: William J. Delgado  
  Title: CEO  
       
    /s/ Gabriel De Los Reyes  
  Name: Gabriel De Los Reyes  
 
 
2

 
 
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first written above.
 
 
GLOBAL DIGITAL SOLUTIONS, INC.
 
       
  By: /s/ William J. Delgado  
  Name: William J. Delgado  
  Title: CEO  
       
    /s/ Gabriel De Los Reyes  
  Name: Gabriel De Los Reyes  
 
 
3

 
 
Exhibit A
 
NOTICE EXERCISE OF WARRANT
 
The undersigned, Gabriel De Los Reyes, hereby exercises the right to purchase 3.000,000 shares of common stock, par value $0.001 per share ("Common Stock"), of Global Digital Solutions, Inc. evidenced by the within Warrant Certificate for a Warrant Price of $.10 per share and herewith makes payment of the purchase price in full of $300,000.00 in cash. Kindly issue certificates for shares of Common Stock in accordance with the instructions given below.
 
 
Dated: June 6, 2013 .
     
         
  /s/ Gabriel A. De Los Reyes      
  Signature: Gabriel De Los Reyes      
         
 
Instructions for issuance of 3,000,000 shares of Common Stock:
     
         
 
Name in which stock certificate to be issued (Please Print):
     
         
  Gabriel A. De Los Reyes      
         
 
Social Security or other identifying Number of certificate holder:
     
  416-78-3406      
         
 
Address:
17795 SW 158 STREET      
    MIAMI, 7L 33187      
   
City/State and Zip Code
     
 
 
4

Exhibit 10.13
 
GLOBAL DIGITAL SOLUTIONS, INC.
(GDSI)
FORM OF
SUBSCRIPTION AGREEMENT
 
Subscriber:
   
     
Company:
Global Digital Solutions, Inc. a New Jersey corporation
 
     
Securities:
_________________ Shares of Restricted Common Stock, $.001 par vale
 
     
Offering Price:
$__/Common Share
 
     
Date:
_______________, 20__
 
     
 
SECURITIES PURCHASE AGREEMENT
 
THIS SECURITIES PURCHASE AGREEMENT (as amended, modified, supplemented or restated in accordance with its terms from time to time, this “Agreement”) is between Global Digital Solutions, Inc., a New Jersey corporation and its affiliates (the “Company”), and the individuals named on the signature page of this agreement attached hereto (individually, a “Purchaser” and together, the “Purchasers”).
 
RECITALS
 
WHEREAS, the Company has authorized and is offering the sale of up to shares (the “Shares”) of the Company’s common stock, $0.001 par value per share (the “Common Stock”), which Shares shall be purchased at a price of $.__ per share (the “Offering Price”), hereinafter, (the “Offering”); and
 
WHEREAS, the Offering shall commence on , 20__ (“Effective Date”) and end on , 20__, unless extended or terminated by consent of the Company; and
 
WHEREAS, the Shares will be offered and sold only to “accredited investors” within the meaning of Rule 501(a) of Regulation D promulgated under the Securities Act pursuant to this Agreement; and
 
WHEREAS, Purchasers desire to purchase the Shares on the terms and conditions set forth herein; and
 
 
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WHEREAS, the Company desires to sell the Shares to Purchasers on the terms and conditions set forth herein.
 
ARTICLE I
 
AUTHORIZATION AND SALE OF THE SHARES
 
1.1 Authorization. The Company has, prior to the date of this Agreement, (i) authorized the issuance and sale of the Shares to the Purchasers.
 
1.2 Sale of the Shares to the Purchasers. Subject in all respects to the satisfaction of the terms and conditions herein set forth, and in reliance upon the information published by the Company via the OTC Markets exchange and the respective representations and warranties of the parties set forth herein, and in any document delivered pursuant hereto or thereto, the Company agrees to sell to each Purchaser (and such Purchaser agrees by executing and delivering the Execution Documents and investment amount to purchase from the Company) the number of Shares set forth in such Purchasers’ Agreement at the Offering Price.
 
1.3 Offering Price and Share Calculation. Each Share shall be priced at the Offering Price.
 
1.4 Delivery of the Shares to the Purchasers. Upon the execution and delivery by the Purchasers of the Execution Documents and the investment amount, the Company will calculate the number of Shares purchased by the Purchaser and deposit the funds in a bank account designated by the Company. The Shares will be issued to the Purchaser when the subscription has been accepted by the Company and the Company receives notice that the funds have been cleared by the bank holding the funds.
 
ARTICLE II
 
REGISTRATION RIGHTS
 
2.1 Registration of Shares by Company. The Purchaser will receive “piggy back” registration rights and the Purchasers Shares will be included on the Company’s next registration statement covering the Shares (the “Registration Statement”). The Company warrants to the Purchaser that it shall file with the Securities and Exchange Commission a registration statement on Form S-1 registering the Shares no later that 120 days after its planned acquisition, Airtronic USA, Inc., has emerged from bankruptcy.
 
 
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ARTICLE III
 
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
 
The Company represents and warrants (such representations and warranties do not lessen or obviate the representations and warranties of the Purchasers set forth in this Agreement) that:
 
3.1 Organization and Existence, Authority, Etc. The Company is a corporation duly organized and validly existing and in good standing under the laws of the State of New Jersey, and has all requisite corporate power and authority to carry on its business as now conducted and proposed to be conducted; the Company has all requisite corporate power and authority to enter into this Agreement, to issue the Shares as contemplated herein and to carry out the provisions and conditions of this Agreement. This Agreement has been duly executed and delivered by, and constitutes the valid and binding obligations of, the Company, enforceable in accordance with their respective terms, subject to the effect of any applicable bankruptcy, moratorium, insolvency, reorganization or other similar law affecting the enforceability of creditors' rights generally and to the effect of general principles of equity which may limit the availability of remedies (whether in a proceeding at law or in equity). The Company is duly qualified and is authorized to do business and is in good standing as a foreign corporation in each jurisdiction in which the conduct of its business or ownership of its properties would so require, except where the failure to be so qualified would not have a material adverse effect on its business and financial condition, taken as a whole. The Company will preserve, protect, and maintain, (a) its corporate existence, and (b) all rights, franchises, accreditations, privileges, and properties, the failure of which to preserve, protect, and maintain might have a material adverse effect on the business, affairs, assets, prospects, operations, employee relations, rights or condition, financial or otherwise, of the Company taken as a whole.
 
3.2 Charter Documents. Neither the execution nor the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, nor compliance with the terms and provisions hereof, will conflict with, or result in a breach of or creation of a lien under, the terms, conditions or provisions of, or constitute a default under, the charter or by-laws of the Company, as amended, copies of which are available to the Purchasers in the Company Commission Filings.
 
3.3 Commission Filings and Financial Statements. True and complete copies of all reports, registration statements, definitive proxy statements and other documents (in each case together with all amendments and supplements thereto) filed by the Company, with the Securities and Exchange Commission and/or OTC Markets, as required by the Company’s current reporting status, (such reports, registration statements, definitive proxy statements and other documents, together with any amendments and supplements thereto, are sometimes collectively referred to as the "Company Commission Filings") are available to the Purchasers at the Commission’s website at   www.sec.gov or at the OTC Markets website at   www.otcmarkets.com . The Company Commission Filings constitute all of the documents (other than preliminary materials) that the Company was required to file with the Commission or the OTC Markets, as applicable . As of their respective dates, each of the Company Commission Filings complied in all material respects with the applicable requirements of the Securities Act and the Securities Exchange Act of 1934, as amended (the “Exchange ActÓ) or the OTC Markets filing requirements , as applicable, and the rules and regulations under each such act or OTC Markets rules, and none of the Company Commission Filings contained as of such date any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. When filed with the Commission the financial statements included in the Company Commission Filings complied as to form in all material respects with the applicable rules and regulations of the Commission and/or the OTC Marketplace rules and regulations and were prepared in accordance with generally accepted accounting principles (as in effect from time to time) applied on a consistent basis (except as may be indicated therein or in the notes or schedules thereto), and such financial statements fairly present in accordance with generally accepted accounting principles in all material respects the financial position of the Company as at the dates thereof and the results of its operations and its cash flows for the periods then ended, subject, in the case of the unaudited interim financial statements, to normal, recurring year-end audit adjustments and the absence of footnotes.
 
 
3

 
 
3.4 Use of Proceeds. The Company and management will have full discretion on the use the proceeds which may include but not limited to general working capital.
 
3.5 Disclosure. To the best of the Company's knowledge, there is no fact (other than matters of a general economic or political nature which does not affect the Company uniquely) known to the Company which materially adversely affects the business, condition (financial or other), operations, assets or properties of the Company which has not been set forth either in the Company Commission Filings or in this Agreement or in the other documents, certificates and instruments delivered to the Purchasers by or on behalf of the Company specifically for use in connection with the transactions contemplated by this Agreement.
 
ARTICLE IV
 
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
 
Each Purchaser hereby severally and not jointly represents and warrants to the Company with respect to itself or himself as follows (such representations and warranties do not lessen or obviate the representations and warranties of the Company set forth in this Agreement):
 
4.1 Requisite Power and Authority. Purchaser has all necessary power and authority under all applicable governing documents and provisions of law to execute and deliver this Agreement and the Related Agreements and to carry out their provisions. All action on Purchaser's part required for the lawful execution and delivery of this Agreement have been or will be taken prior to the Closing Date. Upon their execution and delivery, this Agreement will be valid and binding obligations of Purchaser, enforceable in accordance with their terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors' rights, and (b) as limited by gene ral principles of equity that restrict the availability of equitable remedies.
 
4.2 Investment Representations . Purchaser understands that the Shares are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon Purchaser's representations contained in the Agreement.
 
4.3 Purchaser Bears Economic Risk. Purchaser has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. Purchaser must bear the economic risk of this investment for an indefinite period of time.
 
 
4

 
 
4.4 Acquisition for Own Account. Purchaser is acquiring the Shares for Purchaser's own account for investment only, and not with a view towards their distribution or resale.
 
4.5 Purchaser Can Protect Its Interest. Purchaser represents that by reason of his/her/its, or of its management's, business or financial experience, Purchaser has the capacity to protect its own interests in connection with the transactions contemplated in this Agreement, and Further, Purchaser is aware of no publication or any advertisement in connection with the transactions contemplated in the Agreement. In evaluating the suitability of an investment in the Company, the Purchaser has not relied upon any representation or other information (oral or written) other than as stated in this Agreement.
 
4.6 Self-Reliance. The Purchaser is not relying on the Company or any of its employees or agents or Placement Agent with respect to the legal, tax, economic and related considerations as to an investment in the Securities, and the Purchaser has relied on the advice of, or has consulted with, only his own advisors
 
4.7 Accredited Investor. Each Purchaser acknowledges that a purchase of the Shares is only available to a Purchaser who is an "accredited investor." In connection therewith, each Purchaser represents and warrants to the Company that he/she or it, as the case may be, qualifies as an "accredited investor" within the meaning of Regulation D, since he/she or it meets one of the following standards for determination of "accredited investor" status of Regulation D set forth below:
 
(a)    Any broker or dealer registered pursuant to Section 15 of the Exchange Act;
 
(b)    Any natural person whose individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeds $1,000,000; 1
 
(c)    Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;
 
(d)   Any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D;
 

1 The calculation of individual or joint net worth should exclude the value of the Investor’s primary residence. The value of the primary residence is equal to the fair market value of the primary residence, less the amount of mortgage debt secured by the primary residence. However, if the amount of mortgage debt secured by the primary residence exceeds the value of such residence, then the excess mortgage debt should be deducted from the Investor’s other assets in determining his or her net worth.
 
 
5

 
 
(e)   Any organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000; or
 
(f)   Any entity in which all of the equity owners are "accredited investors".
 
4.8 Available Information. Each Purchaser hereby represents that he/she/it (i) has access to and has carefully reviewed the Company Commission Filings, and (ii) has had the opportunity to ask questions and receive answers from the Company concerning the Company Commission Filings and the terms and conditions of the offering of the Shares and to obtain any documents relating to the Company which are publicly available and any additional information or documents relating to the Company which the Company possesses or can acquire without unreasonable effort or expense.
 
4.9 Regulatory Compliance. Purchaser agrees that Purchaser will comply with all relevant rules and regulations of the Exchange Act, including the provisions of Regulation M promulgated thereunder.
 
4.10 Legends. Each certificate representing Shares of Common Stock to be delivered to the Purchaser shall be endorsed with the following legend: Purchaser understands that the certificates representing the components of the Shares may bear the following legend (or one substantially similar) until the Shares are covered by an effective registration statement filed with the Commission:
 
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THIS CERTIFICATE THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT IS AVAILABLE WITH RESPECT TO SUCH TRANSFER. ANY SUCH TRANSFER MAY ALSO BE SUBJECT TO COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS.”
 
The legend set forth above shall be removed, and the Company shall issue a certificate without such legend to the transferee of the Shares represented thereby, if, unless otherwise required by state securities laws, (i) such Shares have been sold under an effective registration statement under the Securities Act, (ii) in connection with a sale, assignment or other transfer, such holder provides the Company with an opinion of cou nsel, reasonably acceptable to the Company, to the effect that such sale, assignment or transfer is being made pursuant to an exemption from the registration requirements of the Securities Act, or (iii) such holder provides the Company with reasonable assurance that the Shares are being sold, assigned or transferred pursuant to Rule 144 or Rule 144A under the Securities Act.
 
 
6

 
 
4.11 Confidentiality. The Purchaser agrees that he/she/it will not include in any public announcement, the name of the Company, unless expressly agreed to by the Company or unless and until such disclosure is required by law or applicable regulation, and then only to the extent of such requirement.
 
4.12 Financial Position / Requisite Knowledge.
 
(a)  That the undersigned is in a financial position to hold the Securities for an indefinite period of time and is able to bear the economic risk and withstand a complete loss of the undersigned's investment in the Securities. Additionally, the undersigned's proposed investment in the Securities does not exceed 20% of the undersigned's net worth exclusive of home, home furnishings and automobiles;
 
(b)  That the undersigned, either alone or with the assistance of the undersigned's own professional advisor, has such knowledge and experience in financial and business matters that the undersigned is capable of evaluating the merits and risks of an investment in the Securities, has the capacity to protect the undersigned's own interests in connection with an investment in the Company and has the net worth to undertake such risks;
 
(c)   That the undersigned has obtained, to the extent the undersigned deems necessary, the undersigned's own personal professional advice with respect to the risks inherent in the investment in the Securities, and the suitability of an investment in the Securities in light of the undersigned's financial condition and investment needs
 
(d)   That the undersigned believes that an investment in the Securities is suitable for the undersigned based upon their investment objectives and financial needs, and the undersigned has adequate means for providing for the their current financial needs and personal contingencies and has no need for liquidity of investment with respect to the Securities;
 
(e)    That the undersigned recognizes that the Securities as an investment involves a high degree of risk, including, but not limited to, the risk of loss of 100% of the undersigned's investment in the Securities;
 
4.13 Purchaser Bears Economic Risk. Purchaser has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. Purchaser must bear the economic risk of this investment until the Securities are registered pursuant to the Securities Act, or an exemption from registration is available. That the undersigned realizes that (i) the purchase of the Securities is a long-term investment; (ii) the purchaser of the Securities must bear the economic risk of investment for an indefinite period of time because the Securities have not been registered under the Act, or under the securities laws of any state and, therefore, the Securities cannot be resold unless they are subsequently registered under said laws or exemptions from such registrations are available; and (iii) the transferability of the Securities is restricted and requires conformity with the restrictions contained in Section 3.3 and legends will be placed on the certificate(s) representing the Securities   referring to the applicable restrictions on transferability; and
 
 
7

 
 
4.14 Use of Information. Any information which the undersigned has heretofore furnished   or furnishes herewith to the Company is complete and accurate and may be relied upon by the   Company in determining the availability of an exemption from registration under Federal and   state securities laws in connection with the offering of Securities as described herein. The   Purchaser further represents and warrants that it will notify and supply corrective information to   the Company immediately upon the occurrence of any change therein occurring prior to the   Company's issuance of the Securities
 
(Signature Page Follows)
 
 
8

 
 
SECURITIES PURCHASE AGREEMENT - SIGNATURE PAGE
 
The parties hereto have executed this Securities Purchase Agreement as of the date set forth below.
 
COMPANY:
 
Global Digital Solutions, Inc.
 
By:      Date:    
           
Its:          
 
 
   
 
 
PURCHASER/PURCHASERS:
 
Signature      Date:    
           
Print Name:
         
 
 
   
 
 
SSN#:
         
 
 
9

Exhibit 10.14
 
GLOBAL DIGITAL SOLUTIONS, INC.
FORM OF INDEMNIFICATION AGREEMENT
 
This Indemnification Agreement, dated as of                          , 20__ (this “Agreement” ), is made by and between Global Digital Solutions, Inc., a New Jersey corporation (the “Company” ), and                          (the “Indemnitee” ).
 
RECITALS:
 
A.           Section 14A:3-5 of the New Jersey Statutes (the “NJS”) provides that a corporation organized for any purpose under any general or special law of the State of New Jersey shall have the power to indemnify a Corporate agent against his expenses and liabilities in connection with any proceeding involving the corporate agent by reason of his being or having been such a corporate agent, other than a proceeding by or in the right of the corporation, if (a) such corporate agent acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation; and (b) with respect to any criminal proceeding, such corporate agent had no reasonable cause to believe his conduct was unlawful. The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not of itself create a presumption that such corporate agent did not meet the applicable standards of conduct set forth in paragraphs 14A:3-5(2)(a) and 14A:3-5(2)(b). “Corporate agent" under the NJS means any person who is or was a director, officer, employee or agent of the indemnifying corporation or of any constituent corporation absorbed by the indemnifying corporation in a consolidation or merger and any person who is or was a director, officer, trustee, employee or agent of any other enterprise, serving as such at the request of the indemnifying corporation, or of any such constituent corporation, or the legal representative of any such director, officer, trustee, employee or agent;
 
B.           By virtue of the managerial prerogatives vested in the directors and officers of a New Jersey corporation, directors, officers and consultants act as fiduciaries of the corporation and its stockholders.
 
C.           Thus, it is critically important to the Company and its stockholders that the Company be able to attract and retain the most capable persons reasonably available to serve as directors, officers and consultants of the Company.
 
D.           In recognition of the need for corporations to be able to induce capable and responsible persons to accept positions in corporate management, or as consultants, New Jersey law authorizes (and in some instances requires) corporations to indemnify their “corporate agents”, including directors and officers and consultants, and further authorizes corporations to purchase and maintain insurance for the benefit of their directors and officers.
 
E.           The New Jersey courts have recognized that indemnification by a corporation serves the dual policies of (1) allowing corporate officials to resist unjustified lawsuits, secure in the knowledge that, if vindicated, the corporation will bear the expense of litigation, and (2) encouraging capable women and men to serve as corporate directors and officers, secure in the knowledge that the corporation will absorb the costs of defending their honesty and integrity.
 
 
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F.           The number of lawsuits challenging the judgment and actions of directors and officers of New Jersey corporations, the costs of defending those lawsuits and the threat to personal assets have all materially increased over the past several years, chilling the willingness of capable women and men to undertake the responsibilities imposed on corporate directors and officers.
 
G.           Recent federal legislation and rules adopted by the Securities and Exchange Commission and the national securities exchanges have exposed such directors and officers to new and substantially broadened civil liabilities.
 
H.           Under New Jersey law, a director’s or officer’s right to be reimbursed for the costs of defense of criminal actions, whether such claims are asserted under state or federal law, does not depend upon the merits of the claims asserted against the director or officer and is separate and distinct from any right to indemnification the director may be able to establish.
 
I.           Indemnitee is, or will be, a director and/or officer of the Company and his or her willingness to serve in such capacity is predicated, in substantial part, upon the Company’s willingness to indemnify him or her in accordance with the principles reflected above, to the fullest extent permitted by the laws of the State of New Jersey, and upon the other undertakings set forth in this Agreement.
 
J.           Therefore, in recognition of the need to provide Indemnitee with substantial protection against personal liability, in order to procure Indemnitee’s continued service as a director and/or officer of the Company and to enhance Indemnitee’s ability to serve the Company in an effective manner, and in order to provide such protection pursuant to express contract rights (intended to be enforceable irrespective of, among other things, any amendment to the Company’s certificate of incorporation or bylaws (collectively, the “Constituent Documents” ), any ch ange in the composition of the Company’s Board of Directors (the “Board” ) or any change-in-control or business combination transaction relating to the Company), the Company wishes to provide in this Agreement for the indemnification and advancement of Expenses to Indemnitee on the terms, and subject to the conditions, set forth in this Agreement.
 
K.           In light of the considerations referred to in the preceding recitals, it is the Company’s intention and desire that the provisions of this Agreement be construed liberally, subject to their express terms, to maximize the protections to be provided to Indemnitee hereunder.
 
AGREEMENT:
 
NOW, THEREFORE, the parties hereby agree as follows:
 
1.           Certain Definitions . In addition to terms defined elsewhere herein, the following terms have the following meanings when used in this Agreement with initial capital letters:
 
“Change in Control” shall have occurred at such time, if any, as Incumbent Directors cease for any reason to constitute a majority of Directors. For purposes of this Section 1(a), “Incumbent Directors” means the individuals who, as of the date hereof, are Directors of the Company and any individual becoming a Director subsequent to the date hereof whose election, nomination for election by the Company’s stockholders, or appointment, was approved by a vote of at least a majority of the then Incumbent Directors (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination); provided, however, that an individual shall not be an Incumbent Director if such individual’s election or appointment to the Board occurs as a result of an actual or threatened election contest (as described in Rule 14a-12(c) of the Securities Exchange Act of 1934, as amended) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board.
 
 
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“Claim” means (i) any threatened, asserted, pending or completed claim, demand, action, suit or proceeding, whether civil, criminal, administrative, arbitrative, investigative or other, and whether made pursuant to federal, state or other law; and (ii) any inquiry or investigation, whether made, instituted or conducted by the Company or any other Person, including, without limitation, any federal, state or other governmental entity, that Indemnitee reasonably determines might lead to the institution of any such claim, demand, action, suit or proceeding. For the avoidance of doubt, the Company intends indemnity to be provided hereunder in respect of acts or failure to act prior to, on or after the date hereof.
 
“Controlled Affiliate” means any corporation, limited liability company, partnership, joint venture, trust or other entity or enterprise, whether or not for profit, that is directly or indirectly controlled by the Company. For purposes of this definition, “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of an entity or enterprise, whether through the ownership of voting securities, through other voting rights, by contract or otherwise; provided that direct or indirect beneficial ownership of capital stock or other interests in an entity or enterprise entitling the holder to cast 15% or more of the total number of votes generally entitled to be cast in the election of directors (or persons performing comparable functions) of such entity or enterprise shall be deemed to constitute control for purposes of this definition.
 
“Disinterested Director” means a director of the Company who is not and was not a party to the Claim in respect of which indemnification is sought by Indemnitee.
 
“Expenses” means attorneys’ and experts’ fees and expenses and all other costs and expenses paid or payable in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to investigate, defend, be a witness in or participate in (including on appeal), any Claim.
 
“Indemnifiable Claim” means any Claim based upon, arising out of or resulting from (i) any actual, alleged or suspected act or failure to act by Indemnitee in his or her capacity as a director, officer, employee or agent of the Company or as a director, officer, employee, member, manager, trustee or agent of any other corporation, limited liability company, partnership, joint venture, trust or other entity or enterprise, whether or not for profit, as to which Indemnitee is or was serving at the request of the Company, (ii) any actual, alleged or suspected act or failure to act by Indemnitee in respect of any business, transaction, communication, filing, disclosure or other activity of the Company or any other entity or enterprise referred to in clause (i) of this sentence, or (iii) Indemnitee’s status as a current or former director, officer, employee or agent of the Company or as a current or former director, officer, employee, member, manager, trustee or agent of the Company or any other entity or enterprise referred to in clause (i) of this sentence or any actual, alleged or suspected act or failure to act by Indemnitee in connection with any obligation or restriction imposed upon Indemnitee by reason of such status. In addition to any service at the actual request of the Company, for purposes of this Agreement, Indemnitee shall be deemed to be serving or to have served at the request of the Company as a director, officer, employee, member, manager, trustee or agent of another entity or enterprise if Indemnitee is or was serving as a director, officer, employee, member, manager, agent, trustee or other fiduciary of such entity or enterprise and (i) such entity or enterprise is or at the time of such service was a Controlled Affiliate, (ii) such entity or enterprise is or at the time of such service was an employee benefit plan (or related trust) sponsored or maintained by the Company or a Controlled Affiliate, or (iii) the Company or a Controlled Affiliate (by action of the Board, any committee thereof or the Company’s Chief Executive Officer (“CEO”) (other than as the CEO him or herself)) caused or authorized Indemnitee to be nominated, elected, appointed, designated, employed, engaged or selected to serve in such capacity.
 
 
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“Indemnifiable Losses” means any and all Losses relating to, arising out of or resulting from any Indemnifiable Claim; provided, however, that Indemnifiable Losses shall not include Losses incurred by Indemnitee in respect of any Indemnifiable Claim (or any matter or issue therein) as to which Indemnitee shall have been adjudged liable to the Company, unless and only to the extent that the court in which such Indemnifiable Claim was brought shall have determined upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification for such Expenses as the court shall deem proper.
 
“Independent Counsel” means a nationally recognized law firm, or a member of a nationally recognized law firm, that is experienced in matters of New Jersey corporate law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company (or any subsidiary) or Indemnitee in any matter material to either such party (other than with respect to matters concerning the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements) or (ii) any other named (or, as to a threatened matter, reasonably likely to be named) party to the Indemnifiable Claim giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.
 
“Losses” means any and all Expenses, damages, losses, liabilities, judgments, fines, penalties (whether civil, criminal or other) and amounts paid or payable in settlement, including, without limitation, all interest, assessments and other charges paid or payable in connection with or in respect of any of the foregoing.
 
“Person” means any individual, entity or group, within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended.
 
 
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“Standard of Conduct” means the standard for conduct by Indemnitee that is a condition precedent to indemnification of Indemnitee hereunder against Indemnifiable Losses relating to, arising out of or resulting from an Indemnifiable Claim. The Standard of Conduct is (i) good faith and a reasonable belief by Indemnitee that his action was in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, that Indemnitee had no reasonable cause to believe that his conduct was unlawful, or (ii) any other applicable standard of conduct that may hereafter be substituted under Section 78.7502 of the NRS or any successor to such provision(s).
 
2.             Indemnification Obligation. Subject only to Section 7 and to the proviso in this Section, the Company shall indemnify, defend and hold harmless Indemnitee, to the fullest extent permitted or required by the laws of the State of New Jersey in effect on the date hereof or as such laws may from time to time hereafter be amended to increase the scope of such permitted indemnification, against any and all Indemnifiable Claims and Indemnifiable Losses; provided, however, that, except as provided in Section 5, Indemnitee shall not be entitled to indemnification pursuant to this Agreement in connection with (i) any Claim initiated by Indemnitee against the Company or any director or officer of the Company unless the Company has joined in or consented to the initiation of such Claim, or (ii) the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended. The Company acknowledges that the foregoing obligation may be broader than that now provided by applicable law and the Company’s Constituent Documents and intends that it be interpreted consistently with this Section and the recitals to this Agreement.
 
3.             Advancement of Expenses. Indemnitee shall have the right to advancement by the Company prior to the final disposition of any Indemnifiable Claim of any and all actual and reasonable Expenses relating to, arising out of or resulting from any Indemnifiable Claim paid or incurred by Indemnitee. Without limiting the generality or effect of any other provision hereof, Indemnitee’s right to such advancement is not subject to the satisfaction of any Standard of Conduct. Without limiting the generality or effect of the foregoing, within five business days after any request by Indemnitee that is accompanied by supporting documentation for specific reasonable Expenses to be reimbursed or advanced, the Company shall, in accordance with such request (but without duplication), (a) pay such Expenses on behalf of Indemnitee, (b) advance to Indemnitee funds in an amount sufficient to pay such Expenses, or (c) reimburse Indemnitee for such Expenses; provided that Indemnitee shall repay, without interest, any amounts actually advanced to Indemnitee that, at the final disposition of the Indem nifiable Claim to which the advance related, were in excess of amounts paid or payable by Indemnitee in respect of Expenses relating to, arising out of or resulting from such Indemnifiable Claim. In connection with any such payment, advancement or reimbursement, at the request of the Company, Indemnitee shall execute and deliver to the Company an undertaking, which need not be secured and shall be accepted without reference to Indemnitee’s ability to repay the Expenses, by or on behalf of the Indemnitee, to repay any amounts paid, advanced or reimbursed by the Company in respect of Expenses relating to, arising out of or resulting from any Indemnifiable Claim in respect of which it shall have been determined, following the final disposition of such Indemnifiable Claim and in accordance with Section 7, that Indemnitee is not entitled to indemnification hereunder.
 
 
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4.             Indemnification for Additional Expenses. Without limiting the generality or effect of the foregoing, the Company shall indemnify and hold harmless Indemnitee against and, if requested by Indemnitee, shall reimburse Indemnitee for, or advance to Indemnitee, within five business days of such request accompanied by supporting documentation for specific Expenses to be reimbursed or advanced, any and all actual and reasonable Expenses paid or incurred by Indemnitee in connection with any Claim made, instituted or conducted by Indemnitee for (a) indemnification or reimbursement or advance payment of Expenses by the Company under any provision of this Agreement, or under any other agreement or provision of the Constituent Documents now or hereafter in effect relating to Indemnifiable Claims, and/or (b) recovery under any directors’ and officers’ liability insurance policies maintained by the Company; provided, however, if it is ultimately determined that the Indemnitee is not entitled to such indemnification, reimbursement, advance or insurance recovery, as the case may be, then the Indemnitee shall be obligated to repay any such Expenses to the Company; provided further, that, regardless in each case of whether Indemnitee ultimately is determined to be entitled to such indemnification, reimbursement, advance or insurance recovery, as the case may be, Indemnitee shall return, without interest, any such advance of Expenses (or portion thereof) which remains unspent at the final disposition of the Claim to which the advance related.
 
5.             Partial Indemnity. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any Indemnifiable Loss but not for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.
 
6.             Procedure for Notification. To obtain indemnification under this Agreement in respect of an Indemnifiable Claim or Indemnifiable Loss, Indemnitee shall submit to the Company a written request therefore, including a brief description (based upon information then available to Indemnitee) of such Indemnifiable Claim or Indemn ifiable Loss. If, at the time of the receipt of such request, the Company has directors’ and officers’ liability insurance in effect under which coverage for such Indemnifiable Claim or Indemnifiable Loss is potentially available, the Company shall give prompt written notice of such Indemnifiable Claim or Indemnifiable Loss to the applicable insurers in accordance with the procedures set forth in the applicable policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all Indemnifiable Claims and Indemnifiable Losses in accordance with the terms of such policies. The Company shall provide to Indemnitee a copy of such notice delivered to the applicable insurers, substantially concurrently with the delivery thereof by the Company. The failure by Indemnitee to timely notify the Company of any Indemnifiable Claim or Indemnifiable Loss shall not relieve the Company from any liability hereunder unless, and only to the extent that, the Company did not otherwise learn of such Indemnifiable Claim or Indemnifiable Loss and to the extent that such failure results in forfeiture by the Company of substantial defenses, rights or insurance coverage.
 
7.             Determination of Right to Indemnification.
 
To the extent that Indemnitee shall have been successful on the merits or otherwise in defense of any Indemnifiable Claim or any portion thereof or in defense of any issue or matter therein, including, without limitation, dismissal without prejudice, Indemnitee shall be indemnified against all Indemnifiable Losses relating to, arising out of or resulting from such Indemnifiable Claim in accordance with Section 2 and no Standard of Conduct Determination (as defined in Section 7(b)) shall be required.
 
 
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To the extent that the provisions of Section 7(a) are inapplicable to an   Indemnifiable Claim that shall have been finally disposed of, any determination of whether   Indemnitee has satisfied the applicable Standard of Conduct (a “Standard of Conduct   Determination” ) shall be made as follows: (i) if a Change in Control shall not have occurred, or   if a Change in Control shall have occurred but Indemnitee shall have requested that the Standard   of Conduct Determination be made pursuant to this clause (i), (A) by a maj ority vote of the   Disinterested Directors, even if less than a quorum of the Board, (B) if such Disinterested   Directors so direct, by a majority vote of a committee of Disinterested Directors designated by a   majority vote of all Disinterested Directors, or (C) if there are no such Disinterested Directors, or   if a majority of the Disinterested Directors so direct, by Independent Counsel in a written opinion   addressed to the Board, a copy of which shall be delivered to Indemnitee; and (ii) if a Change in   Control shall have occurred and Indemnitee shall not have requested that the Standard of   Conduct Determination be made pursuant to clause (i) above, by Independent Counsel in a   written opinion addressed to the Board, a copy of which shall be delivered to Indemnitee.
 
If (i) Indemnitee shall be entitled to indemnification hereunder against any   Indemnifiable Losses pursuant to Section 7(a), (ii) no determination of whether Indemnitee has   satisfied any applicable standard of conduct under New Jersey law is a legally required condition   precedent to indemnification of Indemnitee hereunder against any Indemnifiable Losses, or (iii)   Indemnitee has been determined or deemed pursuant to Section 7(b) to have satisfied the   applicable Standard of Conduct, then the Company shall pay to Indemnitee, within five business   days after the later of (x) the Notification Date in respect of the Indemnifiable Claim or portion   thereof to which such Indemnifiable Losses are related, out of which such Indemnifiable Losses   arose or from which such Indemnifiable Losses resulted, and (y) the earliest date on which the   applicable criterion specified in clause (i), (ii) or (iii) above shall have been satisfied, an amount   equal to the amount of such Indemnifiable Losses. If a Standard of Conduct Determination is   required to be, but has not been, made by Independent Counsel pursuant to Section 7(b)(i), the   Independent Counsel shall be selected by the Board or a committee of the Board, and the Company shall give written notice to Indemnitee advising him or her of the identity of the   Independent Counsel so selected.
 
If a Standard of Conduct Determination is required to be, or to have been, made   by Independent Counsel pursuant to Section 7(b)(ii), the Independent Counsel shall be selected   by Indemnitee, and Indemnitee shall give written notice to the Company advising it of the   identity of the Independent Counsel so selected. In either case, Indemnitee or the Company, as   applicable, may, within five business days after receiving written notice of selection from the   other, deliver to the other a written objection to such selection; provided, however, that such   objection may be asserted only on the ground that the Independent Counsel so selected does not   satisfy the criteria set forth in the definition of “Independent Counsel” in Section 1(h), and the   objection shall set forth with particularity the factual basis of such assertion. Absent a proper   and timely objection, the Person so selected shall act as Independent Counsel. If such written   objection is properly and timely made and substantiated, (i) the Independent Counsel so selected   may not serve as Independent Counsel unless and until such objection is withdrawn or a court   has determined that such objection is without merit and (ii) the non-objecting party may, at its option, select an alternative Independent Counsel and give written notice to the other party   advising such other party of the identity of the alternative Independent Counsel so selected, in   which case the provisions of the two immediately preceding sentences and clause (i) of this sentence shall apply to such subsequent selection and notice. If applicable, the provisions of clause (ii) of the immediately preceding sentence shall apply to successive alternative selections. If no Independent Counsel that is permitted under the foregoing provisions of this Section 7(d) to make the Standard of Conduct Determination shall have been selected within 30 calendar days after the Company gives its initial notice pursuant to the first sentence of this Section 7(d) or Indemnitee gives its initial notice pursuant to the second sentence of this Section 7(d), as the case may be, either the Company or Indemnitee may petition the Courts of the State of New Jersey for resolution of any objection which shall have been made by the Company or Indemnitee to the other’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person or firm selected by the Court or by such other person as the Court shall designate, and the person or firm with respect to whom all objections are so resolved or the person or firm so appointed will act as Independent Counsel. In all events, the Company shall pay all of the actual and reasonable fees and expenses of the Independent Counsel incurred in connection with the Independent Counsel’s determination pursuant to Section 7(b).
 
 
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8.             Cooperation. Indemnitee shall cooperate with reasonable requests of the Company in connection with any Indemnifiable Claim and any individual or firm making such Standard of Conduct Determination, including providing to such Person documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to defend the Indemnifiable Claim or make any Standard of Conduct Determination without incurring any unreimbursed cost in connection therewith. The Company shall indemnify and hold harmless Indemnitee against and, if requested by Indemnitee, shall reimburse Indemnitee for, or advance to Indemnitee, within five business days of such request accompanied by supporting documentation for specific costs and expenses to be reimbursed or advanced, any and all costs and expenses (including attorneys’ and experts’ fees and expenses) actually and reasonably incurred by Indemnitee in so cooperating with the Person defending the Indemnifiable Claim or making such Standard of Conduct Determination.
 
9.             Presumption of Entitlement. Notwithstanding any other provision hereof, in making any Standard of Conduct Determination, the Person making such determination shall presume that Indemnitee has satisfied the applicable Standard of Conduct.
 
10.           No Other Presumption. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere or its equivalent, will not create a presumption that Indemnitee did not meet any applicable Standard of Conduct or that indemnification hereunder is otherwise not permitted.
 
11.           Non-Exclusivity. The rights of Indemnitee hereunder will be in addition to any other rights Indemnitee may have under the Constituent Documents, or the substantive laws of the Company’s jurisdiction of incorporation, any other contract or otherwise (collectively, “Other Indemnity Provisions” ); provided, however, that (a) to the extent that Indemnitee otherwise would have any greater right to indemnification under any Other Indemnity Provision, Indemnitee will without further action be deemed to have such greater right hereunder, and (b) to the extent that any change is made to any Other Indemnity Provision which permits any greater right to indemnification than that provided under this Agreement as of the date hereof, Indemnitee will be deemed to have such greater right hereunder. The Company may not, without the consent of Indemnitee, adopt any amendment to any of the Constituent Documents the effect of which would be to deny, diminish or encumber Indemnitee’s right to indemnification under this Agreement.
 
 
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12.           Liability Insurance and Funding. For the duration of Indemnitee’s service as a director and/or officer of the Company and for a reasonable period of time thereafter, which such period shall be determined by the Company in its sole discretion, the Company shall use commercially reasonable efforts (taking into account the scope and amount of coverage available relative to the cost thereof) to cause to be maintained in effect policies of directors’ and officers’ liability insurance providing coverage for directors and/or officers of the Company, and, if applicable, that is substantially comparable in scope and amount to that provided by the Company’s current policies of directors’ and officers’ liability insurance. Upon reasonable request, the Company shall provide Indemnitee or his or her counsel with a copy of all directors’ and officers’ liability insurance applications, binders, policies, declarations, endorsements and other related materials. In all policies of directors’ and officers’ liability insu rance obtained by the Company, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits, subject to the same limitations, as are accorded to the Company’s directors and officers most favorably insured by such policy. Notwithstanding the foregoing, (i) the Company may, but shall not be required to, create a trust fund, grant a security interest or use other means, including, without limitation, a letter of credit, to ensure the payment of such amounts as may be necessary to satisfy its obligations to indemnify and advance expenses pursuant to this Agreement and (ii) in renewing or seeking to renew any insurance hereunder, the Company will not be required to expend more than 2.0 times the premium amount of the immediately preceding policy period (equitably adjusted if necessary to reflect differences in policy periods).
 
13.           Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the related rights of recovery of Indemnitee against other Persons (other than Indemnitee’s successors), including any entity or enterprise referred to in clause (i) of the definition of “Indemnifiable Claim” in Section 1(f). Indemnitee shall execute all papers reasonably required to evidence such rights (all of Indemnitee’s reasonable Expenses, including attorneys’ fees and charges, related thereto to be reimbursed by or, at the option of Indemnitee, advanced by the Company).
 
14.           No Duplication of Payments . The Company shall not be liable under this Agreement to make any payment to Indemnitee in respect of any Indemnifiable Losses to the extent Indemnitee has otherwise already actually received payment (net of Expenses incurred in connection therewith) under any insurance policy, the Constituent Documents and Other Indemnity Provisions or otherwise (including from any entity or enterprise referred to in clause (i) of the definition of “Indemnifiable Claim” in Section 1(f)) in respect of such Indemnifiable Losses otherwise indemnifiable hereunder.
 
15.           Defense of Claims . Subject to the provisions of applicable policies of directors’ and officers’ liability insurance, if any, the Company shall be entitled to participate in the defense of any Indemnifiable Claim or to assume or lead the defense thereof with counsel reasonably satisfactory to the Indemnitee; provided that if Indemnitee determines, after consultation with counsel selected by Indemnitee, that (a) the use of counsel chosen by the   Company to represent Indemnitee would present such counsel with an actual or potential   conflict, (b) the named parties in any such Indemnifiable Claim (including any impleaded   parties) include both the Company and Indemnitee and Indemnitee shall conclude that there may   be one or more legal defenses available to him or her that are different from or in addition to   those available to the Company, (c) any such representation by such counsel would be precluded   under the applicable standards of professional conduct then prevailing, or (d) Indemnitee has   interests in the claim or underlying subject matter that are different from or in addition to those   of other Persons against whom the Claim has been made or might reasonably be expected to be   made, then Indemnitee shall be entitled to retain separate counsel (but not more than one law   firm plus, if applicable, local counsel in respect of any particular Indemnifiable Claim for all indemnitees in IndemniteeÕs circumstances) at the Company’s expense. The Company shall not   be liable to Indemnitee under this Agreement for any amounts paid in settlement of any   threatened or pending Indemnifiable Claim effected without the Company’s prior written   consent. The Company shall not, without the prior written consent of the Indemnitee, effect any   settlement of any threatened or pending Indemnifiable Claim which the Indemnitee is or could   have been a party unless such settlement solely involves the payment of money and includes a   complete and unconditional release of the Indemnitee from all liability on any claims that are the   subject matter of such Indemnifiable Claim. Neither the Company nor Indemnitee shall   unreasonably withhold its consent to any proposed settlement; provided that Indemnitee may   withhold consent to any settlement that does not provide a complete and unconditional release of   Indemnitee.
 
 
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16.                          Mutual Acknowledgment. Both the Company and the Indemnitee acknowledge   that in certain instances, Federal law or applicable public policy may prohibit the Company from   indemnifying its directors and officers under this Agreement or otherwise. Indemnitee   understands and acknowledges that the Company may be required in the future to undertake to   the Securities and Exchange Commission to submit the question of indemnification to a court in   certain circumstances for a determination of the Company’s right under public policy to   indemnify Indemnitee and, in that event, the IndemniteeÕs rights and the Company’s obligations   hereunder shall be subject to that determination.
 
17.         Successors and Binding Agreement.
 
This Agreement shall be binding upon and inure to the benefit of the Company   and any successor to the Company, including, without limitation, any Person acquiring directly   or indirectly all or substantially all of the business or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor will thereafter   be deemed the “Company” for purposes of this Agreement), but shall not otherwise be   assignable or delegatable by the Company.
 
This Agreement shall inure to the benefit of and be enforceable by the   IndemniteeÕs personal or legal representatives, executors, administrators, heirs, distributees,   legatees and other successors.
 
This Agreement is personal in nature and neither of the parties hereto shall,   without the consent of the other, assign or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 17(a) and 17(b). Without limiting the generality or effect of the foregoing, Indemnitee’s right to receive payments hereunder shall not be assignable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by the Indemnitee’s will or by the laws of descent and distribution, and, in the event of any attempted assignment or transfer contrary to this Section 17(c), the Company shall have no liability to pay any amount so attempted to be assigned or transferred.
 
 
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18.           Notices. For all purposes of this Agreement, all communications, including without limitation notices, consents, requests or approvals, required or permitted to be given hereunder must be in writing and shall be deemed to have been duly given when hand delivered or dispatched by electronic facsimile transmission (with receipt thereof orally confirmed), or one business day after having been sent for next-day delivery by a nationally recognized overnight courier service, addressed to the Company (to the attention of the Secretary of the Company) and to Indemnitee at the applicable address shown on the signature page hereto, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of changes of address will be effective only upon receipt.
 
19.           Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by and construed in accordance with the substantive laws of the State of New Jersey, without giving effect to the principles of conflict of laws of such State. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the Courts of Florida for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement, waive all procedural objections to suit in that jurisdiction, including, without limitation, objections as to venue or inconvenience, agree that service in any such action may be made by notice given in accordance with Section 18 and also agree that any action instituted under this Agreement shall be brought only in the Courts of Florida.
 
20.           Validity. If any provis ion of this Agreement or the application of any provision hereof to any Person or circumstance is held invalid, unenforceable or otherwise illegal, the remainder of this Agreement and the application of such provision to any other Person or circumstance shall not be affected, and the provision so held to be invalid, unenforceable or otherwise illegal shall be reformed to the extent, and only to the extent, necessary to make it enforceable, valid or legal. In the event that any court or other adjudicative body shall decline to reform any provision of this Agreement held to be invalid, unenforceable or otherwise illegal as contemplated by the immediately preceding sentence, the parties thereto shall take all such action as may be necessary or appropriate to replace the provision so held to be invalid, unenforceable or otherwise illegal with one or more alternative provisions that effectuate the purpose and intent of the original provisions of this Agreement as fully as possible without being invalid, unenforceable or otherwise illegal.
 
21.           Miscellaneous. No provision of this Agreement may be waived, modified or discharged unless such waiver, modification or discharge is agreed to in writing signed by Indemnitee and the Company. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral
or otherwise, expressed or implied with respect to the subject matter hereof have been made by either party that are not set forth expressly in this Agreement.
 
 
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22.          Certain Interpretive Matters. Unless the context of this Agreement otherwise requires, (1) “it” or “its” or words of any gender include each other gender, (2) words using the singular or plural number also include the plural or singular number, respectively, (3) the terms “hereof,” “herein,” “hereby” and derivative or similar words refer to this entire Agreement, (4) the terms “Article,” “Section,” “Annex” or “Exhibit” refer to the specified Article, Section, Annex or Exhibit of or to this Agreement, (5) the terms “include,” “includes” and “including” will be deemed to be followed by the words “without limitation” (whether or not so expressed), and (6) the word “or” is disjunctive but not exclusive. Whenever this Agreement refers to a number of days, such number will refer to calendar days unless business days are specified and whenever action must be taken (including the giving of notice or the delivery of documents) under this Agreement during a certain period of time or by a particular date that ends or occurs on a non-business day, then such period or date will be extended until the immediately following business day. As used herein, “business day” means any day other than Saturday, Sunday or a United States federal holiday.
 
23.           Entire Agreement. This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, between the parties hereto with respect to the subject matter of this Agreement. Any prior agreements or understandings between the parties hereto with respect to indemnification are hereby terminated and of no further force or effect. This Agreement is not the exclusive means of securing indemnification rights of Indemnitee and is in addition to any rights Indemnitee may have under any Constituent Documents.
 
24.           Counterparts . This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original but all of which together shall constitute one and the same agreement.
 
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IN WITNESS WHEREOF, Indemnitee has executed and the Company has caused its duly authorized representative to execute this Agreement as of the date first above written.
 
 
GLOBAL DIGITAL SOLUTIONS, INC.
 
     
 
By:
   
   
Name:
 
   
Title: Chief Executive Officer
 
     
 
INDEMNITEE:
 
     
 
Name:
 
  Address:    
       
       
       
       
 
Signature Page to Indemnification Agreement
 
 
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Exhibit 21
 
List of Subsidiaries
 
GDSI Florida, LLC, a Florida limited liability corporation
Global Digital Solutions LLC, a Florida limited company