UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended June 30, 2017

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from _________ to _________

 

Commission file number: 333-150332

 

DRONE AVIATION HOLDING CORP.

(Exact name of registrant as specified in its charter)

 

Nevada   46-5538504
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

11651 Central Parkway #118, Jacksonville, FL 32224

(Address of principal executive offices) (zip code)

 

(904) 834-4400

(Registrant’s telephone number, including area code)

 

Not applicable .

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☐  No ☒

 

Note: The registrant is a voluntary filer, but has filed all reports it would have been required to file by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months if it was subject to the filing requirements thereof.

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☒  No ☐ 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ☐ Accelerated filer  ☐
Non-accelerated filer  ☐ Smaller reporting company  ☒
(Do not check if a smaller reporting company) Emerging growth company  ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No  ☒.

 

As of August 3, 2017, there were 8,932,470 shares of registrant’s common stock outstanding.

  

Indicate by check mark whether the registrant is an “emerging growth company” as defined in Section 2(a) of the Securities Act and Section 3(a) of the Exchange Act. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act and Section 13(a) of the Exchange Act. ☐

 

 

 

 

  

DRONE AVIATION HOLDING CORP.

 

INDEX
       
PART I. FINANCIAL INFORMATION  
       
  ITEM 1 Financial Statements (Unaudited) F-1
    Consolidated Balance Sheets as of June 30, 2017 (Unaudited) and December 31, 2016 F-1
    Consolidated Statements of Operations for the six months ended June 30, 2017 and 2016 (Unaudited) F-2
    Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016 (Unaudited) F-3
    Notes to Interim Unaudited Consolidated Financial Statements F-4
  ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 2
  ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 8
  ITEM 4. Controls and Procedures 8
       
PART II. OTHER INFORMATION
       
  ITEM 1. Legal Proceedings 9
  ITEM 1A. Risk Factors 9
  ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 9
  ITEM 3. Defaults Upon Senior Securities 9
  ITEM 4. Mine Safety Disclosures 9
  ITEM 5. Other Information 10
  ITEM 6. Exhibits 11
       
  SIGNATURES 12

 

 

  

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

DRONE AVIATION HOLDING CORP.

CONSOLIDATED BALANCE SHEETS

 

    6/30/2017     12/31/2016  
    (Unaudited)        
ASSETS            
             
CURRENT ASSETS:            
Cash   $ 719,315     $ 2,015,214  
Accounts receivable - trade     24,549       394,000  
Inventory, net     636,349       459,885  
Prepaid expenses and deposits     57,452       120,614  
                 
Total current assets     1,437,665       2,989,713  
                 
PROPERTY AND EQUIPMENT, at cost:     180,302       179,627  
Less - accumulated depreciation     (78,345 )     (60,784 )
                 
Net property and equipment     101,957       118,843  
                 
OTHER ASSETS:                
Goodwill     99,799       99,799  
Intangible assets, net     1,143,667       1,289,667  
                 
Total other assets     1,243,466       1,389,466  
                 
TOTAL ASSETS   $ 2,783,088     $ 4,498,022  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
                 
CURRENT LIABILITIES:                
Accounts payable - trade and accrued liabilities   $ 97,014     $ 293,922  
Accounts payable due to related party     136,110       46,849  
Related party convertible note payable - Series 2016, net of discount of $2,092,156     -       907,844  
Derivative liability     780,165       1,832,013  
                 
Total current liabilities     1,013,289       3,080,628  
                 
LONG TERM LIABILITIES:                

     Related party convertible note payable - Series 2016, net of discount of $999,664

    2,000,366       -  
                 
TOTAL LIABILITIES   $ 3,013,625     $ 3,080,628  
                 
COMMITMENTS AND CONTINGENCIES     -       -  
                 
STOCKHOLDERS' EQUITY (DEFICIT):                
Convertible Preferred stock, Series A, $.0001 par value; authorized 595,000 shares; 0 and 100,100 shares issued and outstanding, at June 30, 2017 and December 31, 2016, respectively   $ -     $ 10  
Convertible Preferred stock, Series B, $.0001 par value; authorized 324,671 shares; 0 shares issued and outstanding, at June 30, 2017 and December 31, 2016, respectively     -       -  
Convertible Preferred stock, Series B-1, $.0001 par value; authorized 156,231 shares; 0 shares issued and outstanding, at June 30, 2017 and December 31, 2016, respectively     -       -  
Convertible Preferred stock, Series C, $.0001 par value; authorized 355,000 shares; 0 shares issued and outstanding, at June 30, 2017 and December 31, 2016, respectively     -       -  
Convertible Preferred stock, Series D, $.0001 par value; authorized 36,050,000 shares; 0 shares issued and outstanding, at June 30, 2017 and December 31, 2016, respectively     -       -  
Convertible Preferred stock, Series E, $.0001 par value; authorized 5,400,000 shares; 0 shares issued and outstanding, at June 30, 2017 and December 31, 2016, respectively     -       -  
Convertible Preferred stock, Series F, $.0001 par value; authorized 3,300,999 shares; 0 shares issued and outstanding, at June 30, 2017 and December 31, 2016, respectively     -       -  
Convertible Preferred stock, Series G, $.0001 par value; authorized 8,000,000 shares; 0 shares issued and outstanding, at June 30, 2017 and December 31, 2016, respectively     -       -  
Common stock, $.0001 par value; authorized 300,000,000 shares; 8,932,470 and 8,682,220 shares issued and outstanding, at June 30, 2017 and December 31, 2016     893       868  
Additional paid-in capital     22,327,454       21,089,301  
Retained Deficit     (22,558,884 )     (19,672,785 )
                 
Total stockholders' (deficit) equity     (230,537 )     1,417,394  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 2,783,088     $ 4,498,022  

  

The accompanying notes are an integral part of these unaudited consolidated financial statements.

    

F- 1

 

 

DRONE AVIATION HOLDING CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 

    For the Three Months Ended     For the Six Months Ended  
    June 30,     June 30,     June 30,     June 30,  
    2017     2016     2017     2016  
                         
Revenues   $ 13,876     $ 484,014     $ 381,529     $ 927,464  
                                 
Cost of goods sold     6,466       175,575       249,996       309,461  
                                 
Gross profit     7,410       308,439       131,533       618,003  
                                 
General and administrative expense     1,367,758       2,459,138       2,887,727       4,009,078  
                                 
Loss from operations     (1,360,348 )     (2,150,699 )     (2,756,194 )     (3,391,075 )
                                 
Other income (expense)                                
Gain on settlement of make whole provision     -       11,000       -       11,000  
Derivative Gain     298,050       -       1,051,848          
Interest expense     (700,407 )     (140 )     (1,181,753 )     (280 )
                                 
Total other expense     (402,357 )     10,860       (129,905 )     10,720  
                                 
NET LOSS     (1,762,705 )     (2,139,839 )     (2,886,099 )     (3,380,355 )
                                 
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS     (1,762,705 )     (2,139,839 )     (2,886,099 )     (3,380,355 )
                                 
Weighted average number of common shares outstanding - basic and diluted     8,698,081       6,452,762       8,698,081       5,935,006  
                                 
Basic and diluted net loss per share   $ (0.20 )   $ (0.33 )   $ (0.33 )   $ (0.57 )

  

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

F- 2

 

  

DRONE AVIATION HOLDING CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

    For the Six Months Ended  
    6/30/2017     6/30/2016  
OPERATING ACTIVITIES:            
Net loss   $ (2,886,099 )   $ (3,380,355 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Amortization expense of debt discount     1,092,492       -  
Gain on derivative liability     (1,051,848 )     -  
Depreciation     17,561       16,572  
Amortization expense of intangible assets     146,000       24,333  
Gain on settlement of make whole provision     -       (11,000 )
Stock based compensation     1,238,168       2,249,839  
Changes in current assets and liabilities:                
Accounts receivable     369,451       (396,562 )
Inventory     (176,464 )     (28,326 )
Prepaid expenses and other current assets     63,162       (7,221 )
Accounts payable and accrued expense     (196,908 )     10,001  
Due from related party     89,261       (6,000 )
Deferred revenue     -       (7,896 )
                 
Net cash used in operating activities     (1,295,224 )     (1,536,615 )
                 
INVESTING ACTIVITIES:                
Cash paid on furniture and equipment     (675 )     (10,783 )
                 
Net cash used in investing activities     (675 )     (10,783 )
                 
FINANCING ACTIVITIES:                
      -       -  
                 
Net cash provided by financing activities     -       -  
                 
NET DECREASE IN CASH     (1,295,899 )     (1,547,398 )
                 
CASH, beginning of period     2,015,214       2,659,734  
                 
CASH, end of period   $ 719,315     $ 1,112,336  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                
Cash paid during the six months ended June 30:                
Interest   $ -     $ 280  
                 
Noncash investing and financing activities for the six months ended June 30:                
Common Stock issued for Adaptive Flight asset purchase make whole provision   $ -     $ 150,500  
Conversion of Series A preferred stock to common stock   $ 25     $ -  
Conversion of Series C preferred stock to common stock   $ -     $ 18  
Conversion of Series D preferred stock to common stock   $ -     $ 5  
Conversion of Series F preferred stock to common stock   $ -     $ 5  
Conversion of Series G preferred stock to common stock   $ -     $ 5  

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

F- 3

 

 

Drone Aviation Holding Corp.

Notes to Interim Unaudited Consolidated Financial Statements

 

For the Period Ended June 30, 2017

 

1. BASIS OF PRESENTATION

 

The following unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, such interim financial statements do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete annual financial statements. The information furnished reflects all adjustments, consisting only of normal recurring items which are, in the opinion of management, necessary in order to make the financial statements not misleading. The balance sheet as of December 31, 2016 has been derived from the Company’s annual financial statements that were audited by an independent registered public accounting firm, but does not include all of the information and footnotes required for complete annual financial statements. The consolidated financial statements included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

 

Uses and Sources of Liquidity

 

At June 30, 2017, the Company had cash of $719,315, working capital of $424,376, and an accumulated deficit of $22,558,884. Furthermore, the Company has a history of negative cash flow from operations, primarily due to heavy investment in research and development and costs associated with maintaining a public entity. In October 2016, the company issued $3,000,000 in Convertible Notes Payable with a maturity date of October, 2017. As further discussed in Note 6 – Related Party Convertible Notes Payable and Derivative Liability, the Company does not currently have the liquid resources to repay the notes. On August 3, 2017, the notes were extended to April 1, 2019 and reclassified as long term liability as of the balance sheet date. On August 2, 2017, the Company closed on a bank line of credit in the amount of $2,000,000 and guaranteed by the Company’s Chairman and CEO and a private line of credit with a related party investor who is a significant shareholder in the amount of $2,000,000. The Company expects this financial backing has strengthened the balance sheet to support the level of sales necessary to maintain positive working capital and sufficient liquidity for operations.

 

The Company expects that it will need to raise substantial additional capital to accomplish its business plan over the next several years. In addition, the Company may wish to selectively pursue possible acquisitions of businesses, technologies, or products complementary to those of the Company in the future in order to expand its presence in the marketplace and achieve operating efficiencies. The Company expects to seek to obtain additional funding through a bank credit facility or private equity. There can be no assurance as to the availability or terms upon which such financing and capital might be available.

 

2. RELATED PARTY TRANSACTIONS

 

The Company accounts for related party transactions in accordance with ASC 850 (“Related Party Disclosures”). A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

 

As of June 30, 2017 and December 31, 2016, there was $136,110 and $46,849 accrued interest payable, respectively, to related parties on convertible notes payable.

 

F- 4

 

 

3. INVENTORY

 

Inventories are stated at the lower of cost or market, using the first-in first-out method. Cost includes materials, labor and manufacturing overhead related to the purchase and production of inventories. We regularly review inventory quantities on hand, future purchase commitments with our supplies, and the estimated utility of our inventory. If the review indicates a reduction in utility below carrying value, we reduce our inventory to a new cost basis through a charge to cost of goods sold. Allowance for slow moving items increased $6,366 due to a type of aerostat material which was custom ordered. Inventory consists of the following at June 30, 2017 and December 31, 2016: 

 

      June 30, 2017     December 31, 2016  
  Raw Materials   $ 102,587     $ 48,014  
  Work in Progress     271,346       254,258  
  Finished Goods     271,988       160,819  
  Less valuation allowance     (9,572 )     (3,206 )
  Total   $ 636,349     $ 459,885  

   

4. PROPERTY AND EQUIPMENT

 

Property and equipment is recorded at cost when acquired.  Depreciation is provided principally on the straight-line method over the estimated useful lives of the related assets, which is 3-7 years for equipment, furniture and fixtures, hardware and software and leasehold improvements.   During the six months ended June 30, 2017, the Company invested $675 in shop machinery and equipment. Depreciation expense was $17,561 and $16,572 for the six months ended June 30, 2017 and 2016, respectively. Property and equipment consists of the following at June 30, 2017 and December 31, 2016:

 

      June 30, 2017     December 31, 2016  
  Shop machinery and equipment   $ 87,704     $ 87,029  
  Computers and electronics     35,270       35,270  
  Office furniture and fixtures     37,814       37,814  
  Leasehold improvements     19,514       19,514  
        180,302       179,627  
  Less - accumulated depreciation     (78,345 )     (60,784 )
      $ 101,957     $ 118,843  

 

5. INTANGIBLE ASSETS

 

On July 20, 2015, the Company, through its wholly-owned subsidiary Drone AFS Corp., purchased substantially all the assets of Adaptive Flight, Inc. (“AFI”), a Georgia corporation. The Company purchased assets, including, but not limited to, intellectual property, licenses and permits, including commercial software licenses for the “GUST” (Georgia Tech UAV Simulation Tool) autopilot system and other transferable licenses which include flight simulation and fault tolerant flight control algorithms. The Company paid $100,000 in immediately available funds and $100,000 to be held in escrow. In addition, the Company issued 150,000 shares of unregistered common stock valued at $8.40 per share, on a post-October 29, 2015 reverse stock split basis, on the date of agreement, to be held in escrow.

 

F- 5

 

 

The Company had a milestone of twelve months to complete a technology integration plan, the non-completion of which could result in the return of the purchased assets and termination of the Company’s obligations to release the escrow cash and shares. Additional milestones included exclusive, no-cost and perpetual licenses to all contributing intellectual property included or related to the purchased assets. As such time as all milestones were met, one-half of the escrow shares were to be released to AFI. Upon termination of the escrow agreement, anticipated to be twelve months from the closing of the asset purchase, if all milestones had been met, the remaining escrow shares would be released to AFI; but if all milestones have not been met, the escrow cash and escrow shares would be released to the Company and the purchased assets would be returned to AFI. According to the terms of the Escrow Agreement, if the escrow share value was less than $1,400,000, the Company must issue an additional number of unregistered shares, not to exceed 50,000 shares. At December 31, 2015, the value of the 150,000 shares was $3.23 per share, or $484,500. The Company recorded $161,500 as an additional liability and expense at December 31, 2015 for the cost of 50,000 shares at $3.23 per share. On June 3, 2016, the Integration Plan was deemed to be completed. At June 3, 2016, the value of the 150,000 shares was $3.01 per share, or $451,150. The additional liability was reduced to $150,500 for the cost of 50,000 shares at $3.01 per share. The Company recorded the $11,000 reduction in the additional liability through the statement of operations at June 3, 2016. The Company began amortizing the $1,460,000 of purchased assets over a sixty month period on June 3, 2016 in the amount of $24,333 per month. Total amortization expense for the six months ended June 30, 2017 was $146,000. The remaining unamortized balance of $1,143,667 is estimated be amortized in the estimated amounts of $292,000 per year for 2017 through 2020 and $121,667 in 2021.

 

The asset acquisition did not qualify as a business combination under ASC 805-10 and has been accounted for as a regular asset purchase. 

 

6. RELATED PARTY CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITY

 

On September 29, 2016, the Company issued Convertible Promissory Notes Series 2016 due October 1, 2017 in the aggregate principal amount of $3,000,000 in a private placement to the Chairman of the Board and the Chairman of the Strategic Advisory Board of the Company, both of whom are greater than 10% shareholders of the Company. The notes bear interest at a rate of six percent (6%) per annum. The Company may prepay the notes at any time without penalty. If the Company does not prepay a note in full or the holder does not convert the note before the maturity date, the Company may pay the outstanding principal amount and any accrued and unpaid interest on the maturity date with cash or with common stock or through a combination of cash and stock at the Company’s discretion. The conversion price of the notes is the lesser of $3.00 per share or eight-five percent (85%) of the lowest per share purchase price of common stock in the next sale of common stock in which the Company receives gross proceeds of an amount greater than or equal to $3,000,000. 

 

On August 3, 2017, the conversion price of the notes was modified to $1.00 per share and the maturity date was extended to April 1, 2019.

 

Under ASC 815, these notes require liability classification and must be measured at fair value at the end of each reporting period.

 

The following table sets forth, by level within the fair value hierarchy, the Company’s financial liabilities that were accounted for at fair value as of June 30, 2017 and December 31, 2016:

 

      Level 1     Level 2     Level 3     Total  
  LIABILITIES:                        
  Derivative liabilities as of June 30, 2017   $ 0     $ 0     $ 780,165     $ 780,165  
  Derivative liabilities as of December 31, 2016   $ 0     $ 0     $ 1,832,013     $ 1,832,013  

 

F- 6

 

 

The following table represents the change in the fair value of the derivative liabilities during the six months ended June 30, 2017 and the year ended December 31, 2016:

 

 

  Fair value of derivative liabilities as of December 31, 2015   $ 0  
  Fair value of derivative liability at September 30, 2016 recorded as debt discount     2,394,974  
  Change in fair value of derivative liabilities     (562,961 )
  Fair value of derivative liabilities as of December 31, 2016   $ 1,832,013  
  Change in fair value of derivative liabilities     (1,051,848 )
   Fair value of derivative liabilities as of June 30, 2017   $ 780,165  

 

The amortization of the debt discount is $1,092,492 and $302,818 for the six months ended June 30, 2017 and the year ended December 31, 2016, respectively. The $3,000,000 payable associated with the Convertible Promissory Notes Series 2016 due October 1, 2017 is $2,000,336 as of June 30, 2017, net of a $999,664 debt discount which is being amortized over the life of the loan using the effective interest method. On August 3, 2017 the notes were amended to extend the maturity date to April 1, 2019 and, accordingly, they have been reclassified as long term liability as of June 30, 2017.

 

7. SHAREHOLDERS’ EQUITY

 

In September 2016, the Company issued 1,349,000 shares of restricted common stock outside of the 2015 Equity Plan to Jay Nussbaum, Felicia Hess, Daniyel Erdberg, Kendall Carpenter, Mike Silverman and Reginald Brown pursuant to Stock Award Agreements. The shares will vest upon consummation of a significant equity and/or debt financing of at least $5,000,000 provided that the holder remains engaged by the Company through the vesting date. On August 3, 2017, these awards were modified as described further in Footnote #12. Stock based compensation of $970,067 was recognized during the six months ended June 30, 2017.

 

In May 2016, the Company issued 150,000 shares of common stock with monthly vesting provisions to Strategic Advisory Board members, Dr. Philip Frost and Steven Rubin, for 12 months of services. The advisors can earn a pro rata portion of the shares, calculated based on the twelve-month vesting period, in the event the service agreements are terminated prior to the expiration date as described in the agreements. These shares vested during May 2017. The Company recognized a total of $29,500 and $75,000 expense for the pro rata portion of shares earned by the two members during the six months ended June 30, 2017 and 2016, respectively.

 

In April 2016, the Company issued an aggregate of 1,150,000 shares of common stock outside of the 2015 Equity Plan to Jay Nussbaum, Felicia Hess, Daniyel Erdberg, Kendall Carpenter, and Kevin Hess pursuant to Stock Award Agreements. Stock based compensation of $1,115,500 was recognized during the six months ended June 30, 2016 on the awards which fully vested on September 29, 2016. That same month, the Company issued 100,000 shares of stock to a director who subsequently resigned and forfeited the shares. The Company recognized a total of $24,250 stock compensation during the six months ended June 30, 2016.

 

On September 4, 2015, the Company issued 450,000 shares of restricted common stock to four management employees and one director pursuant to stock award agreements. Stock based compensation of $604,440 was recognized during the six months ended June 30, 2016.

 

On June 1, 2015, the Company issued 50,000 shares of restricted common stock with monthly vesting provisions to the Chairman of the Board for twenty-four months services pursuant to a Director Agreement. The Chairman can earn a pro rata portion of the shares, calculated on a twenty-four month vesting period, in the event the Chairman relinquishes his position and Board seat prior to the expiration date of the Director Agreement. These shares vested on June 1, 2017. The Company recognized a total of $135,000 expense for the portion of such shares earned by the Chairman during the six months ended June 30, 2017 and 2016, respectively.

 

On April 24, 2017, the holder of Series A preferred stock converted a total of 100,100 shares of Series A for an aggregate of 250,250 shares of restricted common stock in accordance with their conversion rights which includes a blocker with respect to individual ownership percentages.

 

F- 7

 

 

8. PREFERRED STOCK

 

All of the preferred stock of the Company is convertible into common shares. The Series A stock conversion ratio is 1 to 2.5 common shares. All preferred stock has voting rights equal to the number of shares it would have on an ‘as if converted’ basis subject to any ownership limitations governing such preferred shares. All preferred stock is entitled to dividends rights equal to the number of shares it would have on an ‘as if converted’ basis. None of the preferred stock is redeemable, participating nor callable.

 

The Company analyzed the embedded conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the conversion option should be classified as equity.

 

On April 24, 2017, the holder of Series A preferred stock converted a total of 100,100 shares of Series A for an aggregate of 250,250 shares of restricted common stock in accordance with their conversion rights which includes a blocker with respect to individual ownership percentages.

 

9. EMPLOYEE STOCK OPTIONS

 

One June 1, 2015, the Company issued an option award to an employee for 37,500 shares vesting over three years with an exercise price of $10.80 and expiration date of May 4, 2019. During the six months ended June 30, 2017 and 2016, $37,734 and $80,226 compensation expense was recognized on these 37,500 options, respectively.

 

On January 9, 2017, the Company issued an option to purchase 100,000 shares of common stock with an exercise price of $2.90 per share to a director. The option vests 50,000 after one year from grant date and another 50,000 two years from grant date with an expiration date of four years from grant date provided that the Director is still providing service to the Company.

 

The Company used the Black-Scholes option pricing model to estimate the fair value on the date of grant of the 100,000 options granted during the six months ended June 30, 2017.

 

The following table summarizes the assumptions used to estimate the fair value of the 100,000 stock options granted during the six months ended June 30, 2017 on the date of grant.

 

      2017  
         
  Expected dividend yield     0 %
  Expected volatility     100 %
  Risk-free interest rate     1.50 %
  Expected life of options     2.50-3.00 years  

 

Under the Black-Scholes option pricing model, the fair value of the 100,000 options granted during the six months ended June 30, 2017 is estimated at $174,173 on the date of grant. During the six months ended June 30, 2017, $64,530 compensation expense was recognized on these 100,000 options.

 

During 2016, the Company granted 65,000 common stock options to employees for service provided. Of these, 50,000 options were granted to two employees and were immediately vested with an exercise price of $2.91 and the expiration date is April 27, 2019. One of these employees terminated and did not exercise her 10,000 options resulting in the expiration of the option. Another 5,000 options were immediately vested and were granted with an exercise price of $3.77 and the expiration date is July 29, 2019. Another employee received 10,000 options with two-year vesting and an exercise price of $3.00 and an expiration date of December 6, 2019. The employee who received 5,000 options in July 2016 was terminated and did not exercise his options resulting in the expiration of a total of 5,000 options. The Company recognized $95,649 in compensation for the first six months ended June 30, 2016 on these options.

 

F- 8

 

 

The Company used the Black-Scholes option pricing model to estimate the fair value on the date of grant of the 10,000 stock-based awards that continue to vest during the six months ended June 30, 2017. 

 

The following table summarizes the assumptions used to estimate the fair value of the 10,000 outstanding stock options granted during 2016 on the date of grant:

 

      2016
       
  Expected dividend yield     0 %
  Expected volatility     102 %
  Risk-free interest rate     1.24-1.38 %
  Expected life of options     2.00-2.50 years  

 

Under the Black-Scholes option price model, fair value of the options granted during 2016 is estimated at $16,889 on the date of grant. During the six months ended June 30, 2017, $6,236 compensation expense was recognized on these 10,000 options.

 

The following table represents stock option activity as of and for the six months ended June 30, 2017:

 

      Number of Options     Weighted
Average
Exercise Price per Share
    Weighted Average Contractual Life in Years     Aggregate Intrinsic Value  
  Outstanding – December 31, 2016     442,500     $ 5.81     $ 1.72          
  Exercisable – December 31, 2016     407,500     $ 5.57     $ 1.65     $          0  
  Granted     100,000     $ 2.90                  
  Exercised or Vested     12,500     $ 10.80                  
  Cancelled or Expired     (7,500 )   $ 4.18                  
  Outstanding – June 30, 2017     535,000     $ 5.29       1.18     $ 0  
  Exercisable – June 30, 2017     412,500     $ 5.75       1.17     $ 0  

  

10. WARRANTS

 

The Company did not issue any warrants during the six months ended June 30, 2017.

 

For the year 2016, 60,000 common stock purchase warrants were granted to four consultants for services provided. Each warrant was granted with the exercise price of $2.91, which immediately vested, and the expiration date is April 27, 2019. The Company recognized $114,779 in compensation cost during the six months ended June 30, 2016.

 

During 2016, 10,472 warrants expired that were issued in 2011 with exercise prices ranging between $141.00 and $404.50 on a post-reverse split basis.

 

F- 9

 

 

The Company used the Black-Scholes warrant pricing model to estimate the fair value on the re-measurement dates of the 12,500 warrants that continue to vest during the six months ended June 30, 2017.

 

The following table summarizes the assumptions used to estimate the fair value of the 12,500 warrants granted during 2015 as of re-measurement dates:

 

      2017  
         
  Expected dividend yield     0 %
  Expected volatility     107 %
  Risk-free interest rate     1.53 %
  Expected life of warrants     1.0 years  

 

Under the Black-Scholes warrant pricing model, fair value of the 12,500 warrants granted during 2015 is estimated at $0 as of re-measurement dates. During the six months ended June 30, 2017, $(4,899) compensation expense was recognized on these 12,500 warrants. During the six months ended June 30, 2016, $4,995 compensation expense was recognized on these warrants.

 

The following table represents warrant activity as of and for the period ended June 30, 2017:

 

      Number of Warrants     Weighted
Average
Exercise Price per Share
    Weighted Average Contractual Life in Years     Aggregate Intrinsic Value  
  Outstanding – December 31, 2016     183,737     $ 7.35       2.70          
  Exercisable – December 31, 2016     171,237     $ 7.15       2.79     $        0  
  Granted     0     $ 0                  
  Forfeited or Expired     0     $ 0                  
  Outstanding – June 30, 2017     183,737     $ 7.35       2.21     $ 0  
  Exercisable – June 30, 2017     183,737     $ 7.35       2.21     $ 0  

   

11. COMMITMENTS AND CONTINGENCIES

 

On May 16, 2016, Banco Popular North America (“Banco”) filed a lawsuit in Duval County, Florida in the Circuit Court of the Fourth Judicial Circuit against Aerial Products Corporation d/b/a Southern Balloon Works (“Aerial Products”), Kevin M. Hess, LTAS, and the Company to collect on a delinquent Small Business Administration loan that Banco made in 2007 to Aerial Products with Mr. Hess as the personal guarantor. LTAS and the Company filed an Answer on June 30, 2016 and Responses to Interrogatories on December 16, 2016. It is our position that neither LTAS nor the Company are continuations of Aerial Products, and LTAS and the Company have denied all allegations made by Banco and will vigorously defend that position. The Company has evaluated the probability of loss as possible but the range of loss is unable to be estimated.

 

Other than the Banco matter, there are no material claims, actions, suits, proceedings inquiries, labor disputes or investigations pending.

 

12. SUBSEQUENT EVENTS

 

Revolving Line of Credit from City National Bank of Florida

 

On August 2, 2017, the Company issued a promissory note to City National Bank of Florida (“CNB”) in the principal amount of $2,000,000, the CNB Note. The note evidences a revolving line of credit with advances that may be requested by the Company until the maturity date of August 2, 2018 so long as no event of default exists under the note, the Company or Mr. Nussbaum does not cease doing business, Mr. Nussbaum does not seek to revoke or modify his guarantee of the Note, the Company does not misapply the proceeds of this loan or CNB in good faith does not believe itself insecure. The CNB Note bears interest at a variable rate equal to 0.250 percentage points over the Wall Street Journal Prime Rate payable monthly. The Company will pay to CNB a late charge of 5.0% of any monthly payment not received by Lender within 10 calendar days after its due date. The Company may prepay the note at any time without penalty. In the event of a default, the interest rate will increase to the highest lawful rate. The Company is obligated to maintain depository accounts with CNB with a minimum average annual balance of $600,000. In the event the Company does not maintain this account balance, CNB may charge the Company a fee equal to 2% of the deficiency as additional interest under the note. The CNB Note is personally guaranteed by Mr. Nussbaum, the Company’s Chief Executive Officer pursuant to written guarantee in favor of CNB (the “CNB Guarantee”). Mr. Nussbaum and the Company are obligated to maintain an unencumbered liquidity of no less than $6,000,000 in the form of cash, repurchase agreements, certificates of deposit or marketable securities acceptable to CNB. In addition, to secure our obligations under the note, we entered into a security agreement in favor of CNB (the “Security Agreement”) encumbering all of our accounts, inventory and equipment along with an assignment of a bank account we maintain at CNB with an approximate balance of $90,000.

 

  F- 10  

 

 

Indemnification Agreement

 

On August 3, 2017, the Company entered into an Indemnification Agreement with Mr. Nussbaum in order to indemnify and defend him to the fullest extent permitted by law for any claim, expense or obligation which might arise as a result of his guarantee of the CNB Note.

 

Series 2017 Secured Convertible Note

 

On the Effective Date, the Company issued a Secured Convertible Promissory Note Series 2017 due August 2, 2018 in the aggregate principal amount of $2,000,000 (the “Series 2017 Convertible Note”) in a private placement to Frost Nevada Investments Trust (“Frost Nevada”). Frost Nevada is a trust that is controlled by Dr. Frost, a substantial shareholder of the Company. The note evidences a revolving line of credit with advances that may be requested by the Company until the maturity date of August 2, 2018 so long as no event of default exists under the loan. The Company may request advances of principal under this note equal to and at the same time as it requests advances, if any, pursuant to the CNB Note. The note bears interest at a variable rate equal to 0.250 percentage points over the Wall Street Journal Prime Rate. The Company may prepay the notes at any time without penalty. If the Company does not prepay the note in full or the holder does not convert the note before the maturity date, the Company may pay the outstanding principal amount and any accrued and unpaid interest on the maturity date with cash or with common stock or through a combination of cash and stock at Frost Nevada’s discretion. The conversion price under the note is $1.00 per share subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events. The Series 2017 Convertible Note is secured by a security interest in all of the Company’s assets. This security interest is subordinate to the security interest of CNB discussed above.

 

Amendments to Related Party Convertible Promissory Notes

 

On August 3, 2017 (the “Effective Date”), the Company entered into amendments (the “Convertible Note Amendments”) with the owners and holders of the following convertible promissory notes issued by the Company (the “Convertible Notes”):

 

  Convertible Promissory Note in the original principal amount of $1,500,000 issued by the Company on September 29, 2016 to Frost Gamma Investments Trust (“Frost Gamma”). Frost Gamma is a trust that is controlled by Dr. Phillip Frost, a substantial shareholder of the Company; and

 

  Convertible Promissory Note in the original principal amount of $1,500,000 issued by the Company on September 29, 2016 to Jay H. Nussbaum, the Company’s Chief Executive Officer and Chairman of the Board of Directors.

 

The Convertible Note Amendments extend the maturity date for each of the Convertible Notes to April 1, 2019 (the “Maturity Date”) and revise the conversion price to mean $1.00 per share subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events. Consistent with the original terms of the Convertible Notes, interest accrues at the rate of 6% interest per annum and is payable on the Maturity Date. The accrued interest is payable at the holders’ option in cash or shares of our common stock valued at the $1.00 per share conversion price. The Convertible Note Amendments provide that an event of default in the City National Bank Loan will be treated as an event of default under the Convertible Notes.

 

Amendments to Restricted Stock Agreements

 

On the Effective Date, the Company entered into amendments (the “RSA Amendments”) with the holders of 1,349,000 shares of restricted common stock awarded to them by the Company pursuant to the terms of a Restricted Stock Agreement (the “RSA”). Pursuant to the RSA Amendments, the restrictions set forth in the RSA lapse upon the earlier of (i) consummation of a significant equity and/or debt financing from which the Company receives gross proceeds of at least $7,000,000 or (ii) a change in control (as defined in the RSA Amendment), provided that, in either case, the holder remains engaged by the Company through the date of such event.

 

Independent Contractor Agreements

 

On the Effective Date, the Company entered into an amendment to the August 24, 2014 Independent Contractor Agreements it entered into with Dr. Philip Frost and Steven Rubin who serve as members of the Company’s Strategic Advisory Board (the “SAB Amendments”). The SAB Amendments extend the term of the agreements from May 1, 2017 until April 30, 2018 and provide for the following equity based compensation: (a) for Dr. Frost, a warrant to purchase 2,000,000 shares of the Company’s Common Stock (the “Frost Warrant”) and an award of 150,000 shares of the Company’s unregistered restricted Common Stock and (b) for Mr. Rubin, an award of 100,000 shares of the Company’s unregistered restricted Common Stock. The restricted stock vests upon the occurrence of a change of control (as defined in the SAB Amendments). The Warrant has a term of five years and exercise price of $1.00 per share subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events.

 

Options issued

 

On August 3, 2017, upon approval of the Company’s board of directors, the Company issued outside its 2015 Equity Plan, 5,240,000 options to purchase the Company’s common stock to officers, directors and employees for services provided. Jay Nussbaum was issued 2,000,000 options, Felicia Hess was issued 1,200,000 options, Dan Erdberg was issued 1,140,000 options, Kendall Carpenter was issued 275,000 options, Directors David Aguilar, Mike Haas and General Wayne Jackson were issued 110,000, 10,000 and 10,000 options, respectively. The remaining 495,000 options were issued to employees and consultants. These stock options immediately vested, are exercisable at an exercise price of $1.00 per share and expire on August 3, 2021.

 

F- 11

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  

Certain statements in Management's Discussion and Analysis (“MD&A”), other than historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements". Forward-looking statements generally can be identified by the use of forward-looking terminology, such as “may,” “would,” “expect,” “intend,” “could,” “estimate,” “should,” “anticipate,” “believe,” and similar expressions.  Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. These statements are subject to a number of risks, uncertainties and developments beyond our control or foresight, including changes in the trends of the advanced aerostats and tethered drone industry, formation of competitors, changes in governmental regulation or taxation, changes in our personnel and other such factors.  We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.  Readers should carefully review the risk factors and related notes included under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission on March 17, 2017.

 

The following MD&A is intended to help readers understand the results of our operations and financial condition and is provided as a supplement to, and should be read in conjunction with, our Unaudited Consolidated Financial Statements and the accompanying Notes to Unaudited Consolidated Financial Statements under Part I, Item 1 of this Quarterly Report on Form 10-Q.

 

Growth and percentage comparisons made herein generally refer to the six months ended June 30, 2017 compared with the six months ended June 30, 2016 unless otherwise noted. Unless otherwise indicated or unless the context otherwise requires, all references in this document to “we,” “us,” “our,” the “Company,” and similar expressions refer to Drone Aviation Holding Corp. and, depending on the context, its subsidiaries.

 

Business Overview

 

We design, develop, market and sell lighter-than-air (“LTA”) advanced aerostats, tethered drones, and land-based intelligence, surveillance and reconnaissance (“ISR”) solutions. We focus on the development of a tethered aerostat known as the Winch Aerostat Small Platform (“WASP”), as well as tethered drone products, including the WATT and BOLT electric tethered drones launched on March 2, 2015 and July 13, 2016, respectively. The WATT and BOLT products are designed for commercial and military applications and provide secure and reliable aerial monitoring for extended durations while being tethered to the ground via a high strength armored tether. We also developed FUSE, a cost-effective tether kit for DJI Inspire drones. The FUSE winch offers better control in stronger winds for flights up to 200 feet and offers continuous power distribution monitoring and unlimited flight time.

 

While sales in the past quarter decreased compared to the same period in 2016, this decrease was primarily a result of a longer sales cycle stemming in part from the recent change in administration and congressional budgeting delays. We expect increased sales in future periods based on a product pipeline that is developing following our increased marketing efforts and our announcement of the following:

 

· On March 1, 2017, we announced the successful integration of government-furnished ISR equipment supporting the simultaneous use of communications and optical payload packages onto an enhanced WASP aerostat for the Department of Defense.

 

· On May 9, 2017, we announced the new heavy lift WATT 300 Multirotor Tethered Drone and recently upgraded WASP Military Aerostat platforms at SOFIC 2017.

 

· On May 25, 2017, we announced our new product called FUSE which is an automated smart winch tethering system designed to meet the unique specifications for DJI Inspire drones, the world’s most popular commercial drone.

 

Our marketing efforts include submission of bids on a several government procurement projects that we expect will be awarded in 2017 and 2018. We also showcased our products and technologies at numerous conferences and live demonstrations, including the 2017 Special Operations Forces Industry Conference, Warrior Expo East, State of Florida HURREX exercise, CyberQuest 2017, and presentations to a variety of federal and state government agencies. In anticipation of increased sales resulting from our developing product pipeline, we completed financing transactions that provide us with up to $4,000,000 in cash and extended the maturity date on $3,000,000 of convertible debt until April 2019 providing us with significant increased liquidity and a strengthened balance sheet. While there is no assurance that the opportunities included in our developing pipeline will result in orders for our products, we have positioned ourselves to be able to deliver the goods and services we have bid on.

 

In addition to our plans to organically grow our lighter than air systems through increased marketing and sales, we intend to continue to consider potential strategic transactions, which could involve acquisitions of businesses or assets, joint ventures or investments in businesses, products or technologies that expand, complement or otherwise relate to our current or future business.

 

2

 

   

Results of Operations

 

Three Months Ended June 30, 2017 compared to Three Months Ended June 30, 2016

 

Revenues :   Revenues of $13,876 for the quarter ended June 30, 2017 decreased $470,138 or 97% from $484,014 for the same period in 2016. Sources of revenue were derived primarily from aerostat products and accessories. The decrease in sales volume was primarily a result of a longer sales cycle stemming in part from the recent change in presidential administration and congressional budgeting delays. We expect increased sales in future periods based on a product pipeline developed following our increased marketing efforts discussed in the Business Overview section above.

 

Cost of Goods Sold and Gross Profit :  Cost of goods sold of $6,466 for the quarter ended June 30, 2017 decreased $169,109 or 96% from $175,575 for the same period in 2016. Costs included materials, parts and labor associated with the sale of aerostat products and accessories. The $7,410 gross profit for the quarter ended June 30, 2017 was a decrease of $301,209 or 98% from the $308,439 in gross profit for the same quarter of 2016.  Gross profit margins were 53% and 64% for the quarters ended June 30, 2017 and 2016, respectively. 

 

General and Administrative Expense :  General and administrative expense primarily consists of payroll and related costs, sales and marketing costs, research and development costs, business overhead and costs related to maintaining a public entity.  General and administrative expenses decreased $1,091,380 or 44% to $1,367,758 in the quarter ended June 30, 2017 from $2,459,138 for the same period in 2016. Contributing to the decrease was non-cash stock-based compensation of $604,559 for the quarter ended June 30, 2017, a decrease of $928,063 from $1,532,622 in the same period in 2016. Research and development costs decreased $244,138 due to drone products becoming ready for market, partially offset by an amortization expense increase of $48,667 related to assets acquired from AFI in 2015 and fully integrated in 2016, and an increase in payroll of $76,739.

 

Loss from Operations :  Loss from operations for the quarter ended June 30, 2017 decreased $790,350 or 37% to $1,360,349 from loss from operations of $2,150,699 for the same period in 2016. The decrease was primarily due to a decrease in gross profit of $301,029 and offset by the decrease of general and administrative expense of $1,091,379 as discussed above.

 

Other Expense :  Total other expense of $402,356 for the quarter ended June 30, 2017 was $413,216 greater than the total other income of $10,860 in the same period in 2016.  This increase was primarily due to $298,050 non-cash income due to a change in fair value of derivative liabilities, partially offset by an increase of $44,877 in accrued interest expense on the related party convertible notes payable and $655,530 debt discount charged to interest expense. The Company will continue to incur interest expense in 2017 on the related party convertible notes payable and will continue to record derivative gains or losses related to those notes until they are converted.

 

Net Loss : Net loss decreased $377,134 or 18% to $1,762,705 for the quarter ended June 30, 2017 from net loss of $2,139,839 for the same period in 2016.  The decrease in net loss was due to factors discussed above.  

 

3

 

 

Six Months Ended June 30, 2017 compared to Six Months Ended June 30, 2016

 

Revenues :  Revenues of $381,529 for the six months ended June 30, 2017 decreased $545,935 or 59% from $927,464 for the same period in 2016. Sources of revenue were derived primarily from aerostat products, refurbishments and accessories ordered in 2016 and delivered in 2017. The reason for the decrease is that revenues in the first half of 2017 were primarily related to refurbishments and enhancements of aerostat systems and the revenues in the first half of 2016 were primarily from the sale of an aerostat system. Also contributing to the decrease in sales volume was a longer sales cycle stemming in part from the recent change in presidential administration and congressional budgeting delays. We expect increased sales in future periods based on a product pipeline developed following our increased marketing efforts discussed in the Business Overview section above.

 

Cost of Goods Sold and Gross Profit :  Cost of goods sold of $249,996 for the six months ended June 30, 2017 decreased $59,465 or 19% from $309,461 for the same period in 2016. Costs in both periods included materials, parts and labor associated with the sale of aerostat products, refurbishments and accessories. The aerostat system delivered in the first quarter of 2016 had a 73% gross profit margin which was greater than the gross profit realized in the first quarter of 2017 on aerostat system refurbishments due to the increased time and material costs to disassemble and reassemble refurbished systems. The $131,533 gross profit for the six months ended June 30, 2017 was a decrease of $486,470 or 79% from the $618,003 in gross profit for the same period of 2016.  Gross profit margins were 34% and 67% for the six months ended June 30, 2017 and 2016, respectively. 

 

General and Administrative Expense :  General and administrative expense primarily consists of payroll and related costs, sales and marketing costs, research and development costs, business overhead and costs related to maintaining a public entity.  General and administrative expenses decreased $1,121,351 or 28% to $2,887,727 in the six months ended June 30, 2017 from $4,009,078 for the same period in 2016. Contributing to the decrease was non-cash stock-based compensation of $1,238,168 for the six months ended June 30, 2017, a decrease of $1,011,671 from $2,249,839 in the same period in 2016. Research and development costs decreased $380,769 due to drone products becoming ready for market, partially offset by an amortization expense increase of $121,667 related to assets acquired from AFI in 2015 and fully integrated in 2016, and an increase in payroll of $109,369.

 

Loss from Operations :  Loss from operations for the six months ended June 30, 2017 decreased $634,881 or 19% to $2,756,194 from loss from operations of $3,391,075 for the same period in 2016. The decrease was primarily due to a decrease in gross profit of $486,470 partially offset by a decrease of general and administrative expense of $1,121,351 as discussed above.

 

Other Expense :  Total other expense of $129,905 for the six months ended June 30, 2017 was $140,625 less than the total other expense of $10,720 in 2016.  This decrease was primarily due to $1,051,848 non-cash income due to a change in fair value of derivative liabilities, partially offset by an increase of $136,110 in accrued interest expense on the related party convertible notes payable and $1,092,492 debt discount charged to interest expense. The Company will continue to incur interest expense in 2017 on the related party convertible notes payable and will continue to record derivative gains or losses related to those notes until they are converted.

 

Net Loss : Net loss decreased $494,256 or 15% to $2,886,099 for the six months ended June 30, 2017 from net loss of $3,380,355 for the same period in 2016.  The decrease in net loss was due to factors discussed above.  

 

4

 

 

Liquidity and Capital Resources  

 

Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. As of June 30, 2017, the Company had $719,315 in cash compared to $2,015,214 in cash at December 31, 2016, a decrease of $1,295,899. As of June 30, 2017, the Company had accounts receivable of $24,549 compared to $394,000 at December 31, 2016, a decrease of $369,451 resulting from increased collections in the first six months of 2017.

 

The Company had total current assets of $1,437,665 and total current liabilities of $1,013,289, or working capital of $424,376 at June 30, 2017 compared to total current assets of $2,989,713 and total current liabilities of $3,080,628, or working capital deficit of $90,915 at December 31, 2016.

 

We have historically financed our operations through operating revenues and sales of equity and convertible debt securities. Although as of June 30, 2017 we have cash of $719,315, we have a working capital of $424,376 and incurred a net loss from operations of $2,756,194. Furthermore, the Company has a history of negative cash flow from operations, primarily due to historically heavy investment in research and development and costs associated with maintaining a public entity. While we expect a substantial reduction in research and development costs, we believe our existing working capital and access to capital are sufficient to continue our operations for the next 12 months.

 

In anticipation of increased sales resulting from our developing product pipeline, on August 2, 2017, we completed financing transactions that provide us with up to $4,000,000 in cash and extended the maturity date on $3,000,000 of convertible debt until April 2019 providing us with significant increased liquidity and a strengthened balance sheet. The following is a summary of these completed financing transaction:

 

Revolving Line of Credit from City National Bank of Florida. On August 2, 2017, the Company issued a promissory note to City National Bank of Florida (“CNB”) in the principal amount of $2,000,000, the CNB Note. The note evidences a revolving line of credit with advances that may be requested by the Company until the maturity date of August 2, 2018 so long as no event of default exists under the note, the Company or Mr. Nussbaum does not cease doing business, Mr. Nussbaum does not seek to revoke or modify his guarantee of the Note, the Company does not misapply the proceeds of this loan or CNB in good faith does not believe itself insecure. The CNB Note bears interest at a variable rate equal to 0.250 percentage points over the Wall Street Journal Prime Rate payable monthly. The Company will pay to CNB a late charge of 5.0% of any monthly payment not received by Lender within 10 calendar days after its due date. The Company may prepay the note at any time without penalty. In the event of a default, the interest rate will increase to the highest lawful rate. The Company is obligated to maintain depository accounts with CNB with a minimum average annual balance of $600,000. In the event the Company does not maintain this account balance, CNB may charge the Company a fee equal to 2% of the deficiency as additional interest under the note. The CNB Note is personally guaranteed by Mr. Nussbaum, the Company’s Chief Executive Officer pursuant to written guarantee in favor of CNB (the “CNB Guarantee”). Mr. Nussbaum and the Company are obligated to maintain an unencumbered liquidity of no less than $6,000,000 in the form of cash, repurchase agreements, certificates of deposit or marketable securities acceptable to CNB. In addition, to secure our obligations under the note, we entered into a security agreement in favor of CNB (the “Security Agreement”) encumbering all of our accounts, inventory and equipment along with an assignment of a bank account we maintain at CNB with an approximate balance of $90,000.

 

Series 2017 Secured Convertible Note . On the Effective Date, the Company issued a Secured Convertible Promissory Note Series 2017 due August 2, 2018 in the aggregate principal amount of $2,000,000 (the “Series 2017 Convertible Note”) in a private placement to Frost Nevada Investments Trust (“Frost Nevada”). Frost Nevada is a trust that is controlled by Dr. Frost, a substantial shareholder of the Company. The note evidences a revolving line of credit with advances that may be requested by the Company until the maturity date of August 2, 2018 so long as no event of default exists under the loan. The Company may request advances of principal under this note equal to and at the same time as it requests advances, if any, pursuant to the CNB Note. The note bears interest at a variable rate equal to 0.250 percentage points over the Wall Street Journal Prime Rate. The Company may prepay the notes at any time without penalty. If the Company does not prepay the note in full or the holder does not convert the note before the maturity date, the Company may pay the outstanding principal amount and any accrued and unpaid interest on the maturity date with cash or with common stock or through a combination of cash and stock at Frost Nevada’s discretion. The conversion price under the note is $1.00 per share subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events. The Series 2017 Convertible Note is secured by a security interest in all of the Company’s assets. This security interest is subordinate to the security interest of CNB discussed above.

 

  5  

 

 

Amendments to Related Party Convertible Promissory Notes . On August 3, 2017 (the “Effective Date”), the Company entered into amendments (the “Convertible Note Amendments”) with the owners and holders of the following convertible promissory notes issued by the Company (the “Convertible Notes”):

 

●    Convertible Promissory Note in the original principal amount of $1,500,000 issued by the Company on September 29, 2016 to Frost Gamma Investments Trust (“Frost Gamma”). Frost Gamma is a trust that is controlled by Dr. Phillip Frost, a substantial shareholder of the Company; and

 

●    Convertible Promissory Note in the original principal amount of $1,500,000 issued by the Company on September 29, 2016 to Jay H. Nussbaum, the Company’s Chief Executive Officer and Chairman of the Board of Directors.

 

The Convertible Note Amendments extend the maturity date for each of the Convertible Notes to April 1, 2019 (the “Maturity Date”) and revise the conversion price to mean $1.00 per share subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events. Consistent with the original terms of the Convertible Notes, interest accrues at the rate of 6% interest per annum and is payable on the Maturity Date. The accrued interest is payable at the holders’ option in cash or shares of our common stock valued at the $1.00 per share conversion price. The Convertible Note Amendments provide that an event of default in the City National Bank Loan will be treated as an event of default under the Convertible Notes.

 

Sources and Uses of Cash

 

   

Six Months Ended

June 30,

 
    2017     2016  
Cash flows (used in) operating activities   $ (1,295,224 )   $ (1,536,615 )
Cash flows (used in) investing activities     (675 )     (10,783 )
Cash flows provided by financing activities     0       0  
Net  (decrease) in cash and cash equivalents   $ (1,295,899 )   $ (1,547,398 )

  

Operating Activities

 

Net cash used in operating activities during the six months ended June 30, 2017 was $1,295,899, which was a decrease of $251,499, or 16%, from $1,547,398 net cash used in operating activities during six months ended June 30, 2016. The net loss of ($2,886,099) for the first six months of 2017 was ($494,256) less than the same period of 2016, which was ($3,380,355). In addition to the decreased net loss, the Company recognized $1,011,671 less non-cash stock based compensation in the first six months of 2017 than the previous year, offset by ($584,506) decrease changes in working capital for the six months ended June 30, 2017 compared to the same period in 2016. The Company recognized a non-cash gain on derivative liability of $1,051,848 offset by amortization expense of $146,000 on intangible assets and $1,092,492 on debt discount in the first six months of 2017 which were not present during the same period of 2016.

 

6

 

  

Investing Activities :

 

Net cash used in investing activities was $675 and $10,783 during the six months ended June 30, 2017 and 2016, respectively, which in each case was related to purchase of shop machines and equipment, computers and electronics and furniture and equipment.

 

Financing Activities:

 

There was no cash provided by financing activity during the six months ended June 30, 2017 or 2016.

 

Off-Balance Sheet Arrangements

 

We do not have any off balance sheet arrangements that materially effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

 

Critical Accounting Policies and Estimates

 

The Company’s accounting policies are more fully described in Note 1 of the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission on March 17, 2017. As disclosed therein, the preparation of the Company’s financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates. The Company believes that the following discussion addresses the Company’s most critical accounting policies, which are those that are most important to the portrayal of the Company’s financial condition and results of operations and require management’s most difficult, subjective and complex judgments.

 

Accounts Receivable and Credit Policies :

 

Accounts receivable-trade consists of amounts due from the sale of tethered aerostats, accessories, spare parts, and customization and refurbishment of aerostats. Such accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days of receipt of the invoice. We provide an allowance for doubtful accounts equal to the estimated uncollectible amounts based on historical collection experience and a review of the current status of trade accounts receivable. At June 30, 2017 and December 31, 2016, none of the Company’s accounts receivable-trade was deemed uncollectible.

 

Revenue Recognition and Unearned Revenue :

 

The Company recognizes revenue when all four of the following criteria are met: 1) persuasive evidence of an arrangement exists; 2) delivery has occurred and title has transferred or services have been rendered; 3) our price to the buyer is fixed or determinable; and 4) collectability is reasonably assured. We record unearned revenue as a liability and the associated costs of sales as work in process inventory. There is a balance of $24,549 in accounts receivable at June 30, 2017 for employee commission advances and no balance in unearned revenue.

 

Derivative Financial Instruments :

 

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a Black-Scholes option pricing model, in accordance with ASC 815-15 “Derivative and Hedging” to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

  

Stock-Based Compensation :

 

We account for stock-based compensation in accordance with ASC 718, “Compensation-Stock Compensation.” ASC 718 requires companies to measure the cost of employee services received in exchange for an award of equity instruments, including stock options, based on the grant-date fair value of the award and to recognize it as compensation expense over the period the employee is required to provide service in exchange for the award, usually the vesting period.

 

7

 

  

Recently Issued Accounting Pronouncements

 

Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

As a smaller reporting company, as that term is defined in Item 10(f)(1) of Regulation S-K, we are not required to provide information required by this Item.

   

ITEM 4. CONTROLS AND PROCEDURES

 

(a) Evaluation of disclosure controls and procedures.

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

  

Management, with the participation of our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures as of June 30, 2017. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were not effective as of June 30, 2017 for the reasons discussed below. In addition, management identified the following material weaknesses in its assessment of the effectiveness of disclosure controls and procedures as of June 30, 2017:

 

The Company did not effectively segregate certain accounting duties due to the small size of its accounting staff.

 

A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. Notwithstanding the determination that our internal control over financial reporting was not effective, as of June 30, 2017, and that there was a material weakness as identified in this Quarterly Report, we believe that our consolidated financial statements contained in this Quarterly Report fairly present our financial position, results of operations and cash flows for the years covered hereby in all material respects.

 

We expect to be dependent upon our Chief Financial Officer who is knowledgeable and experienced in the application of U.S. Generally Accepted Accounting Principles to maintain our disclosure controls and procedures and the preparation of our financial statements for the foreseeable future. We plan on increasing the size of our accounting staff at the appropriate time for our business and its size to ameliorate our concern that we do not effectively segregate certain accounting duties, which we believe would resolve the material weakness in disclosure controls and procedures, but there can be no assurances as to the timing of any such action or that we will be able to do so. 

 

(b) Changes in internal control over financial reporting.

 

There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

8

 

   

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Except as discussed below, we are not currently aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition, or operating results.

 

Banco Popular North America. v Aerial Products Corporation d/b/a Southern Balloon Works, et al. (Fourth Judicial Circuit Court, Duval County Florida-Civil Division) Case No. 16:2016:CA-003343

 

On May 16, 2016, Banco Popular North America (“Banco”) filed a lawsuit in Duval County, Florida in the Circuit Court of the Fourth Judicial Circuit against Aerial Products Corporation d/b/a Southern Balloon Works (“Aerial Products”), Kevin M. Hess, LTAS, and the Company to collect on a delinquent Small Business Administration loan that Banco made in 2007 to Aerial Products with Mr. Hess as the personal guarantor. LTAS and the Company filed an Answer on June 30, 2016 and Responses to Interrogatories on December 16, 2016 and we are now in the discovery phase of litigation. It is our position that neither LTAS nor the Company are continuations of Aerial Products, and LTAS and the Company has denied all allegations made by Banco and is vigorously defending itself. The Company has evaluated the probability of loss as possible but the range of loss is unable to be estimated.

 

Other than the Banco matter, there are no material claims, actions, suits, proceedings inquiries, labor disputes or investigations pending.  

 

Item 1A. Risk Factors

 

Smaller reporting companies are not required to provide the information required by this Item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Series A Preferred Stock Conversion

 

On April 24, 2017, the holder of the Company’s Series A preferred stock converted a total of 100,100 shares of Series A for an aggregate of 250,250 shares of the Company unregistered common stock in accordance with their conversion rights provided for in the Series A preferred stock.

 

These shares of the Company’s common stock were issued in reliance on the exemption from registration provided by Section 3(a)(9) of the Securities Act of 1933, as amended (the “Securities Act”).

 

Issuance of Secured Convertible Promissory Note

 

On August 2, the Company issued a Secured Convertible Promissory Note Series 2017 due August 2, 2018 in the aggregate principal amount of $2,000,000 (the “Series 2017 Convertible Note”) in a private placement to Frost Nevada Investments Trust (“Frost Nevada”).

 

The Series 2017 Convertible Note was issued in reliance upon the exemption from securities registration afforded by the provisions of Section 4(a)(2) of the Securities Act.

 

Issuance of Stock Options

 

On August 3,2017, the Company issued outside its 2015 Equity Plan, 5,240,000 options to purchase the Company’s common stock to officers, directors and employees for services provided. Jay Nussbaum was issued 2,000,000 options, Felicia Hess was issued 1,200,000 options, Dan Erdberg was issued 1,140,000 options, Kendall Carpenter was issued 275,000 options, Directors David Aguilar, Mike Haas and General Wayne Jackson were issued 110,000, 10,000 and 10,000 options, respectively. The remaining 495,000 options were issued to employees and consultants. These stock options immediately vested, are exercisable at an exercise price of $1.00 per share and expire on August 3, 2021.

 

The Stock Options were issued in reliance upon the exemption from securities registration afforded by the provisions of Section 4(a)(2) of the Securities Act.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

  9  

 

 

ITEM 5. OTHER INFORMATION

 

Revolving Line of Credit from City National Bank of Florida

 

On August 2, 2017, the Company issued a promissory note to City National Bank of Florida (“CNB”) in the principal amount of $2,000,000, the CNB Note. The note evidences a revolving line of credit with advances that may be requested by the Company until the maturity date of August 2, 2018 so long as no event of default exists under the note, the Company or Mr. Nussbaum does not cease doing business, Mr. Nussbaum does not seek to revoke or modify his guarantee of the Note, the Company does not misapply the proceeds of this loan or CNB in good faith does not believe itself insecure. The CNB Note bears interest at a variable rate equal to 0.250 percentage points over the Wall Street Journal Prime Rate payable monthly. The Company will pay to CNB a late charge of 5.0% of any monthly payment not received by Lender within 10 calendar days after its due date. The Company may prepay the note at any time without penalty. In the event of a default, the interest rate will increase to the highest lawful rate. The Company is obligated to maintain depository accounts with CNB with a minimum average annual balance of $600,000. In the event the Company does not maintain this account balance, CNB may charge the Company a fee equal to 2% of the deficiency as additional interest under the note. The CNB Note is personally guaranteed by Mr. Nussbaum, the Company’s Chief Executive Officer pursuant to written guarantee in favor of CNB (the “CNB Guarantee”). Mr. Nussbaum and the Company are obligated to maintain an unencumbered liquidity of no less than $6,000,000 in the form of cash, repurchase agreements, certificates of deposit or marketable securities acceptable to CNB. In addition, to secure our obligations under the note, we entered into a security agreement in favor of CNB (the “Security Agreement”) encumbering all of our accounts, inventory and equipment along with an assignment of a bank account we maintain at CNB with an approximate balance of $90,000.

 

Indemnification Agreement

 

On August 3, 2017, the Company entered into an Indemnification Agreement with Mr. Nussbaum in order to indemnify and defend him to the fullest extent permitted by law for any claim, expense or obligation which might arise as a result of his guarantee of the CNB Note.

 

Series 2017 Secured Convertible Note

 

On the Effective Date, the Company issued a Secured Convertible Promissory Note Series 2017 due August 2, 2018 in the aggregate principal amount of $2,000,000 (the “Series 2017 Convertible Note”) in a private placement to Frost Nevada Investments Trust (“Frost Nevada”). Frost Nevada is a trust that is controlled by Dr. Frost, a substantial shareholder of the Company. The note evidences a revolving line of credit with advances that may be requested by the Company until the maturity date of August 2, 2018 so long as no event of default exists under the loan. The Company may request advances of principal under this note equal to and at the same time as it requests advances, if any, pursuant to the CNB Note. The note bears interest at a variable rate equal to 0.250 percentage points over the Wall Street Journal Prime Rate. The Company may prepay the notes at any time without penalty. If the Company does not prepay the note in full or the holder does not convert the note before the maturity date, the Company may pay the outstanding principal amount and any accrued and unpaid interest on the maturity date with cash or with common stock or through a combination of cash and stock at Frost Nevada’s discretion. The conversion price under the note is $1.00 per share subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events. The Series 2017 Convertible Note is secured by a security interest in all of the Company’s assets. This security interest is subordinate to the security interest of CNB discussed above.

 

Amendments to Related Party Convertible Promissory Notes

 

On August 3, 2017 (the “Effective Date”), the Company entered into amendments (the “Convertible Note Amendments”) with the owners and holders of the following convertible promissory notes issued by the Company (the “Convertible Notes”):

 

●   Convertible Promissory Note in the original principal amount of $1,500,000 issued by the Company on September 29, 2016 to Frost Gamma Investments Trust (“Frost Gamma”). Frost Gamma is a trust that is controlled by Dr. Phillip Frost, a substantial shareholder of the Company; and

 

●   Convertible Promissory Note in the original principal amount of $1,500,000 issued by the Company on September 29, 2016 to Jay H. Nussbaum, the Company’s Chief Executive Officer and Chairman of the Board of Directors.

 

The Convertible Note Amendments extend the maturity date for each of the Convertible Notes to April 1, 2019 (the “Maturity Date”) and revise the conversion price to mean $1.00 per share subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events. Consistent with the original terms of the Convertible Notes, interest accrues at the rate of 6% interest per annum and is payable on the Maturity Date. The accrued interest is payable at the holders’ option in cash or shares of our common stock valued at the $1.00 per share conversion price. The Convertible Note Amendments provide that an event of default in the City National Bank Loan will be treated as an event of default under the Convertible Notes.

 

  10  

 

 

Amendments to Restricted Stock Agreements

 

On the Effective Date, the Company entered into amendments (the “RSA Amendments”) with the holders of 1,349,000 shares of restricted common stock awarded to them by the Company pursuant to the terms of a Restricted Stock Agreement (the “RSA”). Pursuant to the RSA Amendments, the restrictions set forth in the RSA lapse upon the earlier of (i) consummation of a significant equity and/or debt financing from which the Company receives gross proceeds of at least $7,000,000 or (ii) a change in control (as defined in the RSA Amendment), provided that, in either case, the holder remains engaged by the Company through the date of such event.

 

Independent Contractor Agreements

 

On the Effective Date, the Company entered into an amendment to the August 24, 2014 Independent Contractor Agreements it entered into with Dr. Philip Frost and Steven Rubin who serve as members of the Company’s Strategic Advisory Board (the “SAB Amendments”). The SAB Amendments extend the term of the agreements from May 1, 2017 until April 30, 2018 and provide for the following equity based compensation: (a) for Dr. Frost, a warrant to purchase 2,000,000 shares of the Company’s Common Stock (the “Frost Warrant”) and an award of 150,000 shares of the Company’s unregistered restricted Common Stock and (b) for Mr. Rubin an award of 100,000 shares of the Company’s unregistered restricted Common Stock. The restricted stock vests upon the occurrence of a change of control (as defined in the SAB Amendments). The Warrant has a term of five years and exercise price of $1.00 per share subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events.

 

Issuance of Stock Options

 

On August 3, 2017, upon approval of the Company’s board of directors, the Company issued outside its 2015 Equity Plan, 5,240,000 options to purchase the Company’s common stock to officers, directors and employees for services provided. Jay Nussbaum was issued 2,000,000 options, Felicia Hess was issued 1,200,000 options, Dan Erdberg was issued 1,140,000 options, Kendall Carpenter was issued 275,000 options, Directors David Aguilar, Mike Haas and General Wayne Jackson were issued 110,000, 10,000 and 10,000 options, respectively. The remaining 495,000 options were issued to employees and consultants. These stock options immediately vested, are exercisable at an exercise price of $1.00 per share and expire on August 3, 2021.

 

Modifications to Executive Employment Agreements

 

The Board of Directors, upon recommendation of the Compensation Committee, increased the annual salary of CEO Jay Nussbaum from $0 to $240,000 per year. Mr. Nussbaum will forego the $48,000 per year director fee. The salaries of Daniyel Erdberg and Kendall Carpenter are being increased from $150,000 per year to $165,000 per year. The additional benefit of a company provided car is being removed from Felicia Hess’ compensation package.

 

The foregoing description of the terms of the CNB Note and Security Agreement, CNB Guarantee, Indemnification Agreement, Series 2017 Convertible Note, Convertible Note Amendments, the RSA Amendments, Executive Employment Agreement Amendments, SAB Amendments and Frost Warrant, do not purport to be complete and are qualified in their entirety by reference to the provisions of such agreements, the forms of which are filed as exhibits 10.29, 10.30, 10.31, 10.32, 4.2, 4.1(a), 10.4(d), 10.5(d), 10.6(c), 10.22(b),10.33, and 10.34, respectively, to this Quarterly Report on Form 10-Q.

 

Item 6. EXHIBITS

 

The Exhibits listed in the accompanying Exhibit Index are filed, furnished herewith, or incorporated by reference as part of this Quarterly Report on Form 10-Q, in each case as set forth in the Exhibit Index.

 

11

 

  

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  DRONE AVIATION HOLDING CORP.
     
Date: August 4, 2017 By: /s/ JAY H. NUSSBAUM
    Jay H. Nussbaum
    Chief Executive Officer
(Principal Executive Officer)
     
Date: August 4, 2017 By: /s/ KENDALL CARPENTER
    Kendall Carpenter
    Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)

 

12

 

  

EXHIBIT INDEX

  

        Incorporation by Reference        
Exhibit
Number
  Exhibit Description   Form   Filing Date   Exhibit Number  

SEC File

No.

  Filed Herewith
2.1   Agreement and Plan of Merger, dated April 30, 2014, between Drone Aviation Holding Corp. and MacroSolve, Inc.   8-K   5/5/14   2.1   333-150332    
2.2   Plan of Merger, effective March 26, 2015, between Drone Aviation Holding Corp. and Drone Aviation Corp.   10-K   3/31/15   10.14   333-150332    
2.3   Asset Purchase Agreement, dated July 20, 2015, between Drone AFS Corp. Drone Aviation Holding Corp., Adaptive Flight, Inc., and the shareholders of Adaptive Flight, Inc.   8-K   7/21/15   10.1   333-150332    
3.1   Articles of Incorporation of Drone Aviation Holding Corp., dated April 17, 2014   8-K   5/5/14   3.1   333-150332    
3.2   Certificate of Amendment to Articles of Incorporation of Drone Aviation Holding Corp., dated October 29, 2015   8-K   10/30/15   3.1   333-150332    
3.3   Bylaws of Drone Aviation Holding Corp.   8-K   5/5/14   3.6   333-150332    
3.4   Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock   8-K   5/5/14   3.2   333-105332    
3.5   Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock   8-K   5/5/14   3.3   333-105332    
3.6   Certificate of Designation of Preferences, Rights and Limitations of Series B-1 Convertible Preferred Stock   8-K   5/5/14   3.4   333-105332    
3.7   Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock   8-K   5/5/14   3.5   333-105332    
3.8   Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock   8-K   6/5/14   3.1   333-105332    
3.9   Certificate of Designation of Preferences, Rights and Limitations of Series E Convertible Preferred Stock   8-K   6/5/14   3.2   333-105332    
3.10   Certificate of Amendment to Certificate of Designation of Preferences, Rights and Limitations of Series E Convertible Preferred Stock   8-K   6/3/15   3.3   333-105332    
3.11   Certificate of Designation of Preferences, Rights and Limitations of Series F Convertible Preferred Stock   8-K   8/28/14   3.1   333-105332    
3.12   Certificate of Amendment to Certificate of Designation of Preferences, Rights and Limitations of  Series F Convertible Preferred Stock   8-K   6/3/15   3.4   333-105332    
3.13   Certificate of Designation of Preferences, Rights and Limitations of Series G Convertible Preferred Stock   8-K   6/3/15   3.1   333-105332    
3.14   Certificate of Correction to the Certificate of Designation of Preferences, rights and Limitations of Series G Convertible Preferred Stock   8-K   6/3/15   3.2   333-105332    

 

13

 

 

4.1   Form of Convertible Promissory Note Series 2016 due October 1, 2017   8-K   9/30/16   4.1   333-105332    
4.1(a)   (a) Form of Amendment to Convertible Promissory Note Series 2016                   X
4.2  

Form of Secured Convertible Promissory Note Series 2017-08 due August 2, 2018

                  X
10.1   Form of Indemnification Agreement for Directors and Officers   8-K   6/5/14   10.4   333-105332    
10.2   Independent Contractor Agreement, dated July 29, 2013, by and among US Technik, Inc., Lighter Than Air Systems Corp., and World Surveillance Group, Inc.   8-K   6/5/14   10.9   333-105332    
10.3   Form of Independent Contractor Agreement for members of the Strategic Advisory Board of Drone Aviation Holding Corp.   8-K   8/28/14   10.2   333-10532    
10.4*   Employment Agreement, dated May 18, 2015, between Drone Aviation Holding Corp. and Daniyel Erdberg   10-Q   5/15/15   10.17   333-150332    

10.4(a)*

  (a) Amendment No. 1 to Employment Agreement, dated October 2, 2015, between Drone Aviation Holding Corp. and Daniyel Erdberg   8-K   10/7/15   10.2   333-150332    

10.4(b)*

  (b) Amendment No. 2 to Employment Agreement, dated April 27, 2016, between Drone Aviation Holding Corp., and Daniyel Erdberg   10-Q   4/29/16   10.4   333-150332    

10.4(c)*

  (c) Amendment No. 3 to Employment Agreement, dated September 26, 2016, by and between Drone Aviation Holding Corp. and Daniyel Erdberg   8-K   9/30/16   10.5   333-150332    
10.4(d)*  

(d) Amendment No. 4 to Employment Agreement, dated August 3, 2017, between Drone Aviation Holding Corp., and Daniyel Erdberg

                  X  
10.5*   Employment Agreement, dated May 18, 2015, between Drone Aviation Holding Corp. and Felicia A. Hess   10-Q   5/15/15   10.15   333-150332    
10.5(a)*   (a) Amendment No. 1 to Employment Agreement, dated October 2, 2015, between Drone Aviation Holding Corp. and Felicia Hess   8-K   10/7/15   10.1   333-150332    
10.5(b)*   (b) Amendment No. 2 to Employment Agreement, dated April 27, 2016, between Drone Aviation Holding Corp. and Felicia Hess   10-Q   4/29/16   10.5   333-150332    
10.5(c)*   (c) Amendment No. 3 to Employment Agreement, dated September 26, 2016, by and between Drone Aviation Holding Corp. and Felicia  Hess   8-K   9/30/16   10.3   333-150332    
10.5(d)*   (d) Amendment No. 4 to Employment Agreement, dated August 3, 2017, by and between Drone Aviation Holding Corp. and Felicia  Hess                   X  
10.6*   Employment Agreement, dated May 18, 2015, between Drone Aviation Holding Corp. and Kendall Carpenter   10-Q   5/15/15   10.16   333-150332    

10.6(a)*

  (a) Amendment No. 1 to Employment Agreement, dated April 27, 2016, between Drone Aviation Holding Corp. and Kendall Carpenter   10-Q   4/29/16   10.3   333-150332    
10.6(b)*   (b) Amendment No. 2 to Employment Agreement, dated September 26, 2016, by and between Drone Aviation Holding Corp. and Kendall Carpenter   8-K   9/30/16   10.6   333-150332    
10.6(c)*  

(c) Amendment No. 3 to Employment Agreement, dated August 3, 2017, by and between Drone Aviation Holding Corp. and Kendall Carpenter

                  X
10.7*   Director Agreement, dated June 4, 2015, between Drone Aviation Holding Corp. and Jay Nussbaum   8-K   6/5/15   10.1   333-150332    
10.8    Intellectual Property Assignment Agreement, dated July 20, 2015, between Adaptive Flight, Inc., and Drone AFS Corp.   8-K   7/21/15   10.5   333-150332    

 

14

 

 

10.9   Form of Non-Exclusive, Perpetual Intellectual Property and Patent License Agreement of Drone Aviation Holding Corp., dated July 20, 2015   8-K   7/21/15   10.6   333-150332    
10.10*   Drone Aviation Holding Corp. 2015 Equity Incentive Plan   8-K   9/11/15   99.1   333-150332    
10.11*   Amended and Restated Employment Agreement, dated October 2, 2015, between Drone Aviation Holding Corp. and Kevin Hess   8-K   10/7/15   10.3   333-150332    
10.11(a)*   (a) Amendment No. 2 [sic] to Employment Agreement, dated April 27, 2016, between Drone Aviation Holding Corp. and Kevin Hess   10-Q   4/29/16   10.1   333-150332    
10.11(b)*   (b) Amendment No. 3 [sic] to Employment Agreement, dated September 26, 2016, between Drone Aviation Holding Corp. and Kevin Hess   8-K   9/30/16   10.4   333-150332    
10.12   Form of Drone Aviation Holding Corp. Warrant to purchase Common Stock issued to Dougherty & Company, LLC, as Placement Agent   8-K   11/23/15   4.1   333-150332    
10.13   Form of Drone Aviation Holding Corp. Common Stock Purchase Agreement for Private Offering Under Section 4(a)(2) of the Securities Act of 1933 and Rule 506(b)   8-K   11/23/15   10.1   333-150332    
10.14   Form of Preferred Stock Conversion and Lockup Agreement for Series A Convertible Preferred Stock   8-K   11/23/15   10.2   333-150332    
10.15   Form of Preferred Stock Conversion and Lockup Agreement for Series B Convertible Preferred Stock   8-K   11/23/15   10.3   333-150332    
10.16   Form of Exchange Agreement for Series B-1 Convertible Preferred Stock   8-K   11/23/15   10.9   333-150332    
10.17   Form of Preferred Stock Conversion and Lockup Agreement for Series C Convertible Preferred Stock   8-K   11/23/15   10.4   333-150332    
10.18   Form of Preferred Stock Conversion and Lockup Agreement for Series D Convertible Preferred Stock   8-K   11/23/15   10.5   333-150332    
10.19   Form of Preferred Stock Conversion Agreement for Series E Convertible Preferred Stock   8-K   11/23/15   10.6   333-150332    
10.20   Form of Preferred Stock Conversion Agreement for Series F Convertible Preferred Stock   8-K   11/23/15   10.7   333-150332    
10.21   Form of Preferred Stock Conversion Agreement for Series G Convertible Preferred Stock   8-K   11/23/15   10.8   333-150332    
10.22*   Employment Agreement, dated April 27, 2016, between Drone Aviation Holding Corp. and Jay H. Nussbaum   10-Q   4/29/16   10.2   333-150332    
10.22(a)*   (a) Amendment No. 1 to Employment Agreement, dated September 26, 2016, by and between Drone Aviation Holding Corp. and Jay H. Nussbaum   8-K   9/30/16   10.2   333-150332    
10.22(b)*  

(b) Amendment No. 2 to Employment Agreement, dated August 3, 2017, by and between Drone Aviation Holding Corp. and Jay H. Nussbaum

                  X
10.23*   Form of Drone Aviation Holding Corp. Restricted Stock Agreement (Non-Assignable) (Effective April 27, 2016)   10-Q   7/29/16   10.7   333-150332    

 

15

 

 

10.24*   Form of Drone Aviation Holding Corp. Restricted Stock Agreement (Non-Assignable)   8-K   9/30/16   10.7   333-150332    
10.25   Form of Subscription Agreement for Convertible Promissory Notes Series 2016 due October 1, 2017   8-K   9/30/16   10.1   333-150332    
10.26*   Offer Letter between Drone Aviation Holding Corp. and David V. Aguilar, accepted January 9, 2017   8-K   1/12/17   10.1   333-150332    
10.27*   Director Agreement, dated January 9, 2017, between Drone Aviation Holding Corp. and David V. Aguilar   8-K   1/12/17   10.2   333-150332    
10.28*   Form of Drone Aviation Holding Corp. Nonqualified Stock Option Agreement   8-K   1/12/17   10.3   333-150332    
10.29   Form of Promissory Note and Security Agreement issued by Drone Aviation Holding Corp. to City National Bank of Florida dated August 2, 2017           X
10.30  

Form of Guarantee issued by Jay Nussbaum to City National Bank of Florida dated August 2, 2017

                  X
10.31  

Indemnification Agreement between Drone Aviation Holding Corp. and Jay H. Nussbaum

                  X
10.32*  

Form of Drone Aviation Holding Corp. Amendment to Restricted Stock Agreement dated August 3, 2017

                  X
10.33*  

Form of Amendment No. 2 to Independent Contractor Agreement dated August 3, 2017

                  X
10.34*  

Warrant issued by Drone Aviation Holding Corp. to Dr. Phillip Frost dated August 3, 2017

                  X
31.1   Certification of the Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002   –    –            X
31.2   Certification of the Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002           X
32   Certifications of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002           X
101 INS   XBRL Instance Document           X
101 SCH   XBRL Taxonomy Extension Schema Document           X
101 CAL   XBRL Taxonomy Calculation Linkbase Document           X
101 LAB   XBRL Taxonomy Labels Linkbase Document           X
101 PRE   XBRL Taxonomy Presentation Linkbase Document           X
101 DEF   XBRL Taxonomy Extension Definition Linkbase Document           X

 

* Indicates management contract or compensatory plan or arrangement.

 

 

 

13

 

 

Exhibit 4.1(a)

 

AMENDMENT TO CONVERTIBLE PROMISSORY NOTE

 

THIS AMENDMENT TO CONVERTIBLE PROMISSORY NOTE SERIES 2016 (the “Amendment”) is made effective as of August 3, 2017 (the “Effective Date”) by and between Drone Aviation Holding Corp., a Nevada corporation (the “Company”) and ______________ (the “Holder”) (collectively the “Parties”).

 

BACKGROUND

 

A.     The Company and Holder are the parties to that certain Convertible Promissory Note Series 2016, originally issued by the Company to the Holder on September 29, 2016, in the original principal amount of $1,500,000.00 (the “Note”); and

 

B.     In exchange for the Holder’s agreement to extend the Maturity Date of the Note and such other good and valuable consideration provided for in this Amendment.

 

C.     The Parties desire to amend the Note, as set forth below.

 

NOW THEREFORE, in consideration of the execution and delivery of the Amendment and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

 

1.           Extension of Maturity Date . The Maturity Date of the Note shall be extended to April 1, 2019.

 

2.          Sections 1(d) and 1(f) of the Note shall be replaced in its entirety with the following:

 

Section 1(d) - PIK Shares . In the event the Company does not prepay this Note in full before the Maturity Date, then the Company shall satisfy its obligation to repay the outstanding principal amount of this Note and any accrued and unpaid interest with: (i) cash; (ii) the issuance and delivery to the Holder of whole shares (“PIK Shares”) of common stock of the Company, par value $0.0001 per share (“Common Stock”) at the Conversion Price in accordance with the procedures set forth in Section 2; or (iii) any combination of cash and PIK Shares, as determined by the Holder in its sole discretion.

 

Section 1(f) - Number and Value of PIK Shares . The PIK Shares issued and delivered upon prepayment of any principal, accrued interest or at maturity shall be equal to the number of shares of Common Stock that could have been purchased for the principal and interest obligation (less any cash paid in combination with the PIK Shares) if the shares were valued at the Conversion Price.

 

  1  

 

 

3.          Section 2(b) of the Note shall be replaced in its entirety with the following:

 

(b) Method of Exercise of Conversion Right . Holder shall effect conversions by providing the Company with the form of conversion notice attached hereto as Exhibit A (a “Conversion Notice”) before the suspension of the conversion right as specified in Section 2(a). Each Conversion Notice shall specify the amount to be converted, the principal balance of the Note outstanding prior to the conversion, the amount of accrued interest and other amounts due under this Note, the number of shares of Common Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the applicable Holder delivers by facsimile such Conversion Notice to the Company (such date, the “Conversion Date”). If no Conversion Date is specified in a Conversion Notice, the Conversion Date shall be the date that such Conversion Notice to the Company is deemed delivered hereunder. The certificate or certificates for Common Stock which shall be issuable on such conversion shall be issued in the name of the Holder. The person or persons in whose name or names any certificate or certificates for Common Stock shall be issuable on such conversion shall be deemed to have become on the Conversion Date the holder or holders of record of the Common Stock represented thereby. As promptly as practicable after the Company’s receipt of a Conversion Notice, the Company shall issue and deliver at such office to the Holder, a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion. No fractional shares, or scrip representing fractional shares, shall be issued upon any conversion, but in lieu thereof the Company shall pay in cash the fair value of such fractional shares as of the Conversion Date. The issuance of certificates for Common Stock issuable upon the conversion of this Note shall be made without charge to the converting Holder for any tax in respect of the issue thereof.

 

4.          Section 2(c) of the Note shall be replaced in its entirety with the following:

 

Section 2 (c) Conversion Price . For purposes of this Note, the term “ Conversion Price ” shall mean, with respect to conversion pursuant to Sections 2(a), (b), (c) and (d)(ii), the sum of $1.00 per share subject to adjustment in accordance with Section 2(g).

 

5.          Section 2 of the Note is amended by adding the following new section:

 

Section 2(g) - Stock Dividends and Splits . If the Company, at any time while this Note is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be adjusted to equal the product obtained by multiplying the then-current Exercise Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination.

 

  2  

 

 

6.          Section 5(a) of the Note shall be replaced in its entirety with the following:

 

Section 5(a) Events of Default. A “ Default ” shall be deemed to exist for purposes of this Note so long as: (i) the principal or interest owed on this Note shall not be paid at maturity; (ii) the Company shall be in breach of any other covenant or warranty of the Company in this Note for at least thirty (30) days after there has been given to the Company by the Holder, a written notice specifying such breach and requiring it to be remedied and stating that such notice is a “notice of default” hereunder; (iii) the Company fails to perform, beyond any applicable notice and cure period, any obligation under the CNB Note, or (iii) a decree or order by a court having jurisdiction in the premises shall have been entered adjudicating the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization of the Company under the Bankruptcy Code or any other similar applicable federal or state law, and such decree or order shall have been in effect for a period of sixty (60) days, or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver or liquidator or trustee or assignee in bankruptcy or insolvency of the Company or of any property of the Company or for the winding up or liquidation of its affairs shall be in effect and shall have been in effect for a period of sixty (60) days.

 

7.          Section 5(b) of the Note shall be replaced in its entirety with the following:

 

Section 5(b) - Acceleration of Maturity . Whenever a Default exists, the Holder may declare the outstanding principal amount and accrued and unpaid interest of this Note to be due and payable immediately, by a notice in writing to the Company, and upon any such declaration such principal and accrued and unpaid interest shall become immediately due and payable without notice of default (except as otherwise required herein), presentment or demand for payment, protest or notice of nonpayment or dishonor, or other notices or demands of any kind or character. All persons now or at any time liable for payment of this Note hereby waive presentment, protest, notice of protest and dishonor.

 

8.          Section 8 of the Note shall be replaced in its entirety with the following:

 

Section 8. Governing Law; Dispute Resolution . Except for the mandatory forum selection provision in the following sentence, this Note shall be delivered, accepted and shall be deemed to be a contract made under and governed by and construed in accordance with the laws of the State of Nevada and for all purposes shall be construed in accordance with the laws of Nevada, without giving effect to its principles regarding conflicts of law. With respect to any suit, action, or proceeding relating to any offer, purchase, or sale of this Note (“ Proceedings ”), the Holder and the Company irrevocably submit to the jurisdiction of the federal or state courts located in Miami-Dade County, Florida, which submission shall be exclusive unless none of such courts has lawful jurisdiction over such Proceedings. The Holder and the Company acknowledge and agree that any dispute concerning this Note, including the issue of whether the dispute is subject to arbitration, will be resolved by arbitration in Miami-Dade County, Florida, under the Commercial Arbitration Rules of the American Arbitration Association (“ AAA ”) by a single arbitrator selected by the Holder from the AAA’s panel of arbitrators.

 

  3  

 

 

9.          Section 9 of the Note shall be replaced in its entirety with the following:

 

Section 9. Usury Savings Clause . Notwithstanding any provision in this Note to the contrary, the total liability for payments of interest and payments in the nature of interest, including, without limitation, all charges, fees, exactions, or other sums which may at any time be deemed to be interest, shall not exceed the limit imposed by the usury laws of the jurisdiction governing this Note or any other applicable law. In the event the total liability of payments of interest and payments in the nature of interest, including, without limitation, all charges, fees, exactions or other sums which may at any time be deemed to be interest, shall, for any reason whatsoever, result in an effective rate of interest, which for any month or other interest payment period exceeds the limit imposed by the usury laws of the jurisdiction governing this Note, all sums in excess of those lawfully collectible as interest for the period in question shall, without further agreement or notice by, between, or to any party hereto, be applied to the reduction of the outstanding principal balance due hereunder immediately upon receipt of such sums by the Holder hereof, with the same force and effect as though the Company had specifically designated such excess sums to be so applied to the reduction of the principal balance then outstanding, and the Holder hereof had agreed to accept such sums as a penalty-free payment of principal; provided, however, that the Holder may, at any time and from time to time, elect, by notice in writing to the Company, to waive, reduce, or limit the collection of any sums in excess of those lawfully collectible as interest, rather than accept such sums as a prepayment of the principal balance then outstanding. It is the intention of the parties that the Company does not intend or expect to pay, nor does the Holder intend or expect to charge or collect any interest under this Note greater than the highest non-usurious rate of interest which may be charged under applicable law.

 

10.        Forbearance and Waiver . Subject to the terms and conditions herein, the Holder agrees that it will forbear from exercising any of its rights or remedies under the Note as the result of any event or circumstance giving rise to a Default or right of acceleration or the payment of any damages or other amounts existing as of the date hereof.

 

11.       This Amendment shall be deemed part of, but shall take precedence over and supersede any provisions to the contrary contained in the Note. All initial capitalized terms used in this Amendment shall have the same meaning as set forth in the Note unless otherwise provided. Except as specifically modified hereby, all of the provisions of the Note, which are not in conflict with the terms of this Amendment, shall remain in full force and effect.

 

  4  

 

 

SIGNATURE PAGE TO NOTE AMENDMENT

 

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written.

 

DRONE AVIATION HOLDING CORP.   FROST GAMMA INVESTMENTS TRUST
         
By:     By:                  
  Kendall W. Carpenter   Name:   
  Chief Financial Officer   Title:  

 

  5  

 

 

EXHIBIT A

 

NOTICE OF CONVERSION

 

(To be Executed by the Registered Holder in order to Convert promissory NOTE)

 

The undersigned hereby elects to convert $[______________] principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of Drone Aviation Holding Corp., a Nevada corporation (the “Company”) according to the conditions of the Convertible Promissory Note Series 2016 of the Company issued on September 29, 2016 (the “Note”), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.

 

Conversion calculations:

 

 

Date to Effect Conversion: _____________________________________________

 

 

Balance of Principal Amount of the Note prior to Conversion: _______________

 

 

Principal Amount of Note to be Converted: ________________________

 

 

Number of shares of Common Stock to be Issued: ___________________________

 

 

Applicable Conversion Price:____________________________________________

 

 

Balance of Principal Amount of Note subsequent to Conversion: ________________

 

 

Address for Delivery: ______________________

or

DWAC Instructions:

 

Broker no: _________

 

Account no: ___________

 

  [HOLDER]
     
  By:  
    Name:
    Title:

 

 

6

 

 

Exhibit 4.2

 

THIS CONVERTIBLE PROMISSORY NOTE AND THE SHARES OF COMMON STOCK ISSUABLE HEREUNDER HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT FOR DISTRIBUTION, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NEITHER THE CONVERTIBLE PROMISSORY NOTE NOR THE SHARES OF COMMON STOCK MAY BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO DRONE AVIATION HOLDING CORP. AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. THIS CONVERTIBLE PROMISSORY NOTE MUST BE SURRENDERED TO DRONE AVIATION HOLDING CORP. OR ITS REGISTRAR DESCRIBED HEREIN AS A CONDITION PRECEDENT TO THE SALE OR OTHER TRANSFER.

 

Drone Aviation Holding Corp.

 

Secured Convertible Promissory Note Series 2017-08

Due August 2, 2018

 

$2,000,000.00        Date: August 2, 2017

 

Registered Holder of this Secured Convertible Promissory Note: Frost Nevada Investments Trust

 

Drone Aviation Holding Corp., a corporation duly organized and existing under the laws of the State of Nevada (hereinafter referred to as the “ Company ”), for value received, hereby promises to pay to the registered holder hereof (the “ Holder ”), the principal sum stated above, or so much as may be outstanding (“ Principal Amount ”) on August 2, 2018 (the “ Maturity Date ”), together with interest accrued upon the unpaid principal amount from the date hereof, upon presentation and surrender of this Secured Convertible Promissory Note Series 2017-08 (the “ Note ”) at the principal corporate office of the Company at 11651 Central Parkway #118, Jacksonville FL 32224, or at such other place as the Company may designate, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts.

 

Variable Interest Rate. The interest rate on this Note is subject to change from time to time based on changes in an independent index which is the Wall Street Journal Prime Rate the “Index”). If the Index becomes unavailable during the term of this loan, Holder may designate a substitute index after notifying the Company. Holder will tell the Company the current Index rate upon the Company’s request. The interest rate change will not occur more often than each day. Interest on the unpaid principal balance of this Note will be calculated using a rate of 0.250 percentage points over the Index. Note. Under no circumstances will the effective rate of interest on this Note be more than the maximum rate allowed by applicable law. Interest shall accrue on a daily basis on the outstanding principal balance of each advance under this Note from and including the date hereof. Interest on this Note is computed on a 365/360 basis; that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is understanding. All interest payable under this Note is computed using this method. This calculation method results in a higher effective interest rate than the numeric interest rate stated in this Note.

 

 

 

 

1. Advances, Payment and Prepayment.

 

(a)  Revolving Line of Credit . This Note evidence a revolving line of credit. Advances under this Note by Lender may be requested only in writing by the Company until the Maturity Date until such time as the full Principal Amount remains outstanding. Holder will have no obligation to advance funds under this Note if: (A) the Company is in default under the terms of this Note or any agreement that the Company has with Holder, including any agreement made in connection with the signing of this Note; (B) the Company ceases doing business or is insolvent; (E) Holder in good faith believes itself insecure. The Company shall request advances of principal under this Note equal to and at the same time as it requests advances, if any, under that certain Promissory Note dated as of August 2, 2017 from the Company in favor of City National Bank of Florida in the original principal amount of $2,000,000, as the same may be amended, restated, modified or replaced from time to time (the “CNB Note”).

 

(b)  Payments Prior to Maturity. Subject to the provisions set forth in Section 1(d) below, the Company shall make payments of principal under this Note equal to and at the same time as it makes principal payments, if any, under the CNB Note. or convert or repay at PIK, at Holder’s option, same with interest. The Holder, in its sole discretion, may decline one or more, or none at all, prepayment requests by the Company. In that event, the Company shall not be permitted to prepay the principal balance due under this Note until the Maturity Date.

 

(c) Payment at Maturity; Prepayment . Subject to the terms of this Note, the Company shall pay the outstanding principal amount of this Note and any accrued and unpaid interest on the Maturity Date. Prepayment of all or any portion of this Note may be made at any time without penalty subject to the provisions set forth in Sections 1(b), 1(d) and 1(e). The Company will pay regular monthly payments of all accrued unpaid interest due as of each payment date, beginning August 31, 2017, with all subsequent interest payments to be due on the same day of each month after that. Unless otherwise agreed or required by applicable law, payments will be applied first to any accrued unpaid interest; then to principal; then to any late charges; and then to any unpaid collection costs. If a payment is 10 days or more late, the Company will be charged 5.000% of the unpaid portion of the regularly scheduled payment.

 

(d)  PIK Shares . In the event the Company is obligated to (A) make a principal payment under this Note prior to the Maturity Date as provided for in Section 1(b) or (B) the Company does not prepay this Note in full before the Maturity Date, then in both cases, the Company shall satisfy its obligations to repay the outstanding principal amount of this Note and any accrued and unpaid interest with: (i) cash; (ii) the issuance and delivery to the Holder of whole shares (“ PIK Shares ”) of common stock of the Company, par value $0.0001 per share (“ Common Stock ”) at the Conversion Price in accordance with the procedures set forth in Section 2; or (iii) any combination of cash and PIK Shares, as determined by the Holder in its sole discretion.

 

(e)  Payment Notice . The Company shall deliver a written notice (“ Payment Notice ”) at least ten (10) days before any prepayment, or at least ten (10) days before the Maturity Date if any of the Principal Amount remains outstanding on the tenth (10th) day before the Maturity Date, of its intention to make a prepayment of any part of the Principal Amount or to pay on the Maturity Date by PIK Shares, as the case may be. The Payment Notice shall specify the amount of the prepayment and its allocation between interest and outstanding principal amount, the number of PIK Shares to be issued, if applicable, and the amount of the Company’s obligation that will be satisfied with the payment of cash or readily available funds.

 

2

 

 

(f)  Number and Value of PIK Shares . The PIK Shares issued and delivered upon prepayment of any principal, accrued interest or at maturity shall be equal to the number of shares of Common Stock that could have been purchased for the principal and interest obligation (less any cash paid in combination with the PIK Shares) if the shares were valued at the Conversion Price.

 

2. Conversion.

 

(a)  Conversion Right . The Holder shall have a right to convert this Note into shares of Common Stock at any time except as otherwise provided herein below. This Note shall not be convertible during the period from ten (10) days after a Payment Notice by the Company to thirty (30) days after the Payment Notice. The number of shares of Common Stock issuable upon any conversion of this Note at any given time shall be quotient of (i) the sum of the outstanding principal amount and the accrued but unpaid interest of this Note divided by (ii) the Conversion Price then in effect in accordance with Section 2(c) (the “Conversion Shares”).

 

(b)  Method of Exercise of Conversion Right . Holder shall effect conversions by providing the Company with the form of conversion notice attached hereto as Exhibit A (a “Conversion Notice”) before the suspension of the conversion right as specified in Section 2(a). Each Conversion Notice shall specify the amount to be converted, the principal balance of the Note outstanding prior to the conversion, the amount of accrued interest and other amounts due under this Note, the number of shares of Common Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the applicable Holder delivers by facsimile such Conversion Notice to the Company (such date, the “Conversion Date”). If no Conversion Date is specified in a Conversion Notice, the Conversion Date shall be the date that such Conversion Notice to the Company is deemed delivered hereunder. The certificate or certificates for Common Stock which shall be issuable on such conversion shall be issued in the name of the Holder. The person or persons in whose name or names any certificate or certificates for Common Stock shall be issuable on such conversion shall be deemed to have become on the Conversion Date the holder or holders of record of the Common Stock represented thereby. As promptly as practicable after the Company’s receipt of a Conversion Notice, the Company shall issue and deliver at such office to the Holder, a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion. No fractional shares, or scrip representing fractional shares, shall be issued upon any conversion, but in lieu thereof the Company shall pay in cash the fair value of such fractional shares as of the Conversion Date. The issuance of certificates for Common Stock issuable upon the conversion of this Note shall be made without charge to the converting Holder for any tax in respect of the issue thereof.

 

(c)  Conversion Price . For purposes of this Note, the term “ Conversion Price ” shall mean, with respect to conversion pursuant to Sections 2(a), (b), (c) and (d)(ii), $1.00 subject to adjustment in accordance with Section 2(g).

 

3

 

 

(d)  Fundamental Change .

 

(i)  Definition . For purposes of this Note, a “ Fundamental Change ” shall be deemed to have occurred if there shall be: (A) any consolidation to which the Company shall be a party, (B) any merger in which the Company shall not survive, (C) any merger in which the Common Stock outstanding immediately prior to such merger shall be exchanged for or converted into any cash, securities or other property, (D) any complete liquidation of the Company, or (E) any partial liquidation of the Company for which the approval of the holders of Common Stock is required or which is involuntary.

 

(ii)  Conditional Conversion Election . In connection with any Fundamental Change, the Holder of this Note shall have the right at any time before such event shall actually occur to make a conditional election (A) to convert all of the outstanding principal amount and accrued and unpaid interest of this Note into Common Stock if such event shall actually be consummated and to participate in such event as if the Holder had held such Common Stock on the date as of which the holders of Common Stock entitled to participate in such event shall be selected but (B) not to convert this Note if such event shall not be consummated. Any conversion of this Note pursuant to any conditional election made pursuant to rights granted in this Section 2(d)(ii) shall be (Y) subject to the same method and mechanics of conversion set forth in Sections 2(a), (b) and (c), including method of determining the number of shares of Common Stock issuable upon any conversion, the method of exercise and the calculation of the Conversion Price, and (Z) deemed to have been converted on the record date (or if there be no record date, the point in time) used to determine the holders of Common Stock entitled to participate in the Fundamental Change or other event giving rise to such conditional election.

 

(e) Purchase Rights .

 

(i) If at any time the Company grants, issues or sells any options, convertible securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of Common Stock (the “ Purchase Rights ”), then the holder of this Note shall be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon conversion of this Note immediately before the date on which a record shall be taken for the grant, issuance or sale of such Purchase Rights or, if no such record shall be taken, the date as of which the record holders of Common Stock shall be determined for the grant, issue or sale of such Purchase Rights.

 

(ii) Except as provided in Section 2(e)(iii), in addition to the Purchase Rights, if at any time until the earlier to occur of (A) the Maturity Date or (b) the date the Note is earlier repaid or converted, the Company offers, issues or sells any shares of Common Stock or securities exchangeable for or convertible into shares of Common Stock in any offering exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), other than an Exempt Transaction (any such offer, sale, grant, disposition or announcement being referred to as a "Subsequent Placement"), the Company will offer the Holder the right to purchase such securities of the Company in compliance with the procedures set forth in Sections 2(e)(iii), (iv) and (v) below.

 

4

 

 

(iii) The Company shall deliver to the Holder an irrevocable written notice (the "Offer Notice") of any proposed or intended issuance or sale or exchange (the "Offer") of the securities being offered (the "Offered Securities") in a Subsequent Placement, which Offer Notice shall (w) identify and describe the Offered Securities, (x) describe the price and other terms upon which they are to be issued, sold or exchanged, and the number or amount of the Offered Securities to be issued, sold or exchanged, (y) identify the persons or entities (if known) to which or with which the Offered Securities are to be offered, issued, sold or exchanged and (z) offer to issue and sell to or exchange with the Holder at least one-hundred percent (100%) of the Offered Securities (the “Subscription Amount”).

 

(iv) To accept an Offer, in whole or in part, the Holder must deliver a written notice to the Company prior to the end of the fifth (5th) Business Day after the Holder’s receipt of the Offer Notice (the “Offer Period”), setting forth the portion of the Subscription Amount that the Holder elects to purchase (the “Notice of Acceptance”). The Company shall have ten (10) business days from the expiration of the Offer Period to complete the Subsequent Placement and in connection therewith to issue and sell the Subscription Amount to the Holder but only upon terms and conditions (including, without limitation, unit prices and interest rates) that are not more favorable to the Holder or less favorable to the Company than those set forth in the Offer Notice.

 

(v) Notwithstanding anything to the contrary contained herein, if the Company desires to modify or amend the terms and conditions of the Offer prior to the expiration of the Offer Period, the Company shall deliver to the Holder a new Offer Notice and the Offer Period shall expire on the fifth (5th) Business Day after the Holder's receipt of such new Offer Notice.

 

(vi) Sections 2(e)(i) and 2(e)(ii) shall not apply to the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company pursuant to any stock or option plan duly adopted for such purpose, by the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of any Common Stock issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Note, provided that such securities have not been amended since the date of this Note to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities, and (c) securities issued pursuant to acquisitions or strategic transactions approved by the Board of Directors, provided that any such issuance shall only be to an entity (or to the equity holders of an entity) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities (collectively, an “Exempt Transaction”).

 

5

 

 

(f)  Distribution Rights . If at any time the Company makes any distribution pro rata to the record holders of Common Stock in property other than cash (“ Distribution Rights ”), then the Holder shall be entitled to acquire, upon the terms applicable to such distribution rights, the aggregate distribution rights which the Holder would have acquired if the Holder had held the number of shares of Common Stock acquirable upon conversion of this Note immediately before the date on which a record shall be taken for the distribution, or, if no such record shall be taken, the date as of which the record holders of Common Stock shall be determined for the distribution.

 

(g) Stock Dividends and Splits. If the Company, at any time while this Note is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be adjusted to equal the product obtained by multiplying the then-current Exercise Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination.

 

3. Representations, Warranties and Covenants of the Company.

 

(a) Information Rights . The Company shall deliver to the Holder promptly after mailing, copies of all notices or other written communications to the shareholders of the Company. The Company shall file with the Securities and Exchange Commission all periodic reports and other filings as required under the federal securities laws, and if not so required, the Company shall file, as a voluntary filer, from the date hereof to the Maturity Date all applicable Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

 

(b) Reservation of Shares . The Company agrees to reserve from its authorized and unissued Common Stock, until this Note shall be paid in full or fully converted, shares of Common Stock in a number which at any given time shall be equal to all of the number of shares which may be issuable on the conversion of this Note.

 

(c)  Common Stock . The Company hereby represents and warrants that all shares of Common Stock which may be issued upon the conversion or as PIK Shares shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances.

 

(d)   Collateral . The Company acknowledges this Note is secured by a security interest in favor of the Holder in all of the accounts, inventory and assets of the Company, whether now owned or existing or hereafter acquired or arising, wheresoever located, together with any and all proceeds and/or products thereof (the “Collateral”). The Collateral shall be subject to and subordinate to the security interests of City National Bank of Florida granted by the Company as provided for in the CNB Note.

 

6

 

 

4. Representations, Warranties and Covenants of the Holder.

 

The Holder, by purchasing this Note, represents, warrants and covenants as follows:

 

(a)  Private Offering . This Note and any Common Stock issuable upon conversion of, or as PIK Shares as payment of, this Note (collectively, the “ Securities ”) will be acquired for investment for the Holder’s own account, and not with a view to the resale or distribution of any part thereof, and the Holder has no present intention of selling, granting any participation in, or otherwise distributing the same. The Holder 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 the Securities. The Holder acknowledges that the Securities are not registered under the Securities Act or qualified under applicable state securities laws under an exemption from the registration thereof and that the Company’s reliance on such exemption is predicated on Holder’s representations set forth herein.

 

(b)  Reliance on Exemptions.  The Holder understands that this Note is being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Holder’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Holder set forth herein in order to determine the availability of such exemptions and the eligibility of the Holder to acquire the Note.

 

(c)  Legends.  The Holder understands that until such time as the Note and, upon conversion of the Note in accordance with its respective terms, the Conversion Shares, have been registered under the Securities Act or may be sold pursuant to Rule 144, Rule 144A under the Securities Act without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Conversion Shares may bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the certificates for such Conversion Shares):

 

“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

 

7

 

 

The legend set forth above shall be removed and the Company shall issue a certificate for the applicable shares of Common Stock without such legend to the holder of any security upon which it is stamped or (as requested by such holder) issue the applicable shares of Common Stock to such holder if, unless otherwise required by applicable state securities laws, (a) such Security is registered for sale under an effective registration statement filed under the Securities Act or otherwise may be sold pursuant to Rule 144 or Rule 144A without any restriction as to the number of securities as of a particular date that can then be immediately sold, or (b) the Company or the Holder provides an opinion of legal counsel in a form reasonably satisfactory to the Company to the effect that a public sale or transfer of the Conversion Shares may be made without registration under the Securities Act.

 

5. Remedies.

 

(a)  Events of Default . Each of the following shall constitute an event of default (“Event of Default”) under the Note:

 

i. Payment Default. The Company fails to make any payment when due under this Note:

 

ii. Other Defaults. The Company fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between the Holder and the Company.

 

iii. Default in Favor of Third Parties . Borrow defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of the Company's property or the Company’s ability to repay this Note or perform the Company's obligations under this Note or any of the related documents, including but not limited to the Company’s obligations under the CNB Note.

 

iv. False Statements. Any warranty, representation or statement made or furnished to the Holder by the Company or on the Company's behalf or the related documents in connection with the obtaining of the loan evidenced by this Note or any security document directly or indirectly securing repayment of this Note is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

 

v. Insolvency. The dissolution or termination of the Company's existence as a going business, the insolvency of the Company, the appointment of a receiver for any part of the Company's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against the Company.

 

vi. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of the Company or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of the Company's accounts, including deposit accounts, with the Holder. However, this Event of Default shall not apply if there is a good faith dispute by the Company as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if the Company gives the Holder written notice of the creditor or forfeiture proceeding and deposits with the Holder monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by the Holder, in its sole discretion, as being an adequate reserve or bond for the dispute.

 

8

 

 

vii. Execution; Attachment. Any execution or attachment is levied against the Collateral, and such execution or attachment is not set aside, discharged or stayed within thirty (30) days after the same is levied.

 

viii. Change in Zoning or Public Restriction. Any change in any zoning ordinance or regulation or any other public restriction is enacted, adopted or implemented, that limits or defines the uses which may be made of the Collateral such that the present or intended use of the Collateral, as specified in the related documents, would be in violation of such zoning ordinance or regulation or public restriction, as changed.

 

ix. Default Under Other Lien Documents. A default occurs under any other mortgage, deed of trust or security agreement covering all of or any portion of the Collateral.

 

x. Judgment. Unless adequately covered by insurance in the opinion of the Holder, the entry of a final judgement for the payment of money involving more than $10,000.00 against the Company and the failure by the Company to discharge the same, or cause it to be discharged, or bonded off to the Holder’s satisfaction, within thirty (30) days from the date of the order, decree of process under which or pursuant to which such judgement was entered.

 

xi. Event Affecting Guarantor. Any of the proceeding events occurs with respects to any guarantor of the CNB Note, or any other guarantor, endorser, surety, of accommodation party of any of the indebtedness or Guarantor, or any other guarantor, endorser, surety, or accommodation party dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by the CNB Note.

 

xii. Change In Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of the Company.

 

  xiii.  Adverse Change. A material adverse change occurs in the Company’s financial condition, or the Holder believes the prospect of payment or performance of this Note is impaired.

 

xiv. Insecurity. The Holder in good faith believes itself insecure.

 

xv. Cure Provisions. In any default in payment, is curable and if the Company has not been given notice of a breach of the same provision of this Note within the preceding twelve (12) months, it may be cured if the Company, after the Holder sends written notice to the Company demanding cure of such default: (1) cures the default within fifteen (15) days; or (2) if the cure requires more than fifteen (15) days, immediately initiated steps which the Holder deems in the Holder’s sole discretion to be sufficient to cute the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.

 

9

 

 

(b) Acceleration of Maturity . Whenever an Event of Default exists, the Holder may declare the outstanding principal amount and accrued and unpaid interest of this Note to be due and payable immediately, by a notice in writing to the Company, and upon any such declaration such principal and accrued and unpaid interest shall become immediately due and payable without notice of default (except as otherwise required herein), presentment or demand for payment, protest or notice of nonpayment or dishonor, or other notices or demands of any kind or character. All persons now or at any time liable for payment of this Note hereby waive presentment, protest, notice of protest and dishonor.

 

(c)  Unconditional Right of Holder to Receive Principal and Interest . Notwithstanding any other provision in this Note, the Holder shall have the right which is absolute and unconditional to receive payment of outstanding principal amount and accrued and unpaid interest of this Note on maturity and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of the Holder.

 

(d)  Rights and Remedies Cumulative; Governing Law . No right or remedy herein conferred upon or reserved to the Holder is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment or any other appropriate right or remedy.

 

(e) Delay or Omission Not Waiver . No delay or omission of any Holder to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or acquiescence therein. Every right and remedy given by this Note or by law to the Holder may be exercised from time to time, and as often as may be deemed expedient, by the Holder.

 

(f) Attorneys’ Fees; Expenses . Holder may hire or pay someone else to help collect this Note if the Company does not pay. The Company will pay Holders the amount of these costs and expenses, which includes, subject any limits under applicable law, Holder’s reasonable attorneys’ fees and Holder’s legal expenses whether or not there is a lawsuit including reasonable attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, the Company also will pay any court costs, in addition to all other sums provided by law. 

 

10

 

 

7. General.

 

(a)  Registration, Transfer and Exchange . The Company shall cause to be kept at its principal corporate office a register (herein sometimes referred to as the “ Note Register ”) in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of this Note and of transfers of this Note. The Secretary of the Company is hereby appointed “ Note Registrar ” for the purpose of registering this Note in the Note Register and transfers of this Note as herein provided. Upon surrender for transfer of any part of this Note to the Note Registrar at the principal corporate office of the Company, which transfer complies with all applicable securities laws, the Company shall execute and deliver, in the name of the designated transferee or transferees, one or more new convertible promissory notes of any authorized denominations, of a like aggregate principal amount. A convertible promissory note issued upon any transfer or exchange of this Note shall be a valid obligation of the Company, evidencing the same debt, and entitled to the same benefits as this Note. The Holder understands that: (i) this Note has not been registered under the Securities Act or any other federal or state law governing the issuance or transfer of securities (which are herein collectively called the “securities laws”), (ii) the securities laws impose substantial restrictions upon the transfer of any interest in this Note, and (iii) the Company is not obligated to register this Note or the securities acquired upon conversion of this Note under the securities laws or otherwise take any action to facilitate or make possible any transfer of any interest in this Note. No service charge shall be made for the transfer or exchange of this Note, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the transfer or exchange of this Note and the Company’s costs and expenses incurred in connection therewith.

 

(b)  Mutilated, Destroyed, Lost and Stolen Notes . If (i) any mutilated Note is surrendered to the Company and the Note Registrar receives evidence to its satisfaction of the destruction, loss or theft of any Note, and (ii) there is delivered to the Company such security or indemnity as may be required by the Company to save the Company harmless, then the Company shall execute and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a new Note of like tenor and principal amount, bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Note has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Note, pay such Note. Upon the issuance of any new Note under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses connected therewith. Every new Note issued pursuant to this section in lieu of any destroyed, lost or stolen Note shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Note shall be at any time enforceable by anyone, and shall be entitled to all the benefits hereof equally and proportionately with any and all other Notes duly issued. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes.

 

(c)  Payment of Interest; Interest Rights Preserved . Interest on this Note shall be paid to the person in whose name this Note (or one or more predecessor Note) is registered at the close of business on the business day immediately prior to such payment date.

 

11

 

 

(d) Persons Deemed Owners . The Company, and any agent of the Company, may treat the person in whose name this Note is registered as the owner of this Note for the purpose of receiving payment of principal and interest on this Note and for all other purposes whatsoever, whether or not this Note be overdue, and neither the Company nor any agent of the Company shall be affected by notice to the contrary.

 

(e) Cancellation . This Note, when surrendered for payment, redemption, transfer, exchange or conversion shall be delivered to the Note Registrar for cancellation. The Company may at any time deliver to the Note Registrar for cancellation any Notes previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Notes so delivered shall be promptly cancelled by the Note Registrar. No Notes shall be issued in lieu of or in exchange for any Notes cancelled as provided in this Section, except as expressly permitted. All cancelled Notes held by the Note Registrar shall be disposed of as directed by the Company.

 

8. Governing Law; Dispute Resolution.

 

Except for the mandatory forum selection provision in the following sentence, this Note shall be delivered, accepted and shall be deemed to be a contract made under and governed by and construed in accordance with the laws of the State of Florida and for all purposes shall be construed in accordance with the laws of Florida, without giving effect to its principles regarding conflicts of law. With respect to any suit, action, or proceeding relating to any offer, purchase, or sale of this Note (“ Proceedings ”), the Holder and the Company irrevocably submit to the jurisdiction of the federal or state courts located in Miami-Dade County, Florida, which submission shall be exclusive unless none of such courts has lawful jurisdiction over such Proceedings. The Holder and the Company acknowledge and agree that any dispute concerning this Note, including the issue of whether the dispute is subject to arbitration, will be resolved by arbitration in Miami-Dade County, Florida, under the Commercial Arbitration Rules of the American Arbitration Association (“ AAA ”) by a single arbitrator selected by the Holder from the AAA’s panel of arbitrators.

 

9. Usury Savings Clause .

 

Notwithstanding any provision in this Note to the contrary, the total liability for payments of interest and payments in the nature of interest, including, without limitation, all charges, fees, exactions, or other sums which may at any time be deemed to be interest, shall not exceed the limit imposed by the usury laws of the jurisdiction governing this Note or any other applicable law. In the event the total liability of payments of interest and payments in the nature of interest, including, without limitation, all charges, fees, exactions or other sums which may at any time be deemed to be interest, shall, for any reason whatsoever, result in an effective rate of interest, which for any month or other interest payment period exceeds the limit imposed by the usury laws of the jurisdiction governing this Note, all sums in excess of those lawfully collectible as interest for the period in question shall, without further agreement or notice by, between, or to any party hereto, be applied to the reduction of the outstanding principal balance due hereunder immediately upon receipt of such sums by the Holder hereof, with the same force and effect as though the Company had specifically designated such excess sums to be so applied to the reduction of the principal balance then outstanding, and the Holder hereof had agreed to accept such sums as a penalty-free payment of principal; provided, however, that the Holder may, at any time and from time to time, elect, by notice in writing to the Company, to waive, reduce, or limit the collection of any sums in excess of those lawfully collectible as interest, rather than accept such sums as a prepayment of the principal balance then outstanding. It is the intention of the parties that the Company does not intend or expect to pay, nor does the Holder intend or expect to charge or collect any interest under this Note greater than the highest non-usurious rate of interest which may be charged under applicable law.

 

[Remainder of Page Left Blank – Signature Page Follows]

 

12

 

 

IN WITNESS WHEREOF, the Company has caused this Note to be signed in its name by the signature of its Chief Financial Officer.

 

  Drone Aviation Holding Corp.
     
  By:  
    Kendall W. Carpenter
    Chief Financial Officer
     
  Dated: August 2, 2017

 

Signature Page to Convertible Promissory Note

 

 

 

Exhibit A

 

NOTICE OF CONVERSION

 

(To be Executed by the Registered Holder in order to Convert promissory NOTE)

 

The undersigned hereby elects to convert $[____________] principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of Drone Aviation Holding Corp., a Nevada corporation (the “Company”) according to the conditions of the Secured Convertible Promissory Note Series 2017-08 of the Company dated as of August 2, 2017 (the “Note”), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.

 

Conversion calculations:

 

 

Date to Effect Conversion: _____________________________________________

 

 

Balance of Principal Amount of the Note prior to Conversion: _______________

 

 

Principal Amount of Note to be Converted: ________________________

 

 

Number of shares of Common Stock to be Issued: ___________________________

 

 

Applicable Conversion Price:____________________________________________

 

 

Balance of Principal Amount of Note subsequent to Conversion: ________________

 

 

Address for Delivery: ______________________

or

DWAC Instructions:

Broker no: _________

Account no: ___________

 

   [HOLDER]
     
  By:  
  Name:  
  Title:  

 

 

 

 

Exhibit 10.4(d)

 

AMENDMENT NO. 4

TO

EMPLOYMENT AGREEMENT

 

This Amendment No. 4 to the Employment Agreement (“ Amendment ”), dated August 3, 2017, is by and between Drone Aviation Holding Corp., a Nevada corporation with an address 11651 Central Parkway #118, Jacksonville, FL 32224 (the “ Company ”), and Daniyel Erdberg (the “ Executive ”).

 

WHEREAS , the parties entered into an Employment Agreement on May 18, 2015 (the “ Employment Agreement ”); and

 

WHEREAS , the parties entered into an Amendment No. 1 on October 2, 2015 (Erdberg Amendment No. 1); and

 

WHEREAS , the parties entered into an Amendment No. 2 on April 27, 2016 (Erdberg Amendment No. 2); and

 

WHEREAS , the parties entered into an Amendment No. 3 on September 26, 2016 (Erdberg Amendment No. 3); and

 

WHEREAS , the parties wish to further amend the Employment Agreement as set forth below, with the understanding that all other provisions of the Employment Agreement shall remain unchanged;

 

NOW, THEREFORE , in consideration of the terms and conditions hereinafter set forth, the parties hereto agree as follows:

 

1.          Section 4 of the Employment Agreement – Compensation of Employee – is hereby modified to $165,000 annual Base Salary .

 

2.          The terms and conditions of all other sections of the Employment Agreement shall remain unchanged and in full force and effect.

 

IN WITNESS WHEREOF, the parties have executed this agreement as of the date first stated above.

 

  DRONE AVIATION HOLDING CORP.
     
  By: /s/ Kendall Carpenter
    Name: Kendall W. Carpenter
    Title:   Chief Financial Officer
     
  By: /s/ Daniyel Erdberg
    Name: Daniyel Erdberg 

 

 

 

 

 

 

Exhibit 10.5(d)

 

AMENDMENT NO. 4

TO

EMPLOYMENT AGREEMENT

 

This Amendment No. 4 to the Employment Agreement (“ Amendment ”), dated August 3, 2017, is by and between Drone Aviation Holding Corp., a Nevada corporation with an address 11651 Central Parkway #118, Jacksonville, FL 32224 (the “ Company ”), and Felicia Hess (the “ Executive ”).

 

WHEREAS , the parties entered into an Employment Agreement on May 18, 2015 (the “ Employment Agreement ”); and

 

WHEREAS , the parties entered into an Amendment No. 1 on October 2, 2015 (Hess Amendment No. 1); and

 

WHEREAS , the parties entered into an Amendment No. 2 on April 27, 2016 (Hess Amendment No. 2); and

 

WHEREAS , the parties entered into an Amendment No. 3 on September 26, 2016 (Hess Amendment No. 3); and

 

WHEREAS , the parties wish to further amend the Employment Agreement as set forth below, with the understanding that all other provisions of the Employment Agreement shall remain unchanged;

 

NOW, THEREFORE , in consideration of the terms and conditions hereinafter set forth, the parties hereto agree as follows:

 

1.          Section 4 (e) of the Employment Agreement- Compensation, Additional Fringe Benefit- is hereby struck from the agreement.

 

2.           The terms and conditions of all other sections of the Employment Agreement shall remain unchanged and in full force and effect.

 

IN WITNESS WHEREOF, the parties have executed this agreement as of the date first stated above.

 

  DRONE AVIATION HOLDING CORP.
     
  By: /s/ Kendall Carpenter
    Name: Kendall W. Carpenter
    Title:   Chief Financial Officer
     
  By: /s/ Felicia Hess
    Name: Felicia Hess

Exhibit 10.6(c)

 

AMENDMENT NO. 3

TO

EMPLOYMENT AGREEMENT

 

This Amendment No. 3 to the Employment Agreement (“ Amendment ”), dated August 3, 2017, is by and between Drone Aviation Holding Corp., a Nevada corporation with an address 11651 Central Parkway #118, Jacksonville, FL 32224 (the “ Company ”), and Kendall Carpenter (the “ Executive ”).

 

WHEREAS , the parties entered into an Employment Agreement on May 18, 2015 (the “ Employment Agreement ”); and

 

WHEREAS , the parties entered into an Amendment No. 1 on April 27, 2016 (Carpenter Amendment No. 1); and

 

WHEREAS , the parties entered into an Amendment No. 2 on September 26, 2016 (Carpenter Amendment No. 2); and

 

WHEREAS , the parties wish to further amend the Employment Agreement as set forth below, with the understanding that all other provisions of the Employment Agreement shall remain unchanged;

 

NOW, THEREFORE , in consideration of the terms and conditions hereinafter set forth, the parties hereto agree as follows:

 

1.          Section 4 of the Employment Agreement- Compensation of Employee- is hereby modified to $165,000 annual base salary .

 

2.          The terms and conditions of all other sections of the Employment Agreement shall remain unchanged and in full force and effect.

 

IN WITNESS WHEREOF, the parties have executed this agreement as of the date first stated above.

 

  DRONE AVIATION HOLDING CORP.
     
  By: /s/ Jay Nussbaum
    Name: Jay H. Nussbaum
    Title:   Chief Executive Officer
     
  By: /s/ Kendall Carpenter
    Name: Kendall W. Carpenter

 

 

 

Exhibit 10.22(b)

 

AMENDMENT NO. 2

TO

EMPLOYMENT AGREEMENT

 

This Amendment No. 2 to the Employment Agreement (“ Amendment ”), dated August 3, 2017, is by and between Drone Aviation Holding Corp., a Nevada corporation with an address 11651 Central Parkway #118, Jacksonville, FL 32224 (the “ Company ”), and Jay H. Nussbaum (the “ Executive ”).

 

WHEREAS , the parties entered into an Employment Agreement on April 27, 2016 (the “ Employment Agreement ”); and

 

WHEREAS , the parties entered into an Amendment No. 1 on September 26, 2016 (Nussbaum Amendment No. 1); and

 

WHEREAS , the parties wish to further amend the Employment Agreement as set forth below, with the understanding that all other provisions of the Employment Agreement shall remain unchanged;

 

NOW, THEREFORE , in consideration of the terms and conditions hereinafter set forth, the parties hereto agree as follows:

 

1.          Section 4 of the Employment Agreement- Compensation of Employee- is hereby modified to $240,000 annual base salary .

 

2.          The terms and conditions of all other sections of the Employment Agreement shall remain unchanged and in full force and effect.

 

IN WITNESS WHEREOF, the parties have executed this agreement as of the date first stated above.

 

  DRONE AVIATION HOLDING CORP.
     
  By: /s/ Kendall Carpenter
    Name: Kendall W. Carpenter
    Title:   Chief Financial Officer
     
  By: /s/ Jay H. Nussbaum
    Name: Jay H. Nussbaum

Exhibit 10.29

 

 

 

PROMISSORY NOTE

 

Principal
$2,000,000.00

Loan Date
08-02-2017

Maturity
08-02-2018

Loan No

Call / Coll
803

Account

Officer
***

Initials
References in the boxes above are for Lender’s use only and do not limit the applicability of this document to any particular loan or item.
Any item above containing “***” has been omitted due to text length limitations.

  

Borrower:   Drone Aviation Holding Corp.
11651 Central Parkway, #118
Jacksonville, FL 32224
  Lender:    CITY NATIONAL BANK OF FLORIDA
Private Client Group
25 W. Flagler Street
MIAMI, FL 33130

  

 

 

Principal Amount: $2,000,000.00 Date of Note: August 2, 2017

 

PROMISE TO PAY. Drone Aviation Holding Corp. (“Borrower”) promises to pay to CITY NATIONAL BANK OF FLORIDA (“Lender”), or order, in lawful money of the United States of America, the principal amount of Two Million & 00/100 Dollars ($2,000,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance.

 

PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on August 2, 2018. In addition, Borrower will pay regular monthly payments of all accrued unpaid interest due as of each payment date, beginning September 2, 2017, with all subsequent interest payments to be due on the same day of each month after that. Unless otherwise agreed or required by applicable law, payments will be applied first to any accrued unpaid interest; then to principal; then to any late charges; and then to any unpaid collection costs. Borrower will pay Lender at Lender’s address shown above or at such other place as Lender may designate in writing.

 

VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an independent index which is the Wall Street Journal Prime Rate (the “Index”). The Index is not necessarily the lowest rate charged by Lender on its loans. If the Index becomes unavailable during the term of this loan, Lender may designate a substitute index after notifying Borrower. Lender will tell Borrower the current Index rate upon Borrowers request. The interest rate change will not occur more often than each day. Borrower understands that Lender may make loans based on other rates as well. Interest on the unpaid principal balance of this Note will be calculated as described in the “INTEREST CALCULATION METHOD” paragraph using a rate of 0.250 percentage points over the Index. NOTICE: Under no circumstances will the effective rate of interest on this Note be more than the maximum rate allowed by applicable law.

 

INTEREST CALCULATION METHOD. Interest on this Note is computed on a 365/360 basis; that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under this Note is computed using this method. This calculation method results in a higher effective interest rate than the numeric interest rate stated in this Note.

 

PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Except for the foregoing, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower’s obligation to continue to make payments of accrued unpaid interest. Rather, early payments will reduce the principal balance due. Borrower agrees not to send Lender payments marked “paid in full”, “without recourse”, or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender’s rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes “payment in full” of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: CITY NATIONAL BANK OF FLORIDA, 25 W Flagler Street Miami, FL 33130.

 

LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged 5.000% of the unpaid portion of the regularly scheduled payment.

  

 

 

PROMISSORY NOTE
(Continued)

Page 2

 

 

INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final maturity, Lender, at its option, may, if permitted under applicable law, increase the variable interest rate on this Note to the extent that the increase does not cause the interest rate to exceed the maximum rate permitted by applicable law.

  

DEFAULT. Each of the following shall constitute an event of default (“Event of Default”) under this Note:

 

Payment Default. Borrower fails to make any payment when due under this Note.

 

Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.

 

Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower’s property or Borrower’s ability to repay this Note or perform Borrower’s obligations under this Note or any of the related documents.

 

False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrowers behalf, or made by Guarantor, or any other guarantor, endorser, surety, or accommodation party, under this Note or the related documents in connection with the obtaining of the loan evidenced by this Note or any security document directly or indirectly securing repayment of this Note is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

 

Insolvency. The dissolution or termination of Borrower’s existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower’s property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

 

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower’s accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

  

Execution; Attachment. Any execution or attachment is levied against the Collateral, and such execution or attachment is not set aside, discharged or stayed within thirty (30) days after the same is levied.

 

Change in Zoning or Public Restriction. Any change in any zoning ordinance or regulation or any other public restriction is enacted, adopted or implemented, that limits or defines the uses which may be made of the Collateral such that the present or intended use of the Collateral, as specified in the related documents, would be in violation of such zoning ordinance or regulation or public restriction, as changed.

 

Default Under Other Lien Documents. A default occurs under any other mortgage, deed of trust or security agreement covering all or any portion of the Collateral.

 

Judgment. Unless adequately covered by insurance in the opinion of Lender, the entry of a final judgment for the payment of money involving more than ten thousand dollars ($10,000.00) against Borrower and the failure by Borrower to discharge the same, or cause it to be discharged, or bonded off to Lender’s satisfaction, within thirty (30) days from the date of the order, decree or process under which or pursuant to which such judgment was entered.

 

Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor, or any other guarantor, endorser, surety, or accommodation party of any of the indebtedness or any Guarantor, or any other guarantor, endorser, surety, or accommodation party dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note.

  

 

 

PROMISSORY NOTE
(Continued)

Page 3

 

 

Change In Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.

 

Adverse Change. A material adverse change occurs in Borrower’s financial condition, or Lender believes the prospect of payment or performance of this Note is impaired.

 

Insecurity. Lender in good faith believes itself insecure.

 

Cure Provisions. If any default, other than a default in payment, is curable and if Borrower has not been given a notice of a breach of the same provision of this Note within the preceding twelve (12) months, it may be cured if Borrower, after Lender sends written notice to Borrower demanding cure of such default: (1) cures the default within fifteen (15) days; or (2) if the cure requires more than fifteen (15) days, immediately initiates steps which Lender deems in Lender’s sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.

 

LENDER’S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount.

 

ATTORNEYS’ FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender the amount of these costs and expenses, which includes, subject to any limits under applicable law, Lender’s reasonable attorneys’ fees and Lender’s legal expenses whether or not there is a lawsuit, including reasonable attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law.

 

JURY WAIVER. Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other.

 

GOVERNING LAW. This Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Florida without regard to its conflicts of law provisions. This Note has been accepted by Lender in the State of Florida.

 

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower’s accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts.

 

COLLATERAL. Borrower acknowledges this Note is secured by a first security interest in all of the accounts, inventory and equipment of Drone Aviation Holding Corp., whether now owned or existing or hereafter acquired or arising, wheresoever located, together with any and all proceeds and/or products thereof and Demand Deposit Account #1955078786 in the name of Borrower and held with Lender with an approximate balance of $90,000.00.

 

LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note may be requested only in writing by Borrower or by an authorized person. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender’s office shown above. Borrower agrees to be liable for all sums either: (A) advanced in accordance with the instructions of an authorized person or (B) credited to any of Borrower’s accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender’s internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (A) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note; (B) Borrower or any guarantor ceases doing business or is insolvent; (C) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor’s guarantee of this Note or any other loan with Lender; (D) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender; or (E) Lender in good faith believes itself insecure.

 

FINANCIAL STATEMENTS. Borrower agrees to provide Lender with such financial statements and other related information at such frequencies and in such detail as Lender may reasonably request.

 

BORROWER’S OWNERSHIP COVENANT. Borrower shall not sell or convey more than twenty-five percent (25%) of its stock or any of its assets, except for assets sold in the normal and ordinary course of business, including any merger, consolidation, or reorganization, and there shall be no change in the ownership or management of Borrower, with the exception of estate planning purposes, unless consented to in writing by Lender, which may be given or withheld in the sole and absolute discretion of the Lender.

 

ANNUAL REVIEWS BY LENDER. This loan is subject to annual reviews by Lender.

   

 

 

PROMISSORY NOTE
(Continued)

Page 4

 

 

DEPOSITORY RELATIONSHIP. In consideration for Lender’s agreement to make the Loan, and other terms agreed to by Lender, the Borrower shall maintain its primary operating account(s) with Lender, at all times during the term of the Loan. Such depository account(s) with Lender shall maintain a minimum average ledger balance of $600,000.00 for each calendar year during the term of the Loan. The minimum average ledger balances shall be tested annually based on the average of the Borrower’s monthly bank statements for all such depository account(s) for that year. Notwithstanding the foregoing, Borrowers may maintain other depository accounts with other banking institutions with written approval from Lender (that shall not be unreasonably withheld, conditioned or delayed) where reasonably required to meet Borrower’s petty cash needs in geographic areas where Lender does not maintain branch offices. Should Borrower fail to comply with the minimum depository covenant for any quarterly period, Borrower shall be charged a fee equal to two percent (2%) per annum of the deficiency in the minimum average ledger balance. This fee shall be charged automatically, without any notice to Borrower. This fee shall not be deemed to be or constitute additional interest under the Loan, as it relates specifically and directly to the required deposit balances. Lender may (i) exercise its offset rights to collect the fee, or (ii) send a written demand that the fee be paid within 10 days of written notice thereof. Failure to pay the required fee shall constitute an Event of Default hereunder.

 

LIQUIDITY MAINTENANCE. Borrower and Guarantor, together, so long as the indebtedness hereby guaranteed is outstanding and unpaid, shall together maintain unencumbered liquidity of no less than $6,000,000.00 by maintaining in their names only, in the form of unrestricted unencumbered cash accounts, maintained by a recognized financial institution or licensed brokerage firm, approved by Lender; repurchase agreements, certificates of deposit or marketable securities acceptable to Lender. Borrower and Guarantor shall furnish Lender proof of said liquidity annually, commencing on July 31, 2018, which proof shall be in the form of bank statements, account statements or such other proof acceptable to Lender. The failure of Borrower and Guarantor to maintain the said liquidity or provide proof thereof, in the time and manner set forth herein, shall automatically constitute a default, and Lender shall be entitled to exercise any remedy available to it as, and for a default hereunder, including the right of acceleration.

 

BORROWER’S FINANCIAL STATEMENTS. BORROWER AGREES TO FURNISH LENDER WITH THE FOLLOWING:.

 

Tax Returns. As soon as available, but in no event later than sixty (60) days after the applicable filing date for the tax reporting period ended, Borrower’s originally signed copies of Federal and other governmental tax returns, including K-1 schedules, prepared by certified public accountant satisfactory to Lender, commencing July 31, 2018. If an extension is filed, a copy of the extension must be provided to Lender.

 

All financial reports required to be provided under this Note shall be prepared in accordance with GAAP, applied on a consistent basis, and certified by Borrower as being true and correct.

 

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower’s heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns.

 

GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Borrower does not agree or intend to pay, and Lender does not agree or intend to contract for, charge, collect, take, reserve or receive (collectively referred to herein as “charge or collect”), any amount in the nature of interest or in the nature of a fee for this loan, which would in any way or event (including demand, prepayment, or acceleration) cause Lender to charge or collect more for this loan than the maximum Lender would be permitted to charge or collect by federal law or the law of the State of Florida (as applicable). Any such excess interest or unauthorized fee shall, instead of anything stated to the contrary, be applied first to reduce the principal balance of this loan, and when the principal has been paid in full, be refunded to Borrower. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender’s security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several.

 

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE.

 

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.

 

BORROWER:

  

DRONE AVIATION HOLDING CORP.

 

By:   By:  
  Daniyel Erdberg, President of Drone Aviation Holding Crop.     Jay Nussbaum, Chief Executive Officer of Drone
Aviation Holding Corp.

 

 

 

LaserPro, Ver . 17.1.10.015 Copr. D+H USA Corporation 1997, 2017. All Rights Reserved. • FL I : \CFIWIN\CFI\LPL\D20.FC TR-15841 PR-35

  

 

 

 

 

 

COMMERCIAL SECURITY AGREEMENT

 

Principal
$2,000,000.00

Loan Date
08-02-2017

Maturity
08-02-2018

Loan No

Call / Coll
803

Account Officer
***

Initials

References in the boxes above are for Lender’s use only and do not limit the applicability of this document to any particular loan or item.

Any item above containing “***” has been omitted due to text length limitations.

 

Grantor:   Drone Aviation Holding Corp.
11651 Central Parkway, #118
Jacksonville, FL 32224
  Lender:    CITY NATIONAL BANK OF FLORIDA
Private Client Group
25 W. Flagler Street
MIAMI, FL 33130

 

 

 

THIS COMMERCIAL SECURITY AGREEMENT dated August 2, 2017, is made and executed between Drone Aviation Holding Corp. (“Grantor”) and CITY NATIONAL BANK OF FLORIDA (“Lender”).

 

GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to Lender a security interest in the Collateral to secure the Indebtedness and agrees that Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which Lender may have by law.

 

COLLATERAL DESCRIPTION. The word “Collateral” as used in this Agreement means the following described property, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located, in which Grantor is giving to Lender a security interest for the payment of the Indebtedness and performance of all other obligations under the Note and this Agreement:

 

All Inventory, Chattel Paper, Accounts, Equipment and General Intangibles, as such terms are defined by the Uniform Commercial Code

 

In addition, the word “Collateral” also includes all the following, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located:

 

(A)     All accessions, attachments, accessories, tools, parts, supplies, replacements of and additions to any of the collateral described herein, whether added now or later.

 

(B)     All products and produce of any of the property described in this Collateral section.

 

(C)     All accounts, general intangibles, instruments, rents, monies, payments, and all other rights, arising out of a sale, lease, consignment or other disposition of any of the property described in this Collateral section.

 

(D)     All proceeds (including insurance proceeds) from the sale, destruction, loss, or other disposition of any of the property described in this Collateral section, and sums due from a third party who has damaged or destroyed the Collateral or from that party’s insurer, whether due to judgment, settlement or other process.

 

(E)     All records and data relating to any of the property described in this Collateral section, whether in the form of a writing, photograph, microfilm, microfiche, or electronic media, together with all of Grantor’s right, title, and interest in and to all computer software required to utilize, create, maintain, and process any such records or data on electronic media.

 

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Grantor’s accounts with Lender (whether checking, savings, or some other account). This includes all accounts Grantor holds jointly with someone else and all accounts Grantor may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Grantor authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts.

 

 

 

COMMERCIAL SECURITY AGREEMENT
(Continued)

Page 2

 

 

GRANTOR’S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. With respect to the Collateral, Grantor represents and promises to Lender that:

 

Perfection of Security Interest. Grantor agrees to take whatever actions are requested by Lender to perfect and continue Lender’s security interest in the Collateral. Upon request of Lender, Grantor will deliver to Lender any and all of the documents evidencing or constituting the Collateral, and Grantor will note Lender’s interest upon any and all chattel paper and instruments if not delivered to Lender for possession by Lender. This is a continuing Security Agreement and will continue in effect even though all or any part of the Indebtedness is paid in full and even though for a period of time Grantor may not be indebted to Lender.

  

Notices to Lender. Grantor will promptly notify Lender in writing at Lender’s address shown above (or such other addresses as Lender may designate from time to time) prior to any (1) change in Grantor’s name; (2) change in Grantor’s assumed business name(s); (3) change in the management of the Corporation Grantor; (4) change in the authorized signer(s); (5) change in Grantor’s principal office address; (6) change in Grantor’s state of organization; (7) conversion of Grantor to a new or different type of business entity; or (8) change in any other aspect of Grantor that directly or indirectly relates to any agreements between Grantor and Lender. No change in Grantor’s name or state of organization will take effect until after Lender has received notice.

 

No Violation. The execution and delivery of this Agreement will not violate any law or agreement governing Grantor or to which Grantor is a party, and its certificate or articles of incorporation and bylaws do not prohibit any term or condition of this Agreement.

 

Enforceability of Collateral. To the extent the Collateral consists of accounts, chattel paper, or general intangibles, as defined by the Uniform Commercial Code, the Collateral is enforceable in accordance with its terms, is genuine, and fully complies with all applicable laws and regulations concerning form, content and manner of preparation and execution, and all persons appearing to be obligated on the Collateral have authority and capacity to contract and are in fact obligated as they appear to be on the Collateral. At the time any account becomes subject to a security interest in favor of Lender, the account shall be a good and valid account representing an undisputed, bona fide indebtedness incurred by the account debtor, for merchandise held subject to delivery instructions or previously shipped or delivered pursuant to a contract of sale, or for services previously performed by Grantor with or for the account debtor. So long as this Agreement remains in effect, Grantor shall not, without Lender’s prior written consent, compromise, settle, adjust, or extend payment under or with regard to any such Accounts. There shall be no setoffs or counterclaims against any of the Collateral, and no agreement shall have been made under which any deductions or discounts may be claimed concerning the Collateral except those disclosed to Lender in writing.

  

Location of the Collateral. Except in the ordinary course of Grantor’s business, Grantor agrees to keep the Collateral (or to the extent the Collateral consists of intangible property such as accounts or general intangibles, the records concerning the Collateral) at Grantor’s address shown above or at such other locations as are acceptable to Lender. Upon Lender’s request, Grantor will deliver to Lender in form satisfactory to Lender a schedule of real properties and Collateral locations relating to Grantor’s operations, including without limitation the following: (1) all real property Grantor owns or is purchasing; (2) all real property Grantor is renting or leasing; (3) all storage facilities Grantor owns, rents, leases, or uses; and (4) all other properties where Collateral is or may be located.

 

Removal of the Collateral. Except in the ordinary course of Grantor’s business, including the sales of inventory, Grantor shall not remove the Collateral from its existing location without Lender’s prior written consent. To the extent that the Collateral consists of vehicles, or other titled property, Grantor shall not take or permit any action which would require application for certificates of title for the vehicles outside the State of Florida, without Lender’s prior written consent. Grantor shall, whenever requested, advise Lender of the exact location of the Collateral.

 

Transactions Involving Collateral. Except for inventory sold or accounts collected in the ordinary course of Grantor’s business, or as otherwise provided for in this Agreement, Grantor shall not sell, offer to sell, or otherwise transfer or dispose of the Collateral. While Grantor is not in default under this Agreement, Grantor may sell inventory, but only in the ordinary course of its business and only to buyers who qualify as a buyer in the ordinary course of business. A sale in the ordinary course of Grantor’s business does not include a transfer in partial or total satisfaction of a debt or any bulk sale. Grantor shall not pledge, mortgage, encumber or otherwise permit the Collateral to be subject to any lien, security interest, encumbrance, or charge, other than the security interest provided for in this Agreement, without the prior written consent of Lender. This includes security interests even if junior in right to the security interests granted under this Agreement. Unless waived by Lender, all proceeds from any disposition of the Collateral (for whatever reason) shall be held in trust for Lender and shall not be commingled with any other funds; provided however, this requirement shall not constitute consent by Lender to any sale or other disposition. Upon receipt, Grantor shall immediately deliver any such proceeds to Lender.

  

 

 

COMMERCIAL SECURITY AGREEMENT
(Continued)

Page 3

 

 

Title. Grantor represents and warrants to Lender that Grantor holds good and marketable title to the Collateral, free and clear of all liens and encumbrances except for the lien of this Agreement. No financing statement covering any of the Collateral is on file in any public office other than those which reflect the security interest created by this Agreement or to which Lender has specifically consented. Grantor shall defend Lender’s rights in the Collateral against the claims and demands of all other persons.

 

Repairs and Maintenance. Grantor agrees to keep and maintain, and to cause others to keep and maintain, the Collateral in good order, repair and condition at all times while this Agreement remains in effect. Grantor further agrees to pay when due all claims for work done on, or services rendered or material furnished in connection with the Collateral so that no lien or encumbrance may ever attach to or be filed against the Collateral.

 

Inspection of Collateral. Lender and Lender’s designated representatives and agents shall have the right at all reasonable times to examine and inspect the Collateral wherever located.

 

Taxes, Assessments and Liens. Grantor will pay when due all taxes, assessments and liens upon the Collateral, its use or operation, upon this Agreement, upon any promissory note or notes evidencing the Indebtedness, or upon any of the other Related Documents. Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender’s interest in the Collateral is not jeopardized in Lender’s sole opinion. If the Collateral is subjected to a lien which is not discharged within fifteen (15) days, Grantor shall deposit with Lender cash, a sufficient corporate surety bond or other security satisfactory to Lender in an amount adequate to provide for the discharge of the lien plus any interest, costs, reasonable attorneys’ fees or other charges that could accrue as a result of foreclosure or sale of the Collateral. In any contest Grantor shall defend itself and Lender and shall satisfy any final adverse judgment before enforcement against the Collateral. Grantor shall name Lender as an additional obligee under any surety bond furnished in the contest proceedings. Grantor further agrees to furnish Lender with evidence that such taxes, assessments, and governmental and other charges have been paid in full and in a timely manner. Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender’s interest in the Collateral is not jeopardized.

 

Compliance with Governmental Requirements. Grantor shall comply promptly with all laws, ordinances, rules and regulations of all governmental authorities, now or hereafter in effect, applicable to the ownership, production, disposition, or use of the Collateral, including all laws or regulations relating to the undue erosion of highly-erodible land or relating to the conversion of wetlands for the production of an agricultural product or commodity. Grantor may contest in good faith any such law, ordinance or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Lender’s interest in the Collateral, in Lender’s opinion, is not jeopardized.

 

Hazardous Substances. Grantor represents and warrants that the Collateral never has been, and never will be so long as this Agreement remains a lien on the Collateral, used in violation of any Environmental Laws or for the generation, manufacture, storage, transportation, treatment, disposal, release or threatened release of any Hazardous Substance. The representations and warranties contained herein are based on Grantor’s due diligence in investigating the Collateral for Hazardous Substances. Grantor hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Grantor becomes liable for cleanup or other costs under any Environmental Laws, and (2) agrees to indemnify, defend, and hold harmless Lender against any and all claims and losses resulting from a breach of this provision of this Agreement. This obligation to indemnify and defend shall survive the payment of the Indebtedness and the satisfaction of this Agreement.

 

Maintenance of Casualty Insurance. Grantor shall procure and maintain all risks insurance, including without limitation fire, theft and liability coverage together with such other insurance as Lender may require with respect to the Collateral, in form, amounts, coverages and basis reasonably acceptable to Lender and issued by a company or companies reasonably acceptable to Lender. Grantor, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least ten (10) days’ prior written notice to Lender and not including any disclaimer of the insurer’s liability for failure to give such a notice. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Grantor or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest, Grantor will provide Lender with such loss payable or other endorsements as Lender may require. If Grantor at any time fails to obtain or maintain any insurance as required under this Agreement, Lender may (but shall not be obligated to) obtain such insurance as Lender deems appropriate, including if Lender so chooses “single interest insurance,” which will cover only Lender’s interest in the Collateral.

 

Application of Insurance Proceeds. Grantor shall promptly notify Lender of any loss or damage to the Collateral, whether or not such casualty or loss is covered by insurance. Lender may make proof of loss if Grantor fails to do so within fifteen (15) days of the casualty. All proceeds of any insurance on the Collateral, including accrued proceeds thereon, shall be held by Lender as part of the Collateral. If Lender consents to repair or replacement of the damaged or destroyed Collateral, Lender shall, upon satisfactory proof of expenditure, pay or reimburse Grantor from the proceeds for the reasonable cost of repair or restoration. If Lender does not consent to repair or replacement of the Collateral, Lender shall retain a sufficient amount of the proceeds to pay all of the Indebtedness, and shall pay the balance to Grantor. Any proceeds which have not been disbursed within six (6) months after their receipt and which Grantor has not committed to the repair or restoration of the Collateral shall be used to prepay the Indebtedness.

  

 

 

COMMERCIAL SECURITY AGREEMENT
(Continued)

Page 4

 

  

Insurance Reserves. Lender may require Grantor to maintain with Lender reserves for payment of insurance premiums, which reserves shall be created by monthly payments from Grantor of a sum estimated by Lender to be sufficient to produce, at least fifteen (15) days before the premium due date, amounts at least equal to the insurance premiums to be paid. If fifteen (15) days before payment is due, the reserve funds are insufficient, Grantor shall upon demand pay any deficiency to Lender. The reserve funds shall be held by Lender as a general deposit and shall constitute a non-interest-bearing account which Lender may satisfy by payment of the insurance premiums required to be paid by Grantor as they become due. Lender does not hold the reserve funds in trust for Grantor, and Lender is not the agent of Grantor for payment of the insurance premiums required to be paid by Grantor. The responsibility for the payment of premiums shall remain Grantor’s sole responsibility.

 

Insurance Reports. Grantor, upon request of Lender, shall furnish to Lender reports on each existing policy of insurance showing such information as Lender may reasonably request including the following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy; (4) the property insured; (5) the then current value on the basis of which insurance has been obtained and the manner of determining that value; and (6) the expiration date of the policy. In addition, Grantor shall upon request by Lender (however not more often than annually) have an independent appraiser satisfactory to Lender determine, as applicable, the cash value or replacement cost of the Collateral.

 

Financing Statements. Grantor authorizes Lender to file a UCC financing statement, or alternatively, a copy of this Agreement to perfect Lender’s security interest. At Lender’s request, Grantor additionally agrees to sign all other documents that are necessary to perfect, protect, and continue Lender’s security interest in the Property. Grantor will pay all filing fees, title transfer fees, and other fees and costs involved unless prohibited by law or unless Lender is required by law to pay such fees and costs. Grantor irrevocably appoints Lender to execute documents necessary to transfer title if there is a default. Lender may file a copy of this Agreement as a financing statement.

 

GRANTOR’S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except as otherwise provided below with respect to accounts, Grantor may have possession of the tangible personal property and beneficial use of all the Collateral and may use it in any lawful manner not inconsistent with this Agreement or the Related Documents, provided that Grantor’s right to possession and beneficial use shall not apply to any Collateral where possession of the Collateral by Lender is required by law to perfect Lender’s security interest in such Collateral. Until otherwise notified by Lender, Grantor may collect any of the Collateral consisting of accounts. At any time and even though no Event of Default exists, Lender may exercise its rights to collect the accounts and to notify account debtors to make payments directly to Lender for application to the Indebtedness. If Lender at any time has possession of any Collateral, whether before or after an Event of Default, Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral if Lender takes such action for that purpose as Grantor shall request or as Lender, in Lender’s sole discretion, shall deem appropriate under the circumstances, but failure to honor any request by Grantor shall not of itself be deemed to be a failure to exercise reasonable care. Lender shall not be required to take any steps necessary to preserve any rights in the Collateral against prior parties, nor to protect, preserve or maintain any security interest given to secure the Indebtedness.

 

LENDER’S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender’s interest in the Collateral or if Grantor fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Grantor’s failure to discharge or pay when due any amounts Grantor is required to discharge or pay under this Agreement or any Related Documents, Lender on Grantor’s behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on the Collateral and paying all costs for insuring, maintaining and preserving the Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Grantor. All such expenses will become a part of the Indebtedness and, at Lender’s option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note’s maturity. The Agreement also will secure payment of these amounts. Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon Default.

 

DEFAULT. Each of the following shall constitute an Event of Default under this Agreement:

 

Payment Default. Grantor fails to make any payment when due under the Indebtedness.

 

Other Defaults. Grantor fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Grantor.

 

Default in Favor of Third Parties. Any guarantor or Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of any guarantor’s or Grantor’s property or ability to perform their respective obligations under this Agreement or any of the Related Documents.

 

False Statements. Any warranty, representation or statement made or furnished to Lender by Grantor or on Grantor’s behalf under this Agreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

  

 

 

COMMERCIAL SECURITY AGREEMENT
(Continued)

Page 5

 

  

Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason.

 

Insolvency. The dissolution or termination of Grantor’s existence as a going business, the insolvency of Grantor, the appointment of a receiver for any part of Grantor’s property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Grantor.

 

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Grantor or by any governmental agency against any collateral securing the Indebtedness. This includes a garnishment of any of Grantor’s accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Grantor as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Grantor gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

 

Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or Guarantor dies or becomes incompetent or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness.

 

Adverse Change. A material adverse change occurs in Grantor’s financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired.

  

Insecurity. Lender in good faith believes itself insecure.

 

Cure Provisions. If any default, other than a default in payment, is curable and if Grantor has not been given a notice of a breach of the same provision of this Agreement within the preceding twelve (12) months, it may be cured if Grantor, after Lender sends written notice to Grantor demanding cure of such default: (1) cures the default within fifteen (15) days; or (2) if the cure requires more than fifteen (15) days, immediately initiates steps which Lender deems in Lender’s sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.

 

RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this Agreement, at any time thereafter, Lender shall have all the rights of a secured party under the Florida Uniform Commercial Code. In addition and without limitation, Lender may exercise any one or more of the following rights and remedies:

 

Accelerate Indebtedness. Lender may declare the entire Indebtedness, including any prepayment penalty which Grantor would be required to pay, immediately due and payable, without notice of any kind to Grantor.

 

Assemble Collateral. Lender may require Grantor to deliver to Lender all or any portion of the Collateral and any and all certificates of title and other documents relating to the Collateral. Lender may require Grantor to assemble the Collateral and make it available to Lender at a place to be designated by Lender. Lender also shall have full power to enter upon the property of Grantor to take possession of and remove the Collateral. If the Collateral contains other goods not covered by this Agreement at the time of repossession, Grantor agrees Lender may take such other goods, provided that Lender makes reasonable efforts to return them to Grantor after repossession.

 

Sell the Collateral. Lender shall have full power to sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof in Lender’s own name or that of Grantor. Lender may sell the Collateral at public auction or private sale. Unless the Collateral threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender will give Grantor, and other persons as required by law, reasonable notice of the time and place of any public sale, or the time after which any private safe or any other disposition of the Collateral is to be made. However, no notice need be provided to any person who, after Event of Default occurs, enters into and authenticates an agreement waiving that person’s right to notification of sale. The requirements of reasonable notice shall be met if such notice is given at least ten (10) days before the time of the sale or disposition. All expenses relating to the disposition of the Collateral, including without limitation the expenses of retaking, holding, insuring, preparing for sale and selling the Collateral, shall become a part of the Indebtedness secured by this Agreement and shall be payable on demand, with interest at the Note rate from date of expenditure until repaid.

  

 

 

COMMERCIAL SECURITY AGREEMENT
(Continued)

Page 6

 

 

Appoint Receiver. In the event of a suit being instituted to foreclose this Agreement, Lender shall be entitled to apply at any time pending such foreclosure suit to the court having jurisdiction thereof for the appointment of a receiver of any or all of the Collateral, and of all rents, incomes, profits, issues and revenues thereof, from whatsoever source. The parties agree that the court shall forthwith appoint such receiver with the usual powers and duties of receivers in like cases. Such appointment shall be made by the court as a matter of strict right to Lender and without notice to Grantor, and without reference to the adequacy or inadequacy of the value of the Collateral, or to Grantor’s solvency or any other party defendant to such suit. Grantor hereby specifically waives the right to object to the appointment of a receiver and agrees that such appointment shall be made as an admitted equity and as a matter of absolute right to Lender, and consents to the appointment of any officer or employee of Lender as receiver. Lender shall have the right to have a receiver appointed to take possession of all or any part of the Collateral, with the power to protect and preserve the Collateral, to operate the Collateral preceding foreclosure or sale, and to collect the rents from the Collateral and apply the proceeds, over and above the cost of the receivership, against the Indebtedness. The receiver may serve without bond if permitted by law. Lender’s right to the appointment of a receiver shall exist whether or not the apparent value of the Collateral exceeds the Indebtedness by a substantial amount. Employment by Lender shall not disqualify a person from serving as a receiver.

 

Collect Revenues, Apply Accounts. Lender, either itself or through a receiver, may collect the payments, rents, income, and revenues from the Collateral. Lender may at any time in Lender’s discretion transfer any Collateral into Lender’s own name or that of Lender’s nominee and receive the payments, rents, income, and revenues therefrom and hold the same as security for the Indebtedness or apply it to payment of the Indebtedness in such order of preference as Lender may determine. Insofar as the Collateral consists of accounts, general intangibles, insurance policies, instruments, chattel paper, choses in action, or similar property, Lender may demand, collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as Lender may determine, whether or not Indebtedness or Collateral is then due. For these purposes, Lender may, on behalf of and in the name of Grantor, receive, open and dispose of mail addressed to Grantor; change any address to which mail and payments are to be sent; and endorse notes, checks, drafts, money orders, documents of title, instruments and items pertaining to payment, shipment, or storage of any Collateral. To facilitate collection, Lender may notify account debtors and obligors on any Collateral to make payments directly to Lender.

 

Obtain Deficiency. If Lender chooses to sell any or all of the Collateral, Lender may obtain a judgment against Grantor for any deficiency remaining on the Indebtedness due to Lender after application of all amounts received from the exercise of the rights provided in this Agreement. Grantor shall be liable for a deficiency even if the transaction described in this subsection is a sale of accounts or chattel paper.

 

Other Rights and Remedies. Lender shall have all the rights and remedies of a secured creditor under the provisions of the Uniform Commercial Code, as may be amended from time to time. In addition, Lender shall have and may exercise any or all other rights and remedies it may have available at law, in equity, or otherwise.

 

Election of Remedies. Except as may be prohibited by applicable law, all of Lender’s rights and remedies, whether evidenced by this Agreement, the Related Documents, or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Agreement, after Grantor’s failure to perform, shall not affect Lender’s right to declare a default and exercise its remedies.

 

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:

 

Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.

 

Attorneys’ Fees; Expenses. Grantor agrees to pay upon demand all of Lender’s costs and expenses, including Lender’s reasonable attorneys’ fees and Lender’s legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Grantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender’s reasonable attorneys’ fees and legal expenses whether or not there is a lawsuit, including reasonable attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Grantor also shall pay all court costs and such additional fees as may be directed by the court.

   

 

 

COMMERCIAL SECURITY AGREEMENT
(Continued)

Page 7

 

 

Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.

 

Governing Law. This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Florida without regard to its conflicts of law provisions. This Agreement has been accepted by Lender in the State of Florida.

 

No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender’s right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of Lender’s rights or of any of Grantor’s obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.

 

Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving written notice to the other parties, specifying that the purpose of the notice is to change the party’s address. For notice purposes, Grantor agrees to keep Lender informed at all times of Grantor’s current address. Unless otherwise provided or required by law, if there is more than one Grantor, any notice given by Lender to any Grantor is deemed to be notice given to all Grantors.

 

Power of Attorney. Grantor hereby appoints Lender as Grantor’s irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect, amend, or to continue the security interest granted in this Agreement or to demand termination of filings of other secured parties. Lender may at any time, and without further authorization from Grantor, file a carbon, photographic or other reproduction of any financing statement or of this Agreement for use as a financing statement. Grantor will reimburse Lender for all expenses for the perfection and the continuation of the perfection of Lender’s security interest in the Collateral.

 

Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement.

 

Successors and Assigns. Subject to any limitations stated in this Agreement on transfer of Grantor’s interest, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns. If ownership of the Collateral becomes vested in a person other than Grantor, Lender, without notice to Grantor, may deal with Grantor’s successors with reference to this Agreement and the Indebtedness by way of forbearance or extension without releasing Grantor from the obligations of this Agreement or liability under the Indebtedness.

 

Survival of Representations and Warranties. All representations, warranties, and agreements made by Grantor in this Agreement shall survive the execution and delivery of this Agreement, shall be continuing in nature, and shall remain in full force and effect until such time as Grantor’s Indebtedness shall be paid in full.

 

Time is of the Essence. Time is of the essence in the performance of this Agreement.

 

Waive Jury. All parties to this Agreement hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by any party against any other party.

 

DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code:

 

Agreement. The word “Agreement” means this Commercial Security Agreement, as this Commercial Security Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Commercial Security Agreement from time to time.

 

Borrower. The word “Borrower” means Drone Aviation Holding Corp. and includes all co-signers and co-makers signing the Note and all their successors and assigns.

  

 

 

COMMERCIAL SECURITY AGREEMENT
(Continued)

Page 8

 

 

Collateral. The word “Collateral” means all of Grantor’s right, title and interest in and to all the Collateral as described in the Collateral Description section of this Agreement.

 

Default. The word “Default” means the Default set forth in this Agreement in the section titled “Default”.

 

Environmental Laws. The words “Environmental Laws” mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. (“CERCLA”), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 (“SARA”), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto.

 

Event of Default. The words “Event of Default” mean any of the events of default set forth in this Agreement in the default section of this Agreement.

 

Grantor. The word “Grantor” means Drone Aviation Holding Corp..

 

Guarantor. The word “Guarantor” means any guarantor, surety, or accommodation party of any or all of the Indebtedness.

 

Guaranty. The word “Guaranty” means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note.

 

Hazardous Substances. The words “Hazardous Substances” mean materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words “Hazardous

  

Substances” are used in their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws. The term “Hazardous Substances” also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos.

 

Indebtedness. The word “Indebtedness” means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Grantor is responsible under this Agreement or under any of the Related Documents.

 

Lender. The word “Lender” means CITY NATIONAL BANK OF FLORIDA, its successors and assigns.

 

Note. The word “Note” means the Note dated August 2, 2017 and executed by Drone Aviation Holding Corp. in the principal amount of $2,000,000.00, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement.

 

Property. The word “Property” means all of Grantor’s right, title and interest in and to all the Property as described in the “Collateral Description” section of this Agreement.

 

Related Documents. The words “Related Documents” mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness.

 

GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AUGUST 2, 2017.

 

GRANTOR:

 

DRONE AVIATION HOLDING CORP.

 

By:   By:  
  Daniyel Erdberg, President of Drone Aviation Holding
Crop.
    Jay Nussbaum, Chief Executive Officer of Drone
Aviation Holding Corp.

 

 

LaserPro, Ver . 17.1.10.015 Copr. D+H USA Corporation 1997, 2017. All Rights Reserved. • FL I : \CFIWIN\CFI\LPL\E40.FC TR-15841 PR-35

 

 

 

 

Exhibit 10.30

 

 

COMMERCIAL GUARANTY

 

 

 

Borrower:  Drone Aviation Holding Corp.   Lender: CITY NATIONAL BANK OF FLORIDA
  11651 Central Parkway, #118     Private Client Group
  Jacksonville, FL 32224     25 W. Flagler Street
        MIAMI, FL 33130
Guarantor: 

Jay H. Nussbaum

9324 Georgetown Pike

Great Falls, VA 22066

     

 

 

 

CONTINUING GUARANTEE OF PAYMENT AND PERFORMANCE . For good and valuable consideration, Guarantor absolutely and unconditionally guarantees full and punctual payment and satisfaction of the Indebtedness of Borrower to Lender, and the performance and discharge of all Borrower’s obligations under the Note and the Related Documents. This is a guaranty of payment and performance and not of collection, so Lender can enforce this Guaranty against Guarantor even when Lender has not exhausted Lender’s remedies against anyone else obligated to pay the Indebtedness or against any collateral securing the Indebtedness, this Guaranty or any other guaranty of the Indebtedness. Guarantor will make any payments to Lender or its order, on demand, in legal tender of the United States of America, in same-day funds, without set-off or deduction or counterclaim, and will otherwise perform Borrower’s obligations under the Note and Related Documents. Under this Guaranty, Guarantor’s liability is unlimited and Guarantor’s obligations are continuing.

 

INDEBTEDNESS. The word “Indebtedness” as used in this Guaranty means all of the principal amount outstanding from time to time and at any one or more times, accrued unpaid interest thereon and all collection costs and legal expenses related thereto permitted by law, reasonable attorneys’ fees, arising from any and all debts, liabilities and obligations of every nature or form, now existing or hereafter arising or acquired, that Borrower individually or collectively or interchangeably with others, owes or will owe Lender. “Indebtedness” includes, without limitation, loans, advances, debts, overdraft indebtedness, credit card indebtedness, lease obligations, liabilities and obligations under any interest rate protection agreements or foreign currency exchange agreements or commodity price protection agreements, other obligations, and liabilities of Borrower, and any present or future judgments against Borrower, future advances, loans or transactions that renew, extend, modify, refinance, consolidate or substitute these debts, liabilities and obligations whether: voluntarily or involuntarily incurred; due or to become due by their terms or acceleration; absolute or contingent; liquidated or unliquidated; determined or undetermined; direct or indirect; primary or secondary in nature or arising from a guaranty or surety; secured or unsecured; joint or several or joint and several; evidenced by a negotiable or non-negotiable instrument or writing; originated by Lender or another or others; barred or unenforceable against Borrower for any reason whatsoever; for any transactions that may be voidable for any reason (such as infancy, insanity, ultra vires or otherwise); and originated then reduced or extinguished and then afterwards increased or reinstated.

 

If Lender presently holds one or more guaranties, or hereafter receives additional guaranties from Guarantor, Lender’s rights under all guaranties shall be cumulative. This Guaranty shall not (unless specifically provided below to the contrary) affect or invalidate any such other guaranties. Guarantor’s liability will be Guarantor’s aggregate liability under the terms of this Guaranty and any such other unterminated guaranties.

 

CONTINUING GUARANTY. THIS IS A “CONTINUING GUARANTY” UNDER WHICH GUARANTOR AGREES TO GUARANTEE THE FULL AND PUNCTUAL PAYMENT, PERFORMANCE AND SATISFACTION OF THE INDEBTEDNESS OF BORROWER TO LENDER, NOW EXISTING OR HEREAFTER ARISING OR ACQUIRED, ON AN OPEN AND CONTINUING BASIS. ACCORDINGLY, ANY PAYMENTS MADE ON THE INDEBTEDNESS WILL NOT DISCHARGE OR DIMINISH GUARANTOR’S OBLIGATIONS AND LIABILITY UNDER THIS GUARANTY FOR ANY REMAINING AND SUCCEEDING INDEBTEDNESS EVEN WHEN ALL OR PART OF THE OUTSTANDING INDEBTEDNESS MAY BE A ZERO BALANCE FROM TIME TO TIME.

 

DURATION OF GUARANTY. This Guaranty will take effect when received by Lender without the necessity of any acceptance by Lender, or any notice to Guarantor or to Borrower, and will continue in full force until all the Indebtedness incurred or contracted before receipt by Lender of any notice of revocation shall have been fully and finally paid and satisfied and all of Guarantor’s other obligations under this Guaranty shall have been performed in full. If Guarantor elects to revoke this Guaranty, Guarantor may only do so in writing. Guarantor’s written notice of revocation must be mailed to Lender, by certified mail, at Lender’s address listed above or such other place as Lender may designate in writing. Written revocation of this Guaranty will apply only to new Indebtedness created after actual receipt by Lender of Guarantor’s written revocation. For this purpose and without limitation, the term “new Indebtedness” does not include the Indebtedness which at the time of notice of revocation is contingent, unliquidated, undetermined or not due and which later becomes absolute, liquidated, determined or due. For this purpose and without limitation, “new Indebtedness” does not include all or part of the Indebtedness that is: incurred by Borrower prior to revocation; incurred under a commitment that became binding before revocation; any renewals, extensions, substitutions, and modifications of the Indebtedness. This Guaranty shall bind Guarantor’s estate as to the Indebtedness created both before and after Guarantor’s death or incapacity, regardless of Lender’s actual notice of Guarantor’s death. Subject to the foregoing, Guarantor’s executor or administrator or other legal representative may terminate this Guaranty in the same manner in which Guarantor might have terminated it and with the same effect. Release of any other guarantor or termination of any other guaranty of the Indebtedness shall not affect the liability of Guarantor under this Guaranty. A revocation Lender receives from any one or more Guarantors shall not affect the liability of any remaining Guarantors under this Guaranty. It is anticipated that fluctuations may occur in the aggregate amount of the Indebtedness covered by this Guaranty, and Guarantor specifically acknowledges and agrees that reductions in the amount of the Indebtedness, even to zero dollars ($0.00), shall not constitute a termination of this Guaranty. This Guaranty is binding upon Guarantor and Guarantor’s heirs, successors and assigns so long as any of the Indebtedness remains unpaid and even though the Indebtedness may from time to time be zero dollars ($0.00).

 

 

 

 

COMMERCIAL GUARANTY

  (Continued) Page 2

 

 

 

GUARANTOR’S AUTHORIZATION TO LENDER . Guarantor authorizes Lender, either before or after any revocation hereof, without notice or demand and without lessening Guarantor’s liability under this Guaranty, from time to time: (A) prior to revocation as set forth above, to make one or more additional secured or unsecured loans to Borrower, to lease equipment or other goods to Borrower, or otherwise to extend additional credit to Borrower; (B) to alter, compromise, renew, extend, accelerate, or otherwise change one or more times the time for payment or other terms of the Indebtedness or any part of the Indebtedness, including increases and decreases of the rate of interest on the Indebtedness; extensions may be repeated and may be for longer than the original loan term; (C) to take and hold security for the payment of this Guaranty or the Indebtedness, and exchange, enforce, waive, subordinate, fail or decide not to perfect, and release any such security, with or without the substitution of new collateral; (D) to release, substitute, agree not to sue, or deal with any one or more of Borrower’s sureties, endorsers, or other guarantors on any terms or in any manner Lender may choose; (E) to determine how, when and what application of payments and credits shall be made on the Indebtedness; (F) to apply such security and direct the order or manner of sale thereof, including without limitation, any nonjudicial sale permitted by the terms of the controlling security agreement or deed of trust, as Lender in its discretion may determine; (G) to sell, transfer, assign or grant participations in all or any part of the Indebtedness; and (H) to assign or transfer this Guaranty in whole or in part.

 

GUARANTOR’S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to Lender that (A) no representations or agreements of any kind have been made to Guarantor which would limit or qualify in any way the terms of this Guaranty; (B) this Guaranty is executed at Borrower’s request and not at the request of Lender; (C) Guarantor has full power, right and authority to enter into this Guaranty; (D) the provisions of this Guaranty do not conflict with or result in a default under any agreement or other instrument binding upon Guarantor and do not result in a violation of any law, regulation, court decree or order applicable to Guarantor; (E) Guarantor has not and will not, without the prior written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer, or otherwise dispose of all or substantially all of Guarantor’s assets, or any interest therein; (F) upon Lender’s request, Guarantor will provide to Lender financial and credit information in form acceptable to Lender, and all such financial information which currently has been, and all future financial information which will be provided to Lender is and will be true and correct in all material respects and fairly present Guarantor’s financial condition as of the dates the financial information is provided; (G) no material adverse change has occurred in Guarantor’s financial condition since the date of the most recent financial statements provided to Lender and no event has occurred which may materially adversely affect Guarantor’s financial condition; (H) no litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Guarantor is pending or threatened; (I) Lender has made no representation to Guarantor as to the creditworthiness of Borrower; and (J) Guarantor has established adequate means of obtaining from Borrower on a continuing basis information regarding Borrower’s financial condition. Guarantor agrees to keep adequately informed from such means of any facts, events, or circumstances which might in any way affect Guarantor’s risks under this Guaranty, and Guarantor further agrees that, absent a request for information, Lender shall have no obligation to disclose to Guarantor any information or documents acquired by Lender in the course of its relationship with Borrower.

 

GUARANTOR’S WAIVERS. Except as prohibited by applicable law, Guarantor waives any right to require Lender (A) to continue lending money or to extend other credit to Borrower; (B) to make any presentment, protest, demand, or notice of any kind, including notice of any nonpayment of the Indebtedness or of any nonpayment related to any collateral, or notice of any action or nonaction on the part of Borrower, Lender, any surety, endorser, or other guarantor in connection with the Indebtedness or in connection with the creation of new or additional loans or obligations; (C) to resort for payment or to proceed directly or at once against any person, including Borrower or any other guarantor; (D) to proceed directly against or exhaust any collateral held by Lender from Borrower, any other guarantor, or any other person; (E) to pursue any other remedy within Lender’s power; or (F) to commit any act or omission of any kind, or at any time, with respect to any matter whatsoever.

 

Guarantor also waives any and all rights or defenses based on suretyship or impairment of collateral including, but not limited to, any rights or defenses arising by reason of (A) any “one action” or “anti-deficiency” law or any other law which may prevent Lender from bringing any action, including a claim for deficiency, against Guarantor, before or after Lender’s commencement or completion of any foreclosure action, either judicially or by exercise of a power of sale; (B) any election of remedies by Lender which destroys or otherwise adversely affects Guarantor’s subrogation rights or Guarantor’s rights to proceed against Borrower for reimbursement, including without limitation, any loss of rights Guarantor may suffer by reason of any law limiting, qualifying, or discharging the Indebtedness; (C) any disability or other defense of Borrower, of any other guarantor, or of any other person, or by reason of the cessation of Borrower’s liability from any cause whatsoever, other than payment in full in legal tender, of the Indebtedness; (D) any right to claim discharge of the Indebtedness on the basis of unjustified impairment of any collateral for the Indebtedness; (E) any statute of limitations, if at any time any action or suit brought by Lender against Guarantor is commenced, there is outstanding Indebtedness which is not barred by any applicable statute of limitations; or (F) any defenses given to guarantors at law or in equity other than actual payment and performance of the Indebtedness. If payment is made by Borrower, whether voluntarily or otherwise, or by any third party, on the Indebtedness and thereafter Lender is forced to remit the amount of that payment to Borrower’s trustee in bankruptcy or to any similar person under any federal or state bankruptcy law or law for the relief of debtors, the Indebtedness shall be considered unpaid for the purpose of the enforcement of this Guaranty.

 

Guarantor further waives and agrees not to assert or claim at any time any deductions to the amount guaranteed under this Guaranty for any claim of setoff, counterclaim, counter demand, recoupment or similar right, whether such claim, demand or right may be asserted by the Borrower, the Guarantor, or both.

 

GUARANTOR’S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees that each of the waivers set forth above is made with Guarantor’s full knowledge of its significance and consequences and that, under the circumstances, the waivers are reasonable and not contrary to public policy or law. If any such waiver is determined to be contrary to any applicable law or public policy, such waiver shall be effective only to the extent permitted by law or public policy.

 

RIGHT OF SETOFF . To the extent permitted by applicable law, Lender reserves a right of setoff in all Guarantor’s accounts with Lender (whether checking, savings, or some other account). This includes all accounts Guarantor holds jointly with someone else and all accounts Guarantor may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Guarantor authorizes Lender, to the extent permitted by applicable law, to hold these funds if there is a default, and Lender may apply the funds in these accounts to pay what Guarantor owes under the terms of this Guaranty.

 

 

 

 

COMMERCIAL GUARANTY

  (Continued) Page 3

 

 

 

SUBORDINATION OF BORROWER’S DEBTS TO GUARANTOR. Guarantor agrees that the Indebtedness, whether now existing or hereafter created, shall be superior to any claim that Guarantor may now have or hereafter acquire against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby expressly subordinates any claim Guarantor may have against Borrower, upon any account whatsoever, to any claim that Lender may now or hereafter have against Borrower. In the event of insolvency and consequent liquidation of the assets of Borrower, through bankruptcy, by an assignment for the benefit of creditors, by voluntary liquidation, or otherwise, the assets of Borrower applicable to the payment of the claims of both Lender and Guarantor shall be paid to Lender and shall be first applied by Lender to the Indebtedness. Guarantor does hereby assign to Lender all claims which it may have or acquire against Borrower or against any assignee or trustee in bankruptcy of Borrower; provided however, that such assignment shall be effective only for the purpose of assuring to Lender full payment in legal tender of the Indebtedness. If Lender so requests, any notes or credit agreements now or hereafter evidencing any debts or obligations of Borrower to Guarantor shall be marked with a legend that the same are subject to this Guaranty and shall be delivered to Lender. Guarantor agrees, and Lender is hereby authorized, in the name of Guarantor, from time to time to file financing statements and continuation statements and to execute documents and to take such other actions as Lender deems necessary or appropriate to perfect, preserve and enforce its rights under this Guaranty.

 

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Guaranty:

 

Amendments. This Guaranty, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Guaranty. No alteration of or amendment to this Guaranty shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.

 

Attorneys’ Fees; Expenses. Guarantor agrees to pay upon demand all of Lender’s costs and expenses, including Lender’s reasonable attorneys’ fees and Lender’s legal expenses, incurred in connection with the enforcement of this Guaranty. Lender may hire or pay someone else to help enforce this Guaranty, and Guarantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender’s reasonable attorneys’ fees and legal expenses whether or not there is a lawsuit, including reasonable attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Guarantor also shall pay all court costs and such additional fees as may be directed by the court.

 

Caption Headings . Caption headings in this Guaranty are for convenience purposes only and are not to be used to interpret or define the provisions of this Guaranty.

 

Governing Law. This Guaranty will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Florida without regard to its conflicts of law provisions.

 

Integration. Guarantor further agrees that Guarantor has read and fully understands the terms of this Guaranty; Guarantor has had the opportunity to be advised by Guarantor’s attorney with respect to this Guaranty; the Guaranty fully reflects Guarantor’s intentions and parol evidence is not required to interpret the terms of this Guaranty. Guarantor hereby indemnifies and holds Lender harmless from all losses, claims, damages, and costs (including Lender’s attorneys’ fees) suffered or incurred by Lender as a result of any breach by Guarantor of the warranties, representations and agreements of this paragraph.

 

Interpretation. In all cases where there is more than one Borrower or Guarantor, then all words used in this Guaranty in the singular shall be deemed to have been used in the plural where the context and construction so require; and where there is more than one Borrower named in this Guaranty or when this Guaranty is executed by more than one Guarantor, the words “Borrower” and “Guarantor” respectively shall mean all and any one or more of them. The words “Guarantor,” “Borrower,” and “Lender” include the heirs, successors, assigns, and transferees of each of them. If a court finds that any provision of this Guaranty is not valid or should not be enforced, that fact by itself will not mean that the rest of this Guaranty will not be valid or enforced. Therefore, a court will enforce the rest of the provisions of this Guaranty even if a provision of this Guaranty may be found to be invalid or unenforceable. If any one or more of Borrower or Guarantor are corporations, partnerships, limited liability companies, or similar entities, it is not necessary for Lender to inquire into the powers of Borrower or Guarantor or of the officers, directors, partners, managers, or other agents acting or purporting to act on their behalf, and any indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed under this Guaranty.

 

Notices. Any notice required to be given under this Guaranty shall be given in writing, and, except for revocation notices by Guarantor, shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Guaranty. All revocation notices by Guarantor shall be in writing and shall be effective upon delivery to Lender as provided in the section of this Guaranty entitled “DURATION OF GUARANTY.” Any party may change its address for notices under this Guaranty by giving written notice to the other parties, specifying that the purpose of the notice is to change the party’s address. For notice purposes, Guarantor agrees to keep Lender informed at all times of Guarantor’s current address. Unless otherwise provided or required by law, if there is more than one Guarantor, any notice given by Lender to any Guarantor is deemed to be notice given to all Guarantors.

 

 

 

 

COMMERCIAL GUARANTY

  (Continued) Page 4

 

 

 

No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Guaranty unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Guaranty shall not prejudice or constitute a waiver of Lender’s right otherwise to demand strict compliance with that provision or any other provision of this Guaranty. No prior waiver by Lender, nor any course of dealing between Lender and Guarantor, shall constitute a waiver of any of Lender’s rights or of any of Guarantor’s obligations as to any future transactions. Whenever the consent of Lender is required under this Guaranty, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.

 

Successors and Assigns . Subject to any limitations stated in this Guaranty on transfer of Guarantor’s interest, this Guaranty shall be binding upon and inure to the benefit of the parties, their successors and assigns.

 

Waive Jury. Lender and Guarantor hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Guarantor against the other.

 

Consent to Jurisdiction. The undersigned hereby irrevocably submits to the nonexclusive jurisdiction of any United States Federal or State Court sitting in Miami-Dade County, Florida, in any action or proceeding arising out of or relating to this instrument, and the undersigned hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in any such United States Federal or State Court. Service of copies of the Summons and Complaint and any other process which may be served in any such action or proceeding may be made by mailing or delivering a copy of such process to the undersigned at his last known address.

 

Liquidity Maintenance. Borrower and Guarantor, together, so long as the indebtedness hereby guaranteed is outstanding and unpaid, shall together maintain unencumbered liquidity of no less than $6,000,000.00 by maintaining in their names only, in the form of unrestricted unencumbered cash accounts, maintained by a recognized financial institution or licensed brokerage firm, approved by Lender; repurchase agreements, certificates of deposit or marketable securities acceptable to Lender. Borrower and Guarantor shall furnish Lender proof of said liquidity annually, commencing on July 31, 2018, which proof shall be in the form of bank statements, account statements or such other proof acceptable to Lender. The failure of Borrower and Guarantor to maintain the said liquidity or provide proof thereof, in the time and manner set forth herein, shall automatically constitute a default, and Lender shall be entitled to exercise any remedy available to it as, and for a default hereunder, including the right of acceleration.

 

GUARANTOR’S FINANCIAL STATEMENTS. Guarantor agrees to furnish Lender with the following:.

 

Annual Statements. As soon as available, but in no event later than sixty (60) days after the end of each fiscal year, Guarantor’s balance sheet and income statement for the year ended, prepared by Guarantor satisfactory to Lender commencing July 31, 2018.

 

Tax Returns, As soon as available, but in no event later than sixty (60) days after the applicable filing date for the tax reporting period ended, Guarantors originally signed copies of Federal and other governmental tax returns, including K-1 schedules, prepared by certified public accountant satisfactory to Lender commencing November 30, 2017. If an extension is filed, a copy of the extension must be provided to Lender.

 

Liquidity Verification . Guarantor shall furnish Lender proof of liquidity annually, which proof shall be in the form of bank statements, account statements or such other proof acceptable to Lender.

 

 

 

 

COMMERCIAL GUARANTY

  (Continued) Page 5

 

 

 

DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Guaranty. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Guaranty shall have the meanings attributed to such terms in the Uniform Commercial Code:

 

Borrower . The word “Borrower” means Drone Aviation Holding Corp. and includes all co-signers and co-makers signing the Note and all their successors and assigns.

 

Guarantor. The word “Guarantor” means everyone signing this Guaranty, including without limitation Jay H. Nussbaum, and in each case, any signer’s successors and assigns.

 

Guaranty . The word “Guaranty” means this guaranty from Guarantor to Lender.

 

Indebtedness . The word “Indebtedness” means Borrower’s indebtedness to Lender as more particularly described in this Guaranty.

 

Lender . The word “Lender” means CITY NATIONAL BANK OF FLORIDA, its successors and assigns.

 

Note . The word “Note” means and includes without limitation all of Borrower’s promissory notes and/or credit agreements evidencing Borrower’s loan obligations in favor of Lender, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of and substitutions for promissory notes or credit agreements.

 

Related Documents . The words “Related Documents” mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness.

 

EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT THIS GUARANTY IS EFFECTIVE UPON GUARANTOR’S EXECUTION AND DELIVERY OF THIS GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE MANNER SET FORTH IN THE SECTION TITLED “DURATION OF GUARANTY”. NO FORMAL ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY IS DATED AUGUST 2, 2017.

 

GUARANTOR:  

 

X  
Jay H. Nussbaum  

 

 

INDIVIDUAL ACKNOWLEDGMENT

 

STATE OF   )
      ) SS
COUNTY OF   )

 

The foregoing instrument was acknowledged before me this ____ day of ______, 20__ by Jay H. Nussbaum, who is personally known to me or who has produced ___________ as identification.

 

 

 

 

 

 

 
(Signature of Person Taking Acknowledgment)
 
 
(Name of Acknowledger Typed, Printed or Stamped)
 
 
(Title or Rank)
 
 
(Serial Number, if any)

 

 

LaserPro. Ver. 17.1.10.016 Copr. D+H USA Corporation 1997, 2017.    All Rights Reserved. - FL I:\CFIWIN\CFI\LPL\E20.FC TR-15841 PR-35

 

 

 

 

Exhibit 10.31

 

INDEMNIFICATION AGREEMENT

 

This Indemnification Agreement (“ Agreement ”) is effective as of August 3, 2017, by and between Drone Aviation Holding Corp., a Nevada corporation (the “ Corporation ”), and Jay H. Nussbaum ( “Indemnitee ”).

 

WHEREAS, the Corporation is seeking to borrow up to $2,000,000, or so much thereof as shall be advanced to the Corporation (the “Loan”) from City National Bank of Florida (the “Lender”); and

 

WHEREAS, the Indemnitee is the Corporation’s Chief Executive Officer, and is required by the Lender to provide a personal Commercial Guaranty of the Corporation’s payment and performance pursuant to the terms of the Note (the “Guaranty”); and

 

WHEREAS, the Corporation and Indemnitee further recognize and wish to document, the Corporations’ obligation to repay the Loan, and to indemnify the Indemnitee should the Lender seek to enforce the Guaranty; and

 

WHEREAS, in view of the considerations set forth above, the Corporation desires that Indemnitee shall be indemnified and advanced expenses by the Corporation as set forth herein.

 

NOW, THEREFORE, the Corporation and Indemnitee hereby agree as set forth below.

 

1.  Certain Definitions .

 

(a) “ Claim ” shall mean with respect to a Covered Event (as defined below): any payment made by Indemnitee under the Guaranty; any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other.

 

(b) References to the “ Corporation ” shall include, in addition to Drone Aviation Holding Corp., any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger to which Drone Aviation Holding Corp. (or any of its wholly owned subsidiaries) is a party which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, agents or fiduciaries, so that if Indemnitee is or was a director, officer, employee, agent or fiduciary of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.

 

(c) “ Covered Event ” shall mean any event or occurrence related to the Indemnitee’s personal guaranty of the Loan, and execution, as Guarantor of that certain Commercial Guaranty given to Lender in connection with the Loan, or any advances thereunder.

 

 

 

 

(d) “ Expenses ” shall mean any and all expenses (including attorneys’ fees and all other costs, expenses and obligations incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, to be a witness in or to participate in, any action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation), judgments, fines, penalties and amounts paid in settlement, actually and reasonably incurred, of any Claim and any federal, state, local or foreign taxes imposed on the Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement.

 

(e) “ Expense Advance ” shall mean a payment to Indemnitee pursuant to Section 3 of Expenses in advance of the settlement of or final judgement in any action, suit, proceeding or alternative dispute resolution mechanism, hearing, inquiry or investigation which constitutes a Claim.

 

(f) “ Independent Legal Counsel ” shall mean an attorney or firm of attorneys, selected in accordance with the provisions of Section 2(d) hereof, who shall not have otherwise performed services for the Corporation or Indemnitee within the last three years (other than with respect to matters concerning the rights of Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements).

 

(g) “ Reviewing Party ” shall mean, subject to the provisions of Section 2(c), any person or body appointed by the Board of Directors in accordance with applicable law to review the Corporation’s obligations hereunder and under applicable law, which may include a member or members of the Corporation’s Board of Directors, Independent Legal Counsel or any other person or body not a party to the particular Claim for which Indemnitee is seeking indemnification.

 

(h) “ Section ” refers to a section of this Agreement unless otherwise indicated.

 

2.  Indemnification .

 

(a)  Indemnification of Expenses . Subject to the provisions of Section 2(b) below, the Corporation shall indemnify Indemnitee for Expenses to the fullest extent permitted by law if Indemnitee was or is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, any Claim (whether by reason of or arising in part out of a Covered Event), including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses.

 

(b)  Review of Indemnification Obligations . Notwithstanding the foregoing, in the event any Reviewing Party shall have determined (in a written opinion, in any case in which Independent Legal Counsel is the Reviewing Party) that Indemnitee is not entitled to be indemnified hereunder under applicable law, (i) the Corporation shall have no further obligation under Section 2(a) to make any payments to Indemnitee not made prior to such determination by such Reviewing Party, and (ii) the Corporation shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Corporation) for all Expenses theretofore paid in indemnifying Indemnitee; provided, however , that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee is entitled to be indemnified hereunder under applicable law, any determination made by any Reviewing Party that Indemnitee is not entitled to be indemnified hereunder under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Corporation for any Expenses theretofore paid in indemnifying Indemnitee until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitee’s obligation to reimburse the Corporation for any Expenses shall be unsecured and no interest shall be charged thereon.

 

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(c)  Indemnitee Rights on Unfavorable Determination; Binding Effect . If any Reviewing Party determines that Indemnitee substantively is not entitled to be indemnified hereunder in whole or in part under applicable law, Indemnitee shall have the right to commence litigation seeking an initial determination by the court or challenging any such determination by such Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and, subject to the provisions of Section 15, the Corporation hereby consents to service of process and to appear in any such proceeding. Absent such litigation, any determination by any Reviewing Party shall be conclusive and binding on the Corporation and Indemnitee.

 

3.  Expense Advances .

 

(a)  Obligation to Make Expense Advances . The Corporation shall make Expense Advances to Indemnitee upon receipt of a written undertaking by or on behalf of the Indemnitee to repay such amounts if it shall ultimately be determined that the Indemnitee is not entitled to be indemnified therefor by the Corporation.

 

(b)  Form of Undertaking . Any written undertaking by the Indemnitee to repay any Expense Advances hereunder shall be unsecured and no interest shall be charged thereon.

 

(c)  Determination of Reasonable Expense Advances . The parties agree that for the purposes of any Expense Advance for which Indemnitee has made written demand to the Corporation in accordance with this Agreement, all Expenses included in such Expense Advance that are certified by affidavit of Indemnitee’s counsel as being reasonable shall be presumed conclusively to be reasonable.

 

4.  Procedures for Indemnification and Expense Advances .

 

(a)  Timing of Payments . All payments of Expenses (including without limitation Expense Advances) by the Corporation to the Indemnitee pursuant to this Agreement shall be made to the fullest extent permitted by law as soon as practicable after written demand by Indemnitee therefor is presented to the Corporation, but in no event later than forty-five (45) business days after such written demand by Indemnitee is presented to the Corporation, except in the case of Expense Advances, which shall be made no later than twenty (20) business days after such written demand by Indemnitee is presented to the Corporation.

 

(b)  Notice/Cooperation by Indemnitee . Indemnitee shall, as a condition precedent to Indemnitee’s right to be indemnified or Indemnitee’s right to receive Expense Advances under this Agreement, give the Corporation notice in writing as soon as practicable of any Claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Corporation shall be directed to the Chief Executive Officer of the Corporation at the address shown on the signature page of this Agreement (or such other address as the Corporation shall designate in writing to Indemnitee). In addition, Indemnitee shall give the Corporation such information and cooperation as it may reasonably require and as shall be within Indemnitee’s power.

 

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(c)  No Presumptions; Burden of Proof . 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, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by this Agreement or applicable law. In addition, neither the failure of any Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by any Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee should be indemnified under this Agreement or applicable law, shall be a defense to Indemnitee’s claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief. In connection with any determination by any Reviewing Party or otherwise as to whether the Indemnitee is entitled to be indemnified hereunder, the burden of proof shall be on the Corporation to establish that Indemnitee is not so entitled.

 

(d)  Notice to Insurers . If, at the time of the receipt by the Corporation of a notice of a Claim pursuant to Section (b) hereof, the Corporation has liability insurance in effect which may cover such Claim, the Corporation shall give prompt notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in the respective policies. The Corporation shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Claim in accordance with the terms of such policies.

 

(e)  Selection of Counsel . In the event the Corporation shall be obligated hereunder to provide indemnification for or make any Expense Advances with respect to the Expenses of any Claim, the Corporation, if appropriate, shall be entitled to assume the defense of such Claim with counsel approved by Indemnitee (which approval shall not be unreasonably withheld) upon the delivery to Indemnitee of written notice of the Corporation’s election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Corporation, the Corporation will not be liable to Indemnitee under this Agreement for any fees or expenses of separate counsel subsequently employed by or on behalf of Indemnitee with respect to the same Claim; provided, however , that (i) Indemnitee shall have the right to employ Indemnitee’s separate counsel in any such Claim at Indemnitee’s expense and (ii) if (A) the employment of separate counsel by Indemnitee has been previously authorized by the Corporation, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Corporation and Indemnitee in the conduct of any such defense, or (C) the Corporation shall not continue to retain such counsel to defend such Claim, then the fees and expenses of Indemnitee’s separate counsel shall be Expenses for which Indemnitee may receive indemnification or Expense Advances hereunder.

 

- 4 -

 

 

5.  Additional Indemnification Rights; Nonexclusivity .

 

(a)  Scope . The Corporation hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Corporation’s certificate of incorporation, the Corporation’s bylaws or by statute. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors or an officer, employee, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the event of any change in any applicable law, statute or rule which narrows the right of a Nevada corporation to indemnify a member of its board of directors or an officer, employee, agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties’ rights and obligations hereunder except as set forth in Section 10(a) hereof.

 

(b)  Non-exclusivity . The indemnification and the payment of Expense Advances provided by this Agreement shall be in addition to any rights to which Indemnitee may be entitled under the Corporation’s certificate of incorporation, its bylaws, any other agreement, any vote of stockholders or disinterested directors, the general corporation law of the State of,Nevada or otherwise. The indemnification and the payment of Expense Advances provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though subsequent thereto Indemnitee may have ceased to serve in such capacity.

 

6.  No Duplication of Payments . The Corporation shall not be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, provision of the Corporation’s certificate of incorporation, bylaws or otherwise) of the amounts otherwise payable hereunder.

 

7.  Partial Indemnification . If Indemnitee is entitled under any provision of this Agreement to indemnification by the Corporation for some or a portion of Expenses incurred in connection with any Claim, but not, however, for all of the total amount thereof, the Corporation shall nevertheless indemnify Indemnitee for the portion of such Expenses to which Indemnitee is entitled.

 

8.  Mutual Acknowledgment . Both the Corporation and Indemnitee acknowledge that in certain instances, federal law or applicable public policy may prohibit the Corporation from indemnifying its directors, officers, employees, agents or fiduciaries under this Agreement or otherwise. Indemnitee understands and acknowledges that the Corporation has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Corporation’s right under public policy to indemnify Indemnitee.

 

9.  Liability Insurance . To the extent the Corporation maintains liability insurance applicable to directors, officers, employees, agents or fiduciaries, Indemnitee shall be covered by such policies in such a manner as to provide Indemnitee the same rights and benefits as are provided to the most favorably insured of the Corporation’s directors, if Indemnitee is a director; or of the Corporation’s officers, if Indemnitee is not a director of the Corporation but is an officer; or of the Corporation’s key employees, agents or fiduciaries, if Indemnitee is not an officer or director but is a key employee, agent or fiduciary.

 

- 5 -

 

 

10.  Exceptions . Notwithstanding any other provision of this Agreement, the Corporation shall not be obligated pursuant to the terms of this Agreement:

 

(a)  Excluded Action or Omissions . To indemnify Indemnitee for Expenses resulting from acts, omissions or transactions for which Indemnitee is prohibited from receiving indemnification under this Agreement or applicable law; provided, however , that notwithstanding any limitation set forth in this Section 10(a) regarding the Corporation’s obligation to provide indemnification, Indemnitee shall be entitled under Section 3 to receive Expense Advances hereunder with respect to any such Claim unless and until a court having jurisdiction over the Claim shall have made a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that Indemnitee has engaged in acts, omissions or transactions for which Indemnitee is prohibited from receiving indemnification under this Agreement or applicable law.

 

(b)  Claims Initiated by Indemnitee . To indemnify or make Expense Advances to Indemnitee with respect to Claims initiated or brought voluntarily by Indemnitee and not by way of defense, counterclaim or cross claim, except (i) with respect to actions or proceedings brought to establish or enforce a right to indemnification under this Agreement or any other agreement or insurance policy or under the Corporation’s certificate of incorporation or bylaws now or hereafter in effect relating to Claims for Covered Events, (ii) in specific cases if the Board of Directors has approved the initiation or bringing of such Claim, or (iii) as otherwise required under Nevada law, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification or insurance recovery, as the case may be.

 

(c)  Lack of Good Faith . To indemnify Indemnitee for any Expenses incurred by the Indemnitee with respect to any action instituted (i) by Indemnitee to enforce or interpret this Agreement, if a court having jurisdiction over such action determines as provided in Section 13 that each of the material assertions made by the Indemnitee as a basis for such action was not made in good faith or was frivolous, or (ii) by or in the name of the Corporation to enforce or interpret this Agreement, if a court having jurisdiction over such action determines as provided in Section 13 that each of the material defenses asserted by Indemnitee in such action was made in bad faith or was frivolous.

 

11.  Counterparts . This Agreement may be executed in one or more counterparts, each of which shall constitute an original.

 

12.  Binding Effect; Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Corporation), spouses, heirs and personal and legal representatives. The Corporation shall require and cause any successor (whether direct or indirect, and whether by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business or assets of the Corporation, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform if no such succession had taken place. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as a director, officer, employee, agent or fiduciary (as applicable) of the Corporation or of any other enterprise at the Corporation’s request.

 

- 6 -

 

 

13.  Expenses Incurred in Action Relating to Enforcement or Interpretation . In the event that any action is instituted by Indemnitee under this Agreement or under any liability insurance policies maintained by the Corporation to enforce or interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be indemnified for all Expenses incurred by Indemnitee with respect to such action (including without limitation attorneys’ fees), regardless of whether Indemnitee is ultimately successful in such action, unless as a part of such action a court having jurisdiction over such action makes a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that each of the material assertions made by Indemnitee as a basis for such action was not made in good faith or was frivolous; provided, however , that until such final judicial determination is made, Indemnitee shall be entitled under Section 3 to receive payment of Expense Advances hereunder with respect to such action. In the event of an action instituted by or in the name of the Corporation under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be indemnified for all Expenses incurred by Indemnitee in defense of such action (including without limitation costs and expenses incurred with respect to Indemnitee’s counterclaims and cross-claims made in such action), unless as a part of such action a court having jurisdiction over such action makes a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that each of the material defenses asserted by Indemnitee in such action was made in bad faith or was frivolous; provided, however , that until such final judicial determination is made, Indemnitee shall be entitled under Section 3 to receive payment of Expense Advances hereunder with respect to such action.

 

Notice . All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and signed for by the party addressed, on the date of such delivery, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement or as subsequently modified by written notice.

 

14.  Consent to Jurisdiction . The Company and Holder each irrevocably agrees that any dispute arising under, relating to, or in connection with, directly or indirectly, this Agreement or related to any matter which is the subject of or incidental to this Agreement (whether or not such claim is based upon breach of contract or tort) shall be subject to the exclusive jurisdiction and venue of the state and/or federal courts located in Palm Beach County, Florida; provided, however, Holder may, at the Holder’s sole option, elect to bring any action in any other jurisdiction. This provision is intended to be a “mandatory” forum selection clause and governed by and interpreted consistent with Florida law. The Corporation and Indemnitee each hereby consents to the exclusive jurisdiction and venue of any state or federal court having its situs in said county, and each waives any objection based on forum non conveniens. The Corporation hereby waives personal service of any and all process and consent that all such service of process may be made by certified mail, return receipt requested, directed to the Corporation, as set forth herein in the manner provided by applicable statute, law, rule of court or otherwise. Except for the foregoing mandatory forum selection clause, all terms and provisions hereof and the rights and obligations of the Corporation and Indemnitee hereunder shall be governed, construed and interpreted in accordance with the laws of the State of Nevada, without reference to conflict of laws principles.

 

- 7 -

 

 

15.  Severability . The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including without limitation each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.

 

16.  Subrogation . In the event of payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Corporation effectively to bring suit to enforce such rights.

 

17.  Amendment and Termination . No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by both the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed to be or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver.

 

18.  Integration and Entire Agreement . This Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto.

 

19.  No Construction as Employment Agreement . Nothing contained in this Agreement shall be construed as giving Indemnitee any right to be retained in the employ of the Corporation or any of its subsidiaries or affiliated entities.

  

[Signatures appear on next page]

 

- 8 -

 

 

IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement as of the date first above written.

 

DRONE AVIATION HOLDING CORP.  
   
By:    
  Kendall Carpenter, Chief Financial Officer  

 

  AGREED TO AND ACCEPTED BY:
   
  INDEMNITEE
   
   
  Jay H. Nussbaum

 

 

Signature Page

Indemnification Agreement

 

 

Exhibit 10.32

 

AMENDMENT TO RESTRICTED STOCK AGREEMENT

 

THIS AMENDMENT TO RESTRICTED STOCK AGREEMENT (the “Amendment”) is made effective as of August 3, 2017 (the “Effective Date”) by and between Drone Aviation Holding Corp., a Nevada corporation (the “Corporation”) and [__] (the “Holder”) (collectively the “Parties”).

 

BACKGROUND

 

A.       The Corporation and Holder are the parties to that certain Restricted Stock Agreement for [__] shares of the Corporation’s Common Stock, par value $0.0001 per share that was granted by the Corporation to the Holder on September 26, 2016 (the “RSA Agreement”); and

 

B.       The Parties desire to amend the RSA Agreement, as set forth below.

 

NOW THEREFORE, in consideration of the execution and delivery of the Amendment and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

 

1.       Section 1(b) of the RSA Agreement shall be replaced in its entirety with the following:

 

Section 1(b) - Vesting of Restricted Stock . The restrictions and conditions in Paragraphs 7(b) and (c) of this Agreement shall lapse upon the earlier of (i) the Vesting Date or Dates specified in the following schedule or (ii) upon the occurrence of a Change of Control (as hereinafter defined) so long as the Holder in the case of either (i) or (ii) remains a director, officer or employee of, or consultant or advisor to, the Corporation from the date hereof through the applicable Vesting Date. If a series of Vesting Dates is specified, then the restrictions and conditions in Paragraphs 7(b) and (c) shall lapse only with respect to the number of shares of Restricted Stock specified as vested on such date.

 

 

Incremental Number of
Shares Vested

 

Vesting Date

 
       
  [__]   ( 100  %)  

   Upon consummation of an equity or debt financing in which the Corporation receives gross proceeds of at least $7,000,000

 
         
       
                          (          %)    
       

 

1

 

 

A “Change of Control” shall be deemed to have occurred if, after the Effective Date, (i) the beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of securities representing more than 30% of the combined voting power of the Corporation is acquired by any “person” as defined in sections 13(d) and 14(d) of the Exchange Act (other than the Corporation, any subsidiary of the Corporation, or any trustee or other fiduciary holding securities under an employee benefit plan of the Corporation), (ii) the merger or consolidation of the Corporation with or into another corporation where the shareholders of the Corporation, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, shares representing in the aggregate 50% or more of the combined voting power of the securities of the corporation issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any) in substantially the same proportion as their ownership of the Corporation immediately prior to such merger or consolidation, (iii) the sale or other disposition of all or substantially all of the Corporation’s assets to an entity, other than a sale or disposition by the Corporation of all or substantially all of the Corporation’s assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned directly or indirectly by shareholders of the Corporation, immediately prior to the sale or disposition, in substantially the same proportion as their ownership of the Corporation immediately prior to such sale or disposition, or (iv) during any period of two consecutive years, individuals who at the beginning of such period were members of the Corporation’s Board of Directors (“Incumbent Directors”) cease for any reason (other than death) to constitute at least a majority thereof; provided that each new director whose election, or nomination for election by the Corporation’s shareholders, was approved by a vote of at least a majority of the directors then still in office who were directors at the beginning of such period shall be deemed an Incumbent Director unless such approval was made directly or indirectly in connection with an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board.

 

2.       This Amendment shall be deemed part of, but shall take precedence over and supersede any provisions to the contrary contained in the RSA Agreement. All initial capitalized terms used in this Amendment shall have the same meaning as set forth in the RSA Agreement unless otherwise provided. Except as specifically modified hereby, all of the provisions of the RSA Agreement, which are not in conflict with the terms of this Amendment, shall remain in full force and effect.

 

2

 

 

SIGNATURE PAGE TO RESTRICTED STOCK AGREEMENT AMENDMENT

 

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written.

 

DRONE AVIATION HOLDING CORP.        ACCEPTED AND ACKNOWLEDGED:    
         
By:     By:                       
  Jay H. NussbauM   Name:  
  Chief Executive Officer   Title:  

 

 

3

 

 

Exhibit 10.33

 

AMENDMENT NO. 2

 

TO

 

 INDEPENDENT CONTRACTOR AGREEMENT

 

This Amendment No. 2 to the Independent Contractor Agreement (“ Amendment ”), dated August 3, 2017 (the “Effective Date”), is by and between Drone Aviation Holding Corp ., a Nevada corporation with an address 11651 Central Parkway #118, Jacksonville, FL 32224 (the “ Company ”), and Dr. Phillip Frost, 4400 Biscayne Blvd, Miami FL 33137 (the “ Contractor ”).

 

WHEREAS , the parties entered into an Independent Contractor Agreement on August 27, 2014 (the “ Agreement ”); and

 

WHEREAS , the parties amended the Agreement on May 1, 2016 pursuant to that certain Amendment No. 1 (the “First Amendment ”); and

 

WHEREAS , the parties wish to further amend the Agreement as set forth below, with the understanding that all other provisions of the Agreement shall remain unchanged;

 

NOW, THEREFORE , in consideration of the terms and conditions hereinafter set forth, the parties hereto agree as follows:

 

1. Section 3 of the Agreement - Term The term of the Agreement is hereby extended from May 1, 2017 until April 30, 2018 (the “Expiration Date”).

 

2. Section 4 of the Agreement shall be amended in its entirety to include the following:

 

Compensation: As compensation for the Services performed by Contractor during the term from May 1, 2017 until April 30, 2018, the Company shall compensate Contractor as follows:

 

(a) Equity Compensation : As Compensation for the Services performed by Contractor during the term of this Amendment, Drone shall issue Contractor (x) a warrant to purchase 2,000,000 shares of the Company’s Common Stock, par value $0.0001 per share (the “Common Stock”) at a price of $1.00 per share in accordance with the form of Warrant attached hereto as Exhibit A (the “Warrant”) and (y) 150,000 unregistered shares of the Company’s Common Stock (the “Consulting Shares”), which Consulting Shares shall fully vest upon the occurrence of a Change of Control (as hereinafter defined).

 

 

 

 

(b) A "Change of Control" shall be deemed to have occurred if, after the Effective Date, (i) the beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of securities representing more than 30% of the combined voting power of the Company is acquired by any "person" as defined in sections 13(d) and 14(d) of the Exchange Act (other than the Company, any subsidiary of the Company, or any trustee or other fiduciary holding securities under an employee benefit plan of the Company), (ii) the merger or consolidation of the Company with or into another corporation where the shareholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, shares representing in the aggregate 50% or more of the combined voting power of the securities of the corporation issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any) in substantially the same proportion as their ownership of the Company immediately prior to such merger or consolidation, (iii) the sale or other disposition of all or substantially all of the Company's assets to an entity, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned directly or indirectly by shareholders of the Company, immediately prior to the sale or disposition, in substantially the same proportion as their ownership of the Company immediately prior to such sale or disposition, or (iv) during any period of two consecutive years, individuals who at the beginning of such period were members of the Company’s Board of Directors ("Incumbent Directors") cease for any reason (other than death) to constitute at least a majority thereof; provided that each new director whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then still in office who were directors at the beginning of such period shall be deemed an Incumbent Director unless such approval was made directly or indirectly in connection with an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board.

 

3.       This Amendment shall be deemed part of, but shall take precedence over and supersede any provisions to the contrary contained in the Agreement. All initial capitalized terms used in this Amendment shall have the same meaning as set forth in the Agreement unless otherwise provided. Except as specifically modified hereby, all of the provisions of the Agreement, which are not in conflict with the terms of this Amendment, shall remain in full force and effect.

 

IN WITNESS WHEREOF, the parties have executed this agreement as of the date first stated above.

 

  DRONE AVIATION HOLDING CORP.
     
  By:
    Name: Kendall W. Carpenter
    Title:   Chief Financial Officer
     
   
                         Dr. Phillip Frost 

 

  - 2 -  

 

 

EXHIBIT A

 

FORM OF WARRANT

 

 

[to be inserted]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

 

  AMENDMENT NO. 2

 

TO

 

INDEPENDENT CONTRACTOR AGREEMENT

 

This Amendment No. 2 to the Independent Contractor Agreement (“ Amendment ”), dated August 3, 2017 (the “Effective Date”), is by and between Drone Aviation Holding Corp ., a Nevada corporation with an address 11651 Central Parkway #118, Jacksonville, FL 32224 (the “ Company ”), and Steven Rubin , 4400 Biscayne Blvd, Miami FL 33137 (the “ Contractor ”).

 

WHEREAS , the parties entered into an Independent Contractor Agreement on August 27, 2014 (the “ Agreement ”); and

 

WHEREAS , the parties amended the Agreement on May 1, 2016 pursuant to that certain Amendment No. 1 (the “First Amendment ”); and

 

WHEREAS , the parties wish to further amend the Agreement as set forth below, with the understanding that all other provisions of the Agreement shall remain unchanged;

 

NOW, THEREFORE , in consideration of the terms and conditions hereinafter set forth, the parties hereto agree as follows:

 

1. Section 3 of the Agreement - Term The term of the Agreement is hereby extended from May 1, 2017 until April 30, 2018 (the “Expiration Date”).

 

2. Section 4 of the Agreement shall be amended in its entirety to include the following:

 

Compensation: As compensation for the Services performed by Contractor during the term from May 1, 2017 until April 30, 2018, the Company shall compensate Contractor as follows:

 

(a) Stock Compensation : As Compensation for the Services performed by Contractor during the term of this Amendment, Drone shall issue Contractor 100,000 unregistered shares of the Company’s common stock, par value $0.0001 (the “Consulting Shares”), which shall fully vest upon the occurrence of a Change of Control (as hereinafter defined).

 

  - 3 -  

 

 

(b) A “Change of Control” shall be deemed to have occurred if, after the Effective Date, (i) the beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of securities representing more than 30% of the combined voting power of the Company is acquired by any “person” as defined in sections 13(d) and 14(d) of the Exchange Act (other than the Company, any subsidiary of the Company, or any trustee or other fiduciary holding securities under an employee benefit plan of the Company), (ii) the merger or consolidation of the Company with or into another corporation where the shareholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, shares representing in the aggregate 50% or more of the combined voting power of the securities of the corporation issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any) in substantially the same proportion as their ownership of the Company immediately prior to such merger or consolidation, (iii) the sale or other disposition of all or substantially all of the Company’s assets to an entity, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned directly or indirectly by shareholders of the Company, immediately prior to the sale or disposition, in substantially the same proportion as their ownership of the Company immediately prior to such sale or disposition, or (iv) during any period of two consecutive years, individuals who at the beginning of such period were members of the Company’s Board of Directors (“Incumbent Directors”) cease for any reason (other than death) to constitute at least a majority thereof; provided that each new director whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then still in office who were directors at the beginning of such period shall be deemed an Incumbent Director unless such approval was made directly or indirectly in connection with an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board.

 

3.            This Amendment shall be deemed part of, but shall take precedence over and supersede any provisions to the contrary contained in the Agreement. All initial capitalized terms used in this Amendment shall have the same meaning as set forth in the Agreement unless otherwise provided. Except as specifically modified hereby, all of the provisions of the Agreement, which are not in conflict with the terms of this Amendment, shall remain in full force and effect.

 

IN WITNESS WHEREOF, the parties have executed this agreement as of the date first stated above.

 

  DRONE AVIATION HOLDING CORP.
     
  By:  
  Name:  Kendall W. Carpenter
  Title: Chief Financial Officer
     
     
    Steven Rubin

 

 

- 2 -

 

 

Exhibit 10.34

 

NEITHER THE SECURITIES REPRESENTED HEREBY NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”), OR UNDER THE SECURITIES LAWS OF ANY STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. UNLESS SOLD PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

 

DRONE AVIATION HOLDING CORP.

 

WARRANT

 

Warrant No. 20170803 Original Issue Date: August 3, 2017

 

DRONE AVIATION HOLDING CORP. , a Nevada corporation (the “ Company ”), hereby certifies that, for value received, Dr. Phillip Frost or his registered assigns (the “ Holder ”), is entitled to purchase from the Company up to a total of 2,000,000 shares of Common Stock (each such share, a “ Warrant Share ” and all such shares, the “ Warrant Shares ”), at any time and from time to time from and after the Original Issue Date and through and including August 3, 2022 (the “ Expiration Date ”).

 

1. Definitions. As used in this Warrant, the following terms shall have the respective definitions set forth in this Section 1.

 

Closing Price ” means, for any date of determination, the price determined by the first of the following clauses that applies: (i) if the Common Stock is then listed or quoted on a Trading Market (other than the OTC Bulletin Board, OTCQB or OTCQX), the closing bid price per share of the Common Stock for such date (or the nearest preceding date) on such market; (ii) if prices for the Common Stock are then quoted on the OTC Bulletin Board, the closing bid price per share of the Common Stock for such date (or the nearest preceding date) so quoted; (iii) if prices for the Common Stock are then reported in the “Pink Sheets” published by the National Quotation Bureau Incorporated (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (iv) in all other cases, the fair market value of a share of Common Stock as determined by an independent qualified appraiser selected in good faith and paid for by the Company.

 

Common Stock ” means the common stock of the Company, par value $0.0001 per share, and any securities into which such common stock may hereafter be reclassified.

 

Exercise Price ” means $1.00, subject to adjustment in accordance with Section 9.

 

Fundamental Transaction ” means any of the following: (i) the Company effects any merger or consolidation of the Company with or into another person, (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property.

 

“Original Issue Date” means the Original Issue Date first set forth on the first page of this Warrant or its predecessor instrument.

 

“Trading Day” means (i) a day on which the Common Stock is traded on a Trading Market (other than the (other than the OTC Bulletin Board, OTCQB or OTCQX)), or (ii) if the Common Stock is not listed on a Trading Market (other than the OTC Bulletin Board, OTCQB or OTCQX), a day on which the Common Stock is traded in the over-the-counter market, as reported by the OTC Bulletin Board or the OTCQB or OTCQX as reported by the OTC Markets Group, or (iii) if the Common Stock is not quoted on any Trading Market, a day on which the Common Stock is quoted in the over-the-counter market as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding to its functions of reporting prices); provided, that in the event that the Common Stock is not listed or quoted as set forth in clauses (i), (ii) and (iii) hereof, then Trading Day shall mean any day, other than a Saturday or Sunday and other than a day that banks in the State of New York are generally authorized or required by applicable law to be closed.

 

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Trading Market ” means whichever of the New York Stock Exchange, NYSE MKT, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market, the OTC Bulletin Board, the OTCQB or the OTCQX (or any successor of the foregoing) on which the Common Stock is listed or quoted for trading on the date in question.

 

2. Registration of Warrant. The Company shall register this Warrant upon records to be maintained by the Company for that purpose (the “ Warrant Register ”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

3. Registration of Transfers. The Company shall register the transfer of any portion of this Warrant in the Warrant Register, upon surrender of this Warrant, with the Form of Assignment attached hereto duly completed and signed, to the Company at its address specified herein. Upon any such registration or transfer, a new Warrant to purchase Common Stock, in substantially the form of this Warrant (any such new Warrant, a “ New Warrant ”), evidencing the portion of this Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a holder of a Warrant.

 

4. Exercise and Duration of Warrants.

 

(a) This Warrant shall be exercisable by the registered Holder in whole at any time and in part from time to time from the Original Issue Date through and including the Expiration Date. At 5:00 p.m., Eastern time on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value. The Company may not call or redeem any portion of this Warrant without the prior written consent of the affected Holder.

 

5. Delivery of Warrant Shares.

 

(a) To effect exercises hereunder, the Holder shall not be required to physically surrender this Warrant unless the aggregate Warrant Shares represented by this Warrant are being exercised. Upon delivery of the Exercise Notice (in the form attached hereto) to the Company (with the attached Warrant Shares Exercise Log) at its address for notice set forth herein and upon payment of the Exercise Price multiplied by the number of Warrant Shares that the Holder intends to purchase hereunder and the Company shall promptly (but in no event later than three Trading Days after the Date of Exercise (as defined herein)) issue and deliver to the Holder, a certificate for the Warrant Shares issuable upon such exercise, which, unless otherwise required by applicable law, shall be free of restrictive legends. A “ Date of Exercise ” means the date on which the Holder shall have delivered to the Company: (i) the Exercise Notice (with the Warrant Exercise Log attached to it), appropriately completed and duly signed and (ii) if such Holder is not utilizing the cashless exercise provisions set forth in this Warrant, payment of the Exercise Price for the number of Warrant Shares so indicated by the Holder to be purchased.

 

(b) If by the third Trading Day after a Date of Exercise the Company fails to deliver the required number of Warrant Shares in the manner required pursuant to Section 5(a), then the Holder will have the right to rescind such exercise.

 

(c) If by the third Trading Day after a Date of Exercise the Company fails to deliver the required number of Warrant Shares in the manner required pursuant to Section 5(a), and if after such third Trading Day and prior to the receipt of such Warrant Shares, the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “ Buy-In ”), then the Company shall (1) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue by (B) the closing bid price of the Common Stock at the time of the obligation giving rise to such purchase obligation and (2) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In.

 

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(d) The Company’s obligations to issue and deliver Warrant Shares in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of Warrant Shares. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing Warrant Shares upon exercise of the Warrant as required pursuant to the terms hereof.

 

6. Charges, Taxes and Expenses. Issuance and delivery of Warrant Shares upon exercise of this Warrant shall be made without charge to the Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof.

 

7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity (which shall not include a surety bond), if requested. Applicants for a New Warrant under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Company may prescribe. If a New Warrant is requested as a result of a mutilation of this Warrant, then the Holder shall deliver such mutilated Warrant to the Company as a condition precedent to the Company’s obligation to issue the New Warrant.

 

8. Reservation of Warrant Shares. The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other contingent purchase rights of Persons other than the Holder (taking into account the adjustments and restrictions of Section 9). The Company covenants that all Warrant Shares so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable.

 

9. Certain Adjustments. The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 9.

 

(a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be adjusted to equal the product obtained by multiplying the then-current Exercise Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination.

 

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(b) Fundamental Transactions. If, at any time while this Warrant is outstanding there is a Fundamental Transaction, then the Holder shall have the right thereafter to receive, upon exercise of this Warrant, the same amount and kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the number of Warrant Shares then issuable upon exercise in full of this Warrant (the “ Alternate Consideration ”). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. At the Holder’s option and request, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant substantially in the form of this Warrant and consistent with the foregoing provisions and evidencing the Holder’s right to purchase the Alternate Consideration for the aggregate Exercise Price upon exercise thereof. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (b) and insuring that the Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

 

(c) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise Price pursuant to this Section 9, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the adjusted number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment.

 

(d) Calculations. All calculations under this Section 9 shall be made to the nearest cent or the nearest 1/100 th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.

 

(e) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this Section 9, the Company at its expense will promptly compute such adjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment, including a statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other securities issuable upon exercise of this Warrant (as applicable), describing the transactions giving rise to such adjustments and showing in detail the facts upon which such adjustment is based. Upon written request, the Company will promptly deliver a copy of each such certificate to the Holder and to the Company’s transfer agent.

 

10. Payment of Exercise Price. The Holder shall pay the Exercise Price in immediately available funds.

 

11. No Fractional Shares. No fractional shares of Warrant Shares will be issued in connection with any exercise of this Warrant. In lieu of any fractional shares which would, otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied by the Closing Price of one Warrant Share on the date of exercise.

 

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12. Notices. Any and all notices or other communications or deliveries hereunder (including, without limitation, any Exercise Notice) shall be in writing and shall be deemed given and effective if provided:

 

if to the Holder, shall be delivered or sent by mail or e-mail transmission as follows:

 

Dr. Phillip Frost

4400 Biscayne Blvd

Miami, FL 33137

 

with a copy (which shall not constitute notice) to:  

 

[__] 

 

if to the Company shall be delivered or sent by mail or e-mail transmission to:

 

Drone Aviation Holding Corp.
11651 Central Parkway
Jacksonville, FL 32224
Attention: Chief Executive Officer

 

Any such statements, requests, notices or agreements shall be effective only upon receipt. Any party to this Warrant may change such address for notices by sending to the parties to this Warrant written notice of a new address for such purpose.

 

In case any time: (1) the Company shall declare any cash dividend on its capital stock; (2) the Company shall pay any dividend payable in stock upon its capital stock or make any distribution to the holders of its capital stock; (3) the Company shall offer for subscription pro rata to the holders of its capital stock any additional shares of stock of any class or other rights; (4) there shall be any capital reorganization, or reclassification of the capital stock of the Company, or consolidation or merger of the Company with, or sale of all or substantially all of its assets to, another corporation; or (5) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; then, in any one or more of said cases, the Company shall give prompt written notice to the Holder. Such notice shall also specify the date as of which the holders of capital stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their capital stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, or conversion or redemption, as the case may be. Such written notice shall be given at least 20 days prior to the action in question and not less than 20 days prior to the record date or the date on which the Company’s transfer books are closed in respect thereto.

 

13. INTENTIONALLY DELETED.

 

14. Registration Rights.

 

(a) Registration Under the Securities Act of 1933. As of the date hereof, none of the Warrants or the Warrant Shares have been registered for purposes of public resale or distribution under the Securities Act.

 

(b) Registrable Securities. As used herein, the term “ Registrable Security ” means the Warrant Shares and any shares of Common Stock issued upon any stock split or stock dividend in respect of such Warrant Shares; provided , however , that with respect to any particular Registrable Security, such security shall cease to be a Registrable Security when, as of the date of determination, (i) it has been registered under the Securities Act and disposed of pursuant thereto, (ii) registration under the Securities Act is no longer required for the Holder for subsequent public distribution of such security without regard to volume restrictions under Rule 144 (including Rule 144(a)) promulgated under the Securities Act or otherwise, or (iii) it has ceased to be outstanding. The term “ Registrable Securities ” means any and/or all of the securities falling within the foregoing definition of a “ Registrable Security .” In the event of any merger, reorganization, consolidation, recapitalization or other change in corporate structure affecting the Common Stock, such adjustment shall be made in the definition of Registrable Security as is appropriate in order to prevent any dilution or enlargement of the rights granted pursuant to this Section.

 

(c) Piggyback Registration. If, prior to the Expiration Date, the Company proposes to prepare and file a registration statement or post-effective amendments thereto covering the resale of shares of Common Stock held by stockholders of the Company (in any such case, other than in connection with an underwritten public offering, registered direct offering in which the Company has engaged a placement agent, merger, acquisition, pursuant to Form S-8 or Form S-4 or their respective successor forms, or on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of Registrable Securities) (for purposes of this Section, collectively, the “ Registration Statement ”), it will give written notice of its intention to do so (“ Notice ”), at least 30 days prior to the filing of each such Registration Statement, to all Holders of the Registrable Securities. Upon the written request of such a Holder (a “ Requesting Holder ”), made within 10 days after the Notice is given, that the Company include any of the Requesting Holder’s Registrable Securities in the proposed Registration Statement, the Company shall, as to each such Requesting Holder, use its best efforts to effect the registration under the Act of the Registrable Securities which it has been so requested to register (“ Piggyback Registration ”), at the Company's sole cost and expense and at no cost or expense to the Requesting Holders (except as provided below).

 

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Notwithstanding the provisions of this Section, the Company shall have the right at any time after it shall have given written notice pursuant to this Section (irrespective of whether any written request for inclusion of Registrable Securities shall have already been made) to elect not to file any such proposed Registration Statement, or to withdraw the same after the filing but prior to the effective date thereof, without incurring any liability to any holder of Registrable Securities.

 

(d) Covenants With Respect to Registration. In connection with any registration of Registrable Securities pursuant to this Agreement, the parties agree that:

 

(i) With respect to each inclusion of securities in a Registration Statement pursuant to the Section, the Company shall bear the following fees, costs, and expenses: all registration, filing fees, printing expenses, fees and disbursements of counsel and accountants for the Company, all internal expenses, the premiums and other costs of policies of insurance against liability arising out of the public offering, and legal fees and disbursements and other expenses of complying with state securities laws of any jurisdictions in which the securities to be offered are to be registered or qualified. Fees and disbursements of special counsel and accountants for the selling Holders, underwriting discounts and commissions, and transfer taxes for selling Holders and any other expenses incurred by the selling Holders and relating to the sale of securities by the selling Holders not expressly included above shall be borne by the selling Holders.

 

(ii) The Company shall take or cause to be taken all necessary action to qualify the Registrable Securities for sale under the securities laws of such jurisdictions of the United States as the Holders reasonably designate and to continue such qualifications in effect so long as required for the distribution of the Registrable Securities, except that the Company shall not be required in connection therewith to qualify as a foreign corporation, to subject itself to taxation in any jurisdiction, or to execute a general consent to service of process in any jurisdiction.

 

(iii) The Company shall indemnify any Holder of the Registrable Securities to be sold pursuant to any Registration Statement and each person, if any, who controls such Holder, against all loss, claim, damage, expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Act, the Securities Exchange Act of 1934, as amended (“ Exchange Act ”) or otherwise, arising from such registration statement, except to such extent that such losses, claims, damages, expenses or liabilities occur as a result of information provided to the Company by or on behalf of such Holder or as a result of such Holder’s gross negligence or willful misconduct.

 

(iv) The Holders of Registrable Securities to be sold pursuant to a registration statement, and such Holder’s successors and assigns, shall severally, and not jointly, indemnify the Company, its officers and directors and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act, against all loss, claim, damage, expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Securities Act, the Exchange Act or otherwise, arising from information furnished by or on behalf of such Holder, or such Holder’s successors or assigns, for specific inclusion in such Registration Statement to the same extent and with the same effect as the provisions pursuant to which the placement agent have agreed to indemnify the Company as set forth in the Engagement Letter and to provide for just and equitable contribution as set forth in the Engagement Letter.

 

(v) Nothing contained in this Agreement shall be construed as requiring any Holder to exercise the Warrants held by such Holder prior to the initial filing of any Registration Statement or the effectiveness thereof.

 

(vi) If the Company shall fail to comply with the provisions of this Section, the Company shall, in addition to any other equitable or other relief available to the Holders of Registrable Securities, be liable for any or all consequential damages sustained by the Holders of Registrable Securities requesting registration of their Registrable Securities; provided , however , that the Holders of Registrable Securities shall not be entitled to any special or punitive damages with respect to any such failure on behalf of the Company.

 

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(vii) The Company shall promptly deliver copies of all correspondence between the Commission and the Company, its counsel or its auditors with respect to the Registration Statement to each Holder of Registrable Securities included for registration in such Registration Statement pursuant to this Section requesting (in writing) such correspondence and shall permit each Holder of Registrable Securities to do such reasonable investigation, upon reasonable advance notice, with respect to information contained in or omitted from the Registration Statement as it deems reasonably necessary. Such investigation shall include access to books, records and properties and opportunities necessary or helpful to discuss the business of the Company with its officers and independent auditors, all to such reasonable extent, at such reasonable times, upon such reasonable notice and as often as any such Holder of Registrable Securities shall reasonably request; provided, that the Company may require each such Holder to enter into reasonable confidentiality and non-disclosure agreements with respect to the information contained in or derived from such investigations.

 

15. Miscellaneous.

 

(a) This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. Subject to the preceding sentence, nothing in this Warrant shall be construed to give to any person other than the Company and the Holder any legal or equitable right, remedy or cause of action under this Warrant. This Warrant may be amended only in writing signed by the Company and the Holder and their successors and assigns.

 

(b) All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed in accordance with the laws of the State of Florida, regardless of the laws that might otherwise govern under applicable principles of conflicts of law thereof. The Holder agrees, on behalf of itself and its representatives, to submit to the jurisdiction of any court of competent jurisdiction located in the State of Florida, County of Miami-Dade, to resolve any dispute relating to this agreement and waive any right to move to dismiss or transfer any such action brought in any such court on the basis of any objection to personal jurisdiction or venue.

 

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

 

(d) In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant.

 

(e) Prior to exercise of this Warrant, the Holder hereof shall not, by reason of by being a Holder, be entitled to any rights of a stockholder with respect to the Warrant Shares.

 

(f) Use of Proceeds. The Company shall use the proceeds from any exercise of this Warrant to pay off any of the Company’s secured indebtedness held by a bank and to the extent there is no such indebtedness, the balance of the proceeds from any exercise may be used by the Company for its general working capital purposes.

 

[ Remainder of page intentionally left blank, signature page follows ]

 

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In witness whereof, the Company has caused this Warrant to be duly executed by its authorized officer as of the date first indicated above.

 

  DRONE AVIATION HOLDING CORP.
   
  By: /s/ Kendall W. Carpenter
  Name: Kendall W. Carpenter
  Its: EVP and CFO

 

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EXERCISE NOTICE

 

The undersigned Holder hereby irrevocably elects to purchase _________ shares of Common Stock pursuant to the attached Warrant. Capitalized terms used herein and not otherwise defined have the respective meanings set forth in the Warrant.

 

(1) The undersigned Holder hereby exercises its right to purchase _________ Warrant Shares pursuant to the Warrant.

 

(2) The Holder intends that payment of the Exercise Price shall be made as (check one):

 

_____ “Cash Exercise” under Section 10

 

_____ “Cashless Exercise” under Section 10

 

(3) If the Holder has elected a Cash Exercise, the Holder shall pay the sum of $____________ to the Company in accordance with the terms of the Warrant.

 

(4) Pursuant to this Exercise Notice, the Company shall deliver to the Holder ____________ Warrant Shares in accordance with the terms of the Warrant.

 

Dated ______________ __, _____ Name of Holder:
   
  (Print)
   
   
     
  By:  
  Its:  
  (Signature must conform in all respects to name of holder as specified on the face of the Warrant)

 

     

 

  - 9 -  

 

 

Warrant Shares Exercise Log

 

Date   Number of Warrant
Shares Available
to be Exercised
  Number of Warrant
Shares Exercised
  Number of Warrant
Shares Remaining
to be Exercised
             
             
             
             
             
             

 

  - 10 -  

 

 

FORM OF ASSIGNMENT

 

[To be completed and signed only upon transfer of Warrant]

 

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto the right represented by the attached Warrant to purchase ______________ shares of Common Stock to which such Warrant relates and appoints ______________ attorney to transfer said right on the books of the Company with full power of substitution in the premises.

 

Dated: __________ __, _______

 

   
  (Signature must conform in all respects to name of holder as specified on the face of the Warrant)
   
  Address of Transferee
   
   
   
   
  Note: Address for Delivery may not be a P.O. box and must be a physical address where stock certificates may be delivered in connection with this purchase or any future stock issued through splits, warrant conversions or other circumstances. The delivery address may be a personal residence, or a broker dealer where the certificate would be deposited

 

Attest:  
   

 

 

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  Exhibit 31.1

 

CERTIFICATION

 

I, Jay Nussbaum, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Drone Aviation Holding Corp.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15 (f) and 15 (d)-15(f)) for the registrant and have:

 

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b) designed such internal control over financing reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over the financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

  /s/ Jay Nussbaum
  Chief Executive Officer
  (Principal Executive Officer)

 

Date: August 4, 2017

Exhibit 31.2

 

CERTIFICATION

 

I, Kendall Carpenter, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Drone Aviation Holding Corp.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15 (f) and 15 (d)-15(f)) for the registrant and have:

 

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b) designed such internal control over financing reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over the financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

  /s/ Kendall Carpenter
  Chief Financial Officer
  (Principal Financial Officer)

 

Date: August 4, 2017

Exhibit 32.1

 

CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002  

 

In connection with the Quarterly Report on Form 10-Q of Drone Aviation Holding Corp. (the “Company”) for the quarterly period ended June 30, 2017 as filed with the Securities and Exchange Commission (the “Report”), I, Jay H. Nussbaum, Chief Executive Officer and I, Kendall Carpenter, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:

 

1. The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

 

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 Date: August 4, 2017 /s/ Jay H. Nussbaum
 

Jay H. Nussbaum

Chief Executive Officer

   
 Date: August 4, 2017 /s/ Kendall Carpenter
 

Kendall Carpenter

Chief Financial Officer