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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

CURRENT REPORT

 

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): October 13, 2021 (October 6, 2021)

 

1847 HOLDINGS LLC
(Exact name of registrant as specified in its charter)

 

Delaware   000-56128   38-3922937
(State or other jurisdiction
of incorporation)
  (Commission File Number)   (IRS Employer
Identification No.)

 

590 Madison Avenue, 21st Floor, New York, NY   10022
(Address of principal executive offices)   (Zip Code)

 

(212) 417-9800
(Registrant’s telephone number, including area code)

 

 
(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act: None 

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.

 

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. ☐

 

 

 

 

 

 

Item 1.01 Entry into a Material Definitive Agreement.

 

Amendment to Securities Purchase Agreement and Closing of Acquisition

 

As previously disclosed, on September 23, 2021, 1847 Cabinet Inc. (“1847 Cabinet”), a wholly owned subsidiary of 1847 Holdings LLC (the “Company”), entered into a securities purchase agreement with High Mountain Door & Trim Inc., a Nevada corporation (“High Mountain”), Sierra Homes, LLC, a Nevada limited liability company (“Sierra Homes”), and Steven J. Parkey and Jose D. Garcia-Rendon (together, the “Sellers”), pursuant to which 1847 Cabinet agreed to acquire all of the issued and outstanding capital stock or other equity securities of High Mountain and Sierra Homes from the Sellers (the “Acquisition”).

 

On October 6, 2021, 1847 Cabinet, High Mountain, Sierra Homes and the Sellers entered into amendment No. 1 to securities purchase agreement to amend certain terms of the securities purchase agreement. On October 8, 2021, closing of the Acquisition was completed.

 

Pursuant to the terms of the securities purchase agreement, as amended (the “Purchase Agreement”), 1847 Cabinet acquired all of the issued and outstanding capital stock or other equity securities of High Mountain and Sierra Homes from the Sellers for an aggregate purchase price of $16,567,845, after certain adjustments made at closing and subject to additional post-closing adjustments as described below. The purchase price consists of (i) $10,687,500 in cash and (ii) the issuance by 1847 Cabinet of 6% subordinated convertible promissory notes in the aggregate principal amount of $5,880,345.

 

The purchase price is subject to a post-closing working capital adjustment provision. Under this provision, the Sellers delivered to 1847 Cabinet at the closing an unaudited balance sheet of High Mountain and Sierra Homes and a calculation of estimated net working capital of High Mountain and Sierra Homes as of that date. On or before the 75th day following the closing, 1847 Cabinet must deliver to the Sellers an unaudited balance sheet of High Mountain and Sierra Homes and its calculation of the final net working capital of High Mountain and Sierra Homes as of the closing date. If such final net working capital exceeds the estimated net working capital, 1847 Cabinet must, within seven days, pay to the Sellers an amount of cash that is equal to such excess. If the estimated net working capital exceeds the final net working capital, the Sellers must, within seven days, pay to 1847 Cabinet an amount in cash equal to such excess.

 

6% Subordinated Convertible Promissory Notes

 

As noted above, a portion of the purchase price for the Acquisition was paid by the issuance of 6% subordinated convertible promissory notes in the aggregate principal amount of $5,880,345 by 1847 Cabinet to the Sellers (the “Seller Notes”). The Seller Notes bear interest at a rate of six percent (6%) per annum and are due and payable on October 8, 2024; provided that upon an event of default (as defined in the Seller Notes), such interest rate shall increase to ten percent (10%) per annum. 1847 Cabinet may prepay the Seller Notes in whole or in part, without penalty or premium, upon ten (10) business days prior written notice to the holders of the Seller Notes.

 

At any time prior to October 8, 2022, the holders may, in their sole discretion, elect to convert up to twenty percent (20%) of the original principal amount of the Seller Notes and all accrued, but unpaid, interest into such number of shares of the common stock of 1847 Cabinet determined by dividing the amount to be converted by a conversion price determined by dividing (i) the fair market value of 1847 Cabinet (determined in accordance with the Seller Notes) by (ii) the number of shares of 1847 Cabinet outstanding on a fully diluted basis. The holders may also exchange the Seller Notes or any portion thereof for securities of the Company pursuant to the exchange agreement described below.

 

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Pursuant to the terms of the Seller Notes, 1847 Cabinet must provide at least thirty (30) days prior notice prior to the consummation of a corporate transaction (as defined in the Seller Notes), which generally includes (i) the sale of all or substantially all of the assets of 1847 Cabinet, High Mountain and Sierra Homes, (ii) the merger, consolidation or any other reorganization of any of these companies, other than a reorganization where the holders of the voting securities of such companies prior to such reorganization continue to hold a majority of the outstanding voting securities after such reorganization; or (iii) any transfer (whether by sale, merger, consolidation or otherwise) of more that fifty percent (50%) of the outstanding voting securities of any of these companies. In the event of such corporate transaction, the Sellers may exercise their right to convert a portion of the outstanding principal balance and accrued but unpaid interest into 1847 Cabinet’s common stock, exercise their right to exchange all or any portion of the outstanding principal balance and accrued but unpaid interest pursuant to the exchange agreement, and/or accelerate the maturity date such that the outstanding principal balance together with all accrued but unpaid interest and all other amounts payable under the Seller Notes (less any amounts to be converted or exchanged, if applicable) shall become due and payable in full upon the consummation of the corporate transaction.

 

The Seller Notes contain customary events of default, including in the event of a default under the Senior Notes described below. The rights of the holders to receive payments under the Seller Notes are subordinated to the rights of the Purchasers under Senior Notes described below.

 

Exchange Agreement

 

On October 8, 2021, the Company entered into an exchange agreement with the Sellers (the “Exchange Agreement”), pursuant to which the Company granted the Sellers and their permitted assigns the right, but not the obligation, to exchange all of the principal amount and accrued but unpaid interest under the Seller Notes as may be the outstanding from time to time or any portion thereof for a number of common shares of the Company to be determined by dividing the amount to be converted by an exchange price equal to the higher of (i) the 30-day volume weighted average price for the common shares on the primary national securities exchange or over the counter market on which the common shares are traded over the thirty (30) trading days immediately prior to the applicable exchange date or (ii) $2.50 (subject to equitable adjustments for stock splits, stock combinations, recapitalizations and similar transactions).

 

Amended and Restated Management Services Agreement

 

As previously disclosed, on August 21, 2020, 1847 Cabinet entered into a management services agreement with 1847 Partners LLC (the “Manager”), pursuant to which 1847 Cabinet appointed the Manager to provide certain services to it for a quarterly management fee equal to the greater of $75,000 or 2% of adjusted net assets, as defined in that certain Management Services Agreement, dated April 15, 2013, between the Company and the Manager (the “Parent MSA”). On October 8, 2021, the parties entered into an amended and restated management services agreement (the “Amended and Restated MSA”).

 

Pursuant to the Amended and Restated MSA, the quarterly management fee was increased to $125,000 or 2% of adjusted net assets (as defined in the Parent MSA). The Amended and Restated MSA also revised the provision regarding removal of the Manager to provide that the Manager may be removed by 1847 Cabinet if: (i) a majority of 1847 Cabinet’s board of directors vote to terminate the Amended and Restated MSA and the holders of at least a majority of the then outstanding voting stock (other than voting stock beneficially owned by the Manager) vote to terminate the Amended and Restated MSA; (ii) neither Ellery W. Roberts nor his designated successor, heirs, beneficiaries or permitted assigns control the Manager, and such change occurred without the prior written consent of 1847 Cabinet’s board of directors; (iii) there is a finding by a court of competent jurisdiction in a final, non-appealable order that the Manager materially breached the terms of the Amended and Restated MSA and such breach continued unremedied for sixty (60) days after the Manager received written notice from 1847 Cabinet setting forth the terms of such breach, or the Manager acted with gross negligence, willful misconduct, bad faith or reckless disregard in performing its duties and obligations under Amended and Restated MSA or engaged in fraudulent or dishonest acts in connection with the business and operations of 1847 Cabinet; (iv) the Manager has been convicted of a felony under Federal or State law, 1847 Cabinet’s board of directors finds that the Manager is demonstrably and materially incapable of performing its duties and obligations under the Amended and Restated MSA, and the holders of at least sixty-six and two-thirds percentage (66 ⅔%) of then outstanding voting stock (other than voting stock beneficially owned by the Manager) vote to terminate the Amended and Restated MSA; or (v) there is a finding by a court of competent jurisdiction that the Manager has engaged in fraudulent or dishonest acts in connection with the business or operations of 1847 Cabinet or acted with gross negligence, willful misconduct, bad faith or reckless disregard in performing its duties and obligations under the Amended and Restated MSA, and the holders of at least sixty-six and two-thirds percentage (66 ⅔%) of the then outstanding voting stock (other than voting stock beneficially owned by the Manager) vote to terminate the Amended and Restated MSA.

 

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Finally, the Amended and Restated MSA also revised the termination provision to provide that if there is a termination under section (i) of the preceding paragraph, then 1847 Cabinet must pay a termination fee to the Manager that is equal to three times (3x) the then current maximum annual management fee payable to the Manager, which shall be payable in eight (8) equal quarterly installments.

 

Second Amended and Restated Subordinated Secured Promissory Note

 

As previously disclosed, on September 30, 2020, 1847 Cabinet issued a subordinated secured promissory note to the Company in the principal amount of up to $4,525,000 to provide it with the funds necessary to acquire Kyle’s Custom Wood Shop, Inc. (“Kyle’s”), which was amended and restated as of December 11, 2020.

 

On October 8, 2021, the Company, 1847 Cabinet, Kyle’s, High Mountain and Sierra Homes entered into a second amended and restated subordinated secured promissory note in the principal amount of up to $15,955,325 (the “Intercompany Note”).

 

The Intercompany Note bears interest at the rate of 16% per annum. Interest on the Intercompany Note is cumulative and any unpaid accrued interest will compound on each anniversary date of the Intercompany Note. Interest is due and payable in arrears to the Company on December 1, March 1, June 1 and October 1, commencing on December 1, 2021. In the event payment of principal or interest due under the Intercompany Note is not made when due, giving effect to any grace period which may be applicable, or in the event of any other default (as defined in the Intercompany Note), the outstanding principal balance shall from the date of default immediately bear interest at the rate of 5% above the then applicable interest rate for so long as such default continues.

 

The Company may demand payment in full of the Intercompany Note, at any time, even if 1847 Cabinet has complied with all of the terms of the Intercompany Note, and the Intercompany Note shall be due in full, without demand, upon the third party sale of all or substantially all the assets and business of 1847 Cabinet or the third party sale or other disposition of any capital stock of 1847 Cabinet. 1847 Cabinet may prepay the Intercompany Note at any time without penalty.

 

If and to the extent any amounts are owing under the Senior Notes described below due to a default thereunder, in addition to payment obligations due under the Intercompany Note, 1847 Cabinet is required to immediately make payments to the Company so that the Company may make payments in compliance with the terms of the Senior Notes.

 

The Intercompany Note contains customary covenants and events of default for loans of this type. The Intercompany Note is guaranteed by Kyle’s, High Mountain and Sierra Homes and is secured by a security interest in all of the assets of 1847 Cabinet, Kyle’s, High Mountain and Sierra Homes; provided that the rights of the Company to receive payments under the Intercompany Note are subordinated to the rights of the Purchasers under Senior Notes described below. 

 

Secured Convertible Promissory Notes

 

On October 8, 2021, the Company and each of its subsidiaries 1847 Asien Inc., 1847 Wolo Inc., 1847 Cabinet Inc., Asien’s Appliance, Inc., Wolo Mfg. Corp., Wolo Industrial Horn & Signal, Inc., Kyle’s Custom Wood Shop, Inc., High Mountain and Sierra Homes (collectively, the “Guarantors”) entered into a note purchase agreement (the “Note Purchase Agreement”) with two institutional investors (the “Purchasers”), including Leonite Capital LLC (“Leonite”), pursuant to which the Company issued to the Purchasers secured convertible promissory notes in the aggregate principal amount of $24,860,000 (the “Senior Notes”).

 

The Senior Notes contain an aggregate original issue discount of $497,200. As a result, the total purchase price was $24,362,800. After payment of expenses of $742,825, the Company received net proceeds of $23,619,975, of which $10,687,500 was used to fund the cash portion of the purchase price for the Acquisition.

 

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The Senior Notes bear interest at a rate per annum equal to the greater of (i) 4.75% plus the U.S. Prime Rate that appears in The Wall Street Journal from time to time or (ii) 8%; provided that, upon an event of default (as defined in the Senior Notes), such rate shall increase to 24% or the maximum legal rate. Payments of interest only, computed at such rate on the outstanding principal amount, will be due and payable quarterly in arrears commencing on January 1, 2022 and continuing on the first day of each calendar quarter thereafter through and including the maturity date, October 8, 2026.

 

The Company may voluntarily prepay the Senior Notes in whole or in part upon payment of a prepayment fee in an amount equal to 10% of the principal and interest paid in connection with such prepayment. In addition, immediately upon receipt by the Company or any Guarantor of any proceeds from any issuance of indebtedness (other than certain permitted indebtedness), any proceeds of any sale or disposition by the Company or any Guarantor of any of the collateral or any of its respective assets (other than asset sales or dispositions in the ordinary course of business which are permitted by the Note Purchase Agreement), or any proceeds from any casualty insurance policies or eminent domain, condemnation or similar proceedings, the Company must prepay the Senior Notes in an amount equal to all such proceeds, net of reasonable and customary transaction costs, fees and expenses properly attributable to such transaction and payable by the Company or a Guarantor in connection therewith (in each case, paid to non-affiliates).

 

The holders of the Senior Notes may, in their sole discretion, elect to convert any outstanding and unpaid principal portion of the Senior Notes, and any accrued but unpaid interest on such portion, into common shares of the Company at a conversion price equal to $2.50 (subject to equitable adjustments for stock splits, stock combinations, recapitalizations and similar transactions, as well as for future issuances below the conversion price). Notwithstanding the foregoing, the Senior Notes contain a beneficial ownership limitation, which provides that the Company shall not effect any conversion to the extent that after giving effect to the conversion, the holder, together with its affiliates, would beneficially own in excess of 4.99% of the number of common shares outstanding immediately after giving effect to the issuance of common shares upon such conversion. Upon no fewer than 61 days’ prior notice to the Company, a holder may increase or decrease such beneficial ownership limitation (up to a maximum of 9.99%) and any such increase or decrease will not be effective until the 61st day after such notice is delivered to the Company.

 

Pursuant to the terms of the Senior Notes, until the date that is eighteen (18) months after the issuance date of the Senior Notes, the holders shall have the right, but not the obligation, to participate in any securities offering of the Company other than a permitted issuance (as defined in the Note Purchase Agreement) in an amount of up to the original principal amount of the Senior Notes. In addition, the holders shall have the right of first refusal to participate in any issuance of indebtedness by the Company until the Senior Notes have been terminated; provided, however, that this right of first refusal shall not apply to permitted issuances.

 

The Note Purchase Agreement and the Senior Notes contain customary representations, warranties, affirmative and negative financial and other covenants and events of default for loans of this type. The Senior Notes are guaranteed by each of the Guarantors pursuant to a guaranty agreement that the Guarantors entered into with Leonite, as administrative agent, on October 8, 2021 (the “Guaranty Agreement”), and are secured by a first priority security interest in all of the assets of the Company and the Guarantors pursuant to (i) a security agreement that the Company and the Guarantors entered into with Leonite, as administrative agent, on October 8, 2021 (the “Security Agreement”) and (ii) an intellectual property security agreement that Wolo Mfg. Corp. and Wolo Industrial Horn & Signal, Inc. entered into with Leonite, as administrative agent, on October 8, 2021 (the “IP Security Agreement”).

 

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Equity Issuance

 

In connection with the loan made by Leonite, on October 8, 2021, the Company issued to Leonite a warrant for the purchase of 250,000 common shares of the Company with an exercise price of $0.01 per share, a warrant for the purchase of 500,000 common shares of the Company with an exercise price of $2.50 per share (together, the “Warrants”), and a number of shares or membership units, as applicable, representing a 7.50% fully-diluted ownership interest in each of High Mountain and Sierra Homes.

 

The exercise price of the Warrants is subject to equitable adjustments for stock splits, stock combinations, recapitalizations and similar transactions, as well as for future issuances below the exercise price. The Warrants may also be exercised on a cashless basis if at the time of exercise there is no effective registration statement registering the common shares issuable upon exercise of the Warrants. Notwithstanding the foregoing, the Warrants contain a beneficial ownership limitation, which provides that the Company shall not effect any exercise to the extent that after giving effect to the exercise, the holder, together with its affiliates, would beneficially own in excess of 4.99% of the number of common shares outstanding immediately after giving effect to the issuance of common shares upon such exercise. Upon no fewer than 61 days’ prior notice to the Company, a holder may increase or decrease such beneficial ownership limitation (up to a maximum of 9.99%) and any such increase or decrease will not be effective until the 61st day after such notice is delivered to the Company.

 

Amendment to 6% Amortizing Promissory Note

 

As previously disclosed, on July 29, 2020, 1847 Asien Inc. (“1847 Asien”) entered into a securities purchase agreement with Joerg Christian Wilhelmsen and Susan Kay Wilhelmsen, as Trustees of the Wilhelmsen Family Trust, U/D/T dated May 1, 1992, who previously sold Asien’s Appliance, Inc. to 1847 Asien (the “Asien’s Seller”), pursuant to which the Asien’s Seller sold to 415,000 of the Company’s common shares to 1847 Asien a purchase price of $2.50 per share. As consideration, 1847 Asien issued to the Asien’s Seller a two-year 6% amortizing promissory note in the aggregate principal amount of $1,037,500.

 

On October 8, 2021, 1847 Asien and the Asien’s Seller entered into amendment no. 1 to securities purchase agreement (the “Amendment”) to amend certain terms of the securities purchase agreement and the 6% amortizing promissory note. Pursuant to the Amendment, the repayment terms of the 6% amortizing promissory note were revised so that one-half (50%) of the outstanding principal amount ($518,750) and all accrued interest thereon shall be amortized on a two-year straight-line basis and payable quarterly in accordance with the amortization schedule set forth on Exhibit A to the Amendment, except for the payments that were initially scheduled on January 1, 2022 and April 1, 2022, which were paid from the proceeds of the Senior Notes, and the second-half (50%) of the outstanding principal amount ($518,750) and all accrued, but unpaid interest thereon shall be paid on the second anniversary of the date of the 6% amortizing promissory note, along with any other unpaid principal or accrued interest thereon.

 

The foregoing descriptions of the Purchase Agreement, the Seller Notes, the Exchange Agreement, the Amended and Restated MSA, the Intercompany Note, the Note Purchase Agreement, the Senior Notes, the Guaranty Agreement, the Security Agreement, the IP Security Agreement, the Warrants and the Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of those documents filed as exhibits to this report, which are incorporated herein by reference.

 

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Item 2.01 Completion of Acquisition or Disposition of Assets.

 

The information set forth under Item 1.01 is incorporated by reference into this Item 2.01.

 

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

 

The information set forth under Item 1.01 is incorporated by reference into this Item 2.03.

 

Item 3.02 Unregistered Sales of Equity Securities.

 

The information set forth under Item 1.01 regarding the issuance of the Senior Notes and the Warrants is incorporated by reference into this Item 3.02. The issuance of these securities is being made in reliance upon an exemption from the registration requirements of Section 5 of the Securities Act.

 

Item 9.01 Financial Statements and Exhibits.

 

(a) Financial Statements of Business Acquired

 

The financial statements of High Mountain and Sierra Homes will be filed by an amendment to this Form 8-K within 71 calendar days of the date hereof.

 

(b) Pro forma financial information

 

Pro forma financial information will also be filed by an amendment to this Form 8-K within 71 calendar days of the date hereof.

 

(d) Exhibits

 

Exhibit No.   Description of Exhibit
4.1   Warrant for Common Shares issued by 1847 Holdings LLC to Leonite Capital LLC on October 8, 2021
4.2   Warrant for Common Shares issued by 1847 Holdings LLC to Leonite Capital LLC on October 8, 2021
10.1   Securities Purchase Agreement, dated September 23, 2021, among 1847 Cabinet Inc., High Mountain Door & Trim Inc., Sierra Homes, LLC, Steven J. Parkey and Jose D. Garcia-Rendon
10.2   Amendment No.1 to Securities Purchase Agreement, dated October 6, 2021, among 1847 Cabinet Inc., High Mountain Door & Trim Inc., Sierra Homes, LLC, Steven J. Parkey and Jose D. Garcia-Rendon
10.3   6% Subordinated Convertible Promissory Note issued by 1847 Cabinet Inc. to Steven J. Parkey on October 8, 2021
10.4   6% Subordinated Convertible Promissory Note issued by 1847 Cabinet Inc. to Jose D. Garcia-Rendon on October 8, 2021
10.5   Exchange Agreement, dated October 8, 2021, among 1847 Holdings LLC, Steven J. Parkey and Jose D. Garcia-Rendon
10.6   Management Services Agreement, dated August 21, 2020, by and between 1847 Cabinet Inc. and 1847 Partners LLC (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed on October 7, 2020)
10.7   Amended and Restated Management Services Agreement, dated October 8, 2021, between 1847 Cabinet Inc. and 1847 Partners LLC
10.8   Secured Promissory Note issued by 1847 Holdings LLC to 1847 Cabinet Inc. on September 30, 2020 (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed on October 7, 2020)
10.9   Amended and Restated Secured Promissory Note issued by 1847 Holdings LLC to 1847 Cabinet Inc. on December 11, 2020 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on December 11, 2020)
10.10   Second Amended and Restated Secured Promissory Note issued by 1847 Holdings LLC to 1847 Cabinet Inc. on October 8, 2021
10.11   Note Purchase Agreement, dated October 8, 2021, among 1847 Holdings LLC, 1847 Asien Inc., 1847 Wolo Inc., 1847 Cabinet Inc., Asien’s Appliance, Inc., Wolo Mfg. Corp., Wolo Industrial Horn & Signal, Inc., Kyle’s Custom Wood Shop, Inc., High Mountain Door & Trim Inc., Sierra Homes, LLC, SILAC Insurance Company and Leonite Capital, LLC
10.12   Secured Convertible Promissory Note issued by 1847 Holdings LLC to SILAC Insurance Company on October 8, 2021
10.13   Secured Convertible Promissory Note issued by 1847 Holdings LLC to SILAC Insurance Company on October 8, 2021
10.14   Secured Convertible Promissory Note issued by 1847 Holdings LLC to Leonite Capital LLC on October 8, 2021
10.15   Guaranty Agreement, dated October 8, 2021, among 1847 Asien Inc., 1847 Wolo Inc., 1847 Cabinet Inc., Asien’s Appliance, Inc., Wolo Mfg. Corp., Wolo Industrial Horn & Signal, Inc., Kyle’s Custom Wood Shop, Inc., High Mountain Door & Trim Inc., Sierra Homes, LLC and Leonite Capital LLC
10.16   Security Agreement, dated October 8, 2021, among 1847 Holdings LLC, 1847 Asien Inc., 1847 Wolo Inc., 1847 Cabinet Inc., Asien’s Appliance, Inc., Wolo Mfg. Corp., Wolo Industrial Horn & Signal, Inc., Kyle’s Custom Wood Shop, Inc., High Mountain Door & Trim Inc., Sierra Homes, LLC and Leonite Capital, LLC
10.17   Intellectual Property Security Agreement, dated October 8, 2021, among Wolo Mfg. Corp., Wolo Industrial Horn & Signal, Inc. and Leonite Capital, LLC
10.18   Amendment No. 1 to Securities Purchase Agreement, dated October 8, 2021, between 1847 Asien Inc. and Joerg Christian Wilhelmsen and Susan Kay Wilhelmsen, as Trustees of the Wilhelmsen Family Trust, U/D/T dated May 1, 1992
 104   Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

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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 hereunto duly authorized.

 

Date: October 13, 2021 1847 HOLDINGS LLC
   
  /s/ Ellery W. Roberts
  Name:  Ellery W. Roberts
  Title: Chief Executive Officer

 

 

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Exhibit 4.1

 

1847 HOLDINGS LLC

 

WARRANT FOR COMMON SHARES

 

Warrant Shares: 250,000 Issue Date: October 8, 2021

 

THIS WARRANT FOR COMMON SHARES (this “Warrant”) certifies that, for value received, Leonite Capital LLC or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the “Initial Exercise Date”) and on or prior to the close of business on the five year anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from 1847 Holdings LLC, a Delaware limited liability company (the “Company”), up to Two Hundred Fifty Thousand (250,000) Common Shares (as subject to adjustment hereunder, the “Warrant Shares”). The purchase price of one Common Share under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

 

1. Definitions.

 

Affiliate” means, as to any Person, any other Person that directly, or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such Person. For the purposes of this definition, “Control” shall mean the power, directly or indirectly, either to (i) vote 10% or more of the securities having ordinary voting power for the election of directors (or persons performing similar functions) of a Person or (ii) direct or cause the direction of the management and policies of a Person, whether through the ability to exercise voting power, by control or otherwise. The terms “Control”, “Controlled by”, and “under common Control with” have the meanings correlative thereto.

 

Alternate Consideration” shall have the meaning set forth in Section 3(d).

 

Attribution Parties” shall have the meaning set forth in Section 2(e).

 

Base Exercise Price” shall have the meaning set forth in Section 3(e).

 

Beneficial Ownership Limitation” shall have the meaning set forth in Section 2(e).

 

Black Scholes Value” shall have the meaning set forth in Section 3(d).

 

Bloomberg” shall have the meaning set forth in Section 3(d).

 

Business Day” means any day other than a Saturday, a Sunday or a day on which banking institutions in New York, New York are authorized or obligated to close.

 

Buy-In” shall have the meaning set forth in Section 2(d)(iv).

 

Commission” means the United States Securities and Exchange Commission.

 

 

 

 

Common Share Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Share, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Share.

 

Common Shares” means the common shares of the Company.

 

Company” shall have the meaning set forth in the introduction.

 

Covering Shares” shall have the meaning set forth in Section 5(b).

 

Dilutive Issuance” shall have the meaning set forth in Section 3(e).

 

Distribution” shall have the meaning set forth in Section 3(c).

 

DWAC” shall have the meaning set forth in Section 2(d)(i).

 

Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

Exempt Issuance” means the issuance of (a) Common Shares or options to employees, officers or directors of the Company or consultants to the Company pursuant to any stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the board of directors or a majority of the members of a committee of non-employee directors established for such purpose for services rendered to the Company, provided, however, such issuance shall not exceed fifteen percent (15%) of the Common Shares issued and outstanding as of the date hereof, (b) securities upon the exercise or exchange of or conversion of any securities exercisable or exchangeable for or convertible into Common Shares issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Warrant to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities (other than in connection with stock splits or combinations) or to extend the term of such securities, (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company or securities issued in financing transactions, the primary purpose of which is to finance acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that such securities are issued as “restricted securities” (as defined in Rule 144) and carry no registration rights that require or permit the filing of any registration statement in connection therewith, and provided that any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries, an operating 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, (d) Common Shares, options or convertible securities issued to in connection with the provision of goods pursuant to transactions approved by a majority of the disinterested directors of the Company, and (e) Common Shares, options or convertible securities issued in connection with sponsored research, collaboration, technology license, development, marketing or other similar agreements or strategic partnerships approved a majority of the disinterested directors of the Company.

 

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Exercise Price” shall have the meaning set forth in Section 2(b).

 

Fundamental Transaction” shall have the meaning set forth in Section 3(d).

 

Holder” shall have the meaning set forth in the introduction.

 

Initial Exercise Date” shall have the meaning set forth in the introduction.

 

Issue Date” means the date of this Warrant.

 

Legend Removal Date” shall have the meaning set forth in Section 5(a)

 

Notice of Exercise” means the document set forth in Exhibit A annexed hereto.

 

Purchase Rights” shall have the meaning set forth in Section 3(b).

 

Securities Act” means the Securities Act of 1933, as amended.

 

Standard Settlement Period” shall have the meaning set forth in Section 2(d)(i).

 

Subsidiary” means, as to any Person, any corporation, partnership, limited liability company or other entity of which more than fifty percent (50%) of the outstanding capital stock or other ownership interests having ordinary voting power to elect a majority of the board of directors or other managers of such corporation, partnership, limited liability company or other entity is at the time, directly or indirectly, owned by such Person (irrespective of whether, at the time, capital stock or other ownership interests of any other class or classes of such corporation or other entity shall have or might have voting power by reason of the happening of any contingency).

 

Successor Entity” shall have the meaning set forth in Section 3(d).

 

Termination Date” shall have the meaning set forth in the introduction.

 

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

 

Trading Market” means any of the following markets or exchanges on which the Common Shares are listed or quoted for trading on the date in question: the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, the NYSE American, the OTCQB, the OTCQX, or the OTC Pink Marketplace (or any successors to any of the foregoing).

 

Transfer Agent” means VStock Transfer, LLC, and any successor transfer agent of the Company.

 

VWAP” shall have the meaning set forth in Section 2(c).

 

Warrant Register of the Company” shall have the meaning set forth in Section 3(g)(ii).

 

Warrant Register” shall have the meaning set forth in Section 4(c).

 

Warrant Share Delivery Date” shall have the meaning set forth in Section 2(d)(i).

 

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Warrant Shares” shall have the meaning set forth in the introduction.

 

Warrant” shall have the meaning set forth in the introduction.

 

2. Exercise.

 

(a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company or the Transfer Agent (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy (or e-mail attachment) of the Notice of Exercise in the form of Exhibit A annexed hereto. Within the earlier of (i) three (3) Trading Days, and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise form be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

 

(b) Exercise Price. The exercise price per share of the Common Share under this Warrant shall be $0.01, subject to adjustment hereunder (the “Exercise Price”).

 

(c) Cashless Exercise. If at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained therein is not available for the issuance of, the Warrant Shares to the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

  (A) = the highest traded price of the Common Shares during the thirty (30) Trading Days prior to the date of the respective Exercise Notice.;
       
  (B) = the Exercise Price of this Warrant, as adjusted hereunder; and
       
  (X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

 

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If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the registered characteristics of the Warrants being exercised. The Company agrees not to take any position contrary to this Section 2(c).

 

Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

 

(d) Mechanics of Exercise.

 

(i) Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by Holder, or (B) this Warrant is being exercised via cashless exercise, and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earlier of (i) one (1) Trading Day and (ii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”). Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within the earlier of (i) three (3) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Shares on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5th) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Share as in effect on the date of delivery of the Notice of Exercise.

 

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VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Shares are then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Shares for such date (or the nearest preceding date) on the Trading Market on which the Common Shares are then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b)  if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Shares for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Shares are not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Shares are then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Shares so reported, or (d) in all other cases, the fair market value of a share of Common Shares as determined by an independent appraiser selected in good faith by the Holder.

 

(ii) Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

 

(iii) Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

 

(iv) Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date (other than any such failure that is solely due to any action or inaction by the Holder with respect to such exercise), and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, Common Shares 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 (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Share so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) 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 (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of Common Shares that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Shares having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of Common Shares with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. 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 shares of Common Share upon exercise of the Warrant as required pursuant to the terms hereof.

 

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(v) No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

 

(vi) Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant, when surrendered for exercise, shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.

 

(vii) Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

 

(e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of Common Shares beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of Common Shares issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of Common Shares which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Share Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding Common Shares, a Holder may rely on the number of outstanding Common Shares as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company, or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of Common Shares outstanding.  Upon the written or oral request of a Holder, the Company shall within two (2) Trading Days confirm orally and in writing to the Holder the number of Common Shares then outstanding.  In any case, the number of outstanding Common Shares shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding Common Shares was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Shares outstanding immediately after giving effect to the issuance of Common Shares issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Shares outstanding immediately after giving effect to the issuance of Common Shares upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

 

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3. Certain Adjustments.

 

(a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Shares or any other equity or equity equivalent securities payable in Common Shares (which, for avoidance of doubt, shall not include any Common Shares issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding Common Shares into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding Common Shares into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Shares any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of Common Shares (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of Common Shares (excluding treasury shares, if any) outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

(b) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Share Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Shares (the “Purchase Rights”), then the Holder will 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 Share acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Share are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such Common Shares as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

(c) Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common Shares, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of Common Shares acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of Common Shares are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any Common Shares as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation). To the extent that this Warrant has not been partially or completely exercised at the time of such Distribution, such portion of the Distribution shall be held in abeyance for the benefit of the Holder until the Holder has exercised this Warrant.

 

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(d) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Shares are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Shares, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Shares or any compulsory share exchange pursuant to which the Common Shares is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions, consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding Common Shares (not including any Common Shares held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of Common Shares of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of Common Shares for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). 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 Share 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 Share 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. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction, purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction. “Black Scholes Value” means the value of this Warrant based on the Black and Scholes Option Pricing Model obtained from the “OV” function on Bloomberg, L.P. (“Bloomberg”) determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction, and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds within five Business Days of the Holder’s election (or, if later, on the effective date of the Fundamental Transaction). The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(d) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Share acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Share pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

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(e) Anti-dilution Adjustment. If at any time while this Warrant is outstanding, the Company sells or grants (or has sold or granted, as the case may be) any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or has sold or issued, as the case may be, or announces any sale, grant or any option to purchase or other disposition), any Common Share or other securities convertible into, exercisable for or otherwise entitled any person or entity the right to acquire Common Shares at an effective price per share that is lower than the then Exercise Price (such lower price, the “Base Exercise Price” and such issuances, collectively, a “Dilutive Issuance”) (it being agreed that if the holder of the Common Share or other securities so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive Common Shares at an effective price per share that is lower than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance), then the Exercise Price shall be reduced to a price equal the Base Exercise Price, and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. Such adjustment shall be made whenever such Common Share or other securities are issued, provided however, that no adjustment will be made under this Section 3(e) in respect of an Exempt Issuance.

 

(f) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of Common Shares deemed to be issued and outstanding as of a given date shall be the sum of the number of Common Shares (excluding treasury shares, if any) issued and outstanding.

 

(g) Notice to Holder.

 

(i) Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

 

(ii) Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Shares, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Shares, (C) the Company shall authorize the granting to all holders of the Common Shares rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Shares, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Shares is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Shares of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Shares of record shall be entitled to exchange their shares of the Common Shares for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

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4. Transfer of Warrant.

 

(a) Transferability. This Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date the Holder delivers an assignment form to the Company assigning this Warrant full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

 

(b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Issue Date of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

 

(c) Warrant Register. 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.

 

5. Legend Removal.

 

(a) Certificates evidencing this Warrant or the Warrant Shares shall not contain any restrictive, securities or other legend: (i) while a registration statement covering the resale of such Warrant or Warrant Shares is effective under the Securities Act, (ii) following any sale of such Warrant or Warrant Shares pursuant to Rule 144, (iii) if such Warrant or Warrant Shares are eligible for sale under Rule 144, without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such Warrant or Warrant Shares and without volume or manner-of-sale restrictions, or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company shall cause its counsel to issue a legal opinion to the Transfer Agent promptly after the events described in clauses (i)-(iv) in the immediately preceding sentence if required by the Transfer Agent to effect the removal of the legend hereunder. The Company agrees that following such time as such legend is no longer required under this Section 5, it will, no later than two days following the delivery by a Holder to the Company or the Transfer Agent of a certificate representing Warrants or Warrant Shares issued with a restrictive legend (such second Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to such Holder a certificate representing such Warrant or Warrant Shares that is free from all restrictive, securities and other legends. The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 5.

 

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(b) If by the Legend Removal Date, the Company shall fail to cause to be issued and delivered to such Holder a certificate representing such Warrant or Warrant Shares that is free from all restrictive and other legends, and if on or after such Trading Day the Holder purchases (in an open market transaction or otherwise) Common Shares to deliver in satisfaction of a sale by the Holder of Common Shares that the Holder anticipated receiving from the Company without any restrictive, securities and other legend (the “Covering Shares”), then the Company shall, (1) within two Trading Days after the Holder’s request, pay cash to the Holder in an amount equal to the excess (if any) of the Investor’s total purchase price (including brokerage commissions, if any) for the Covering Shares, over the product of (A) the number of Covering Shares, times (B) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including brokerage commissions, if any) and (2) deliver to the Holder the Warrant or Warrant Shares that would have been issued had the Company timely complied with its delivery obligations hereunder.

 

6. Miscellaneous.

 

(a) No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3.

 

(b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

 

(c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.

 

(d) Authorized Shares.

 

(i) The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Share a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Share may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

 

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(ii) Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant, and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

 

(iii) Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

 

Governing Law. The internal laws of the State of Delaware (irrespective of its choice of law principles) shall govern the validity of this Warrant, the construction of its terms, and the interpretation and enforcement of the rights and duties of the parties hereto.

 

(e) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.

 

(f) Non-Circumvention. The Company covenants and agrees that it will not, by amendment of its certificate of formation, operating agreement or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any Common Shares receivable upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable Common Shares upon the exercise of this Warrant

 

(g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

 

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(h) Notices. All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); or (c) on the date sent by e-mail of a PDF document (with confirmation of transmission), if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient. Such communications must be sent to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 5(g)):

 

If to the Company: c/o 1847 Holdings LLC
590 Madison Avenue, 21st Floor
New York, NY 10022
Attn: Ellery W. Roberts
Email:
   
If to the Holder: Leonite Capital LLC
1 Hillcrest Center Drive, Suite 232
Spring Valley, NY 10977
Attention: Avi Geller
Tel:
E-mail:

 

(i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Shares or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

(j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

 

(k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

 

(l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

 

(m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

 

(n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

 

[Remainder of Page Intentionally Left Blank; Signature Page Follows]

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

 

  1847 HOLDINGS LLC
     
  By: /s/ Ellery W. Roberts
  Name:  Ellery W. Roberts
  Title: Chief Executive Officer

 

Signature Page to Warrant for Common Shares

 

 

 

 

EXHIBIT A

 

NOTICE OF EXERCISE

 

To: 1847 HOLDINGS LLC

 

(1) The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

 

(2) Payment shall take the form of (check applicable box):

 

[ ] in lawful money of the United States; or

 

[ ] if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in Section 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in Section 2(c).

 

(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

_______________________________

 

 

The Warrant Shares shall be delivered to the following DWAC Account Number:

 

_______________________________

 

_______________________________

 

_______________________________

 

[SIGNATURE OF HOLDER]

 

Name of Investing Entity: ______________________________________________________________________________

Signature of Authorized Signatory of Investing Entity: ________________________________________________________

Name of Authorized Signatory: __________________________________________________________________________

Title of Authorized Signatory: ___________________________________________________________________________

Date: ______________________________________________________________________________________________

 

 

 

 

EXHIBIT B

 

ASSIGNMENT FORM

 

(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

 

     
    (Please Print)
Address:    
     
    (Please Print)
     
Phone Number:    
     
Email Address:    
     
Dated: _______________ __, ______    
     
Holder’s Signature: ____________________ __    
     
Holder’s Address: _______________________    

 

 

 

 

 

Exhibit 4.2

 

1847 HOLDINGS LLC

 

WARRANT FOR COMMON SHARES

 

Warrant Shares: 500,000 Issue Date: October 8, 2021

 

THIS WARRANT FOR COMMON SHARES (this “Warrant”) certifies that, for value received, Leonite Capital LLC or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the “Initial Exercise Date”) and on or prior to the close of business on the five year anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from 1847 Holdings LLC, a Delaware limited liability company (the “Company”), up to Five Hundred Thousand (500,000) Common Shares (as subject to adjustment hereunder, the “Warrant Shares”). The purchase price of one Common Share under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

 

1. Definitions.

 

Affiliate” means, as to any Person, any other Person that directly, or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such Person. For the purposes of this definition, “Control” shall mean the power, directly or indirectly, either to (i) vote 10% or more of the securities having ordinary voting power for the election of directors (or persons performing similar functions) of a Person or (ii) direct or cause the direction of the management and policies of a Person, whether through the ability to exercise voting power, by control or otherwise. The terms “Control”, “Controlled by”, and “under common Control with” have the meanings correlative thereto.

 

Alternate Consideration” shall have the meaning set forth in Section 3(d).

 

Attribution Parties” shall have the meaning set forth in Section 2(e).

 

Base Exercise Price” shall have the meaning set forth in Section 3(e).

 

Beneficial Ownership Limitation” shall have the meaning set forth in Section 2(e).

 

Black Scholes Value” shall have the meaning set forth in Section 3(d).

 

Bloomberg” shall have the meaning set forth in Section 3(d).

 

Business Day” means any day other than a Saturday, a Sunday or a day on which banking institutions in New York, New York are authorized or obligated to close.

 

Buy-In” shall have the meaning set forth in Section 2(d)(iv).

 

Commission” means the United States Securities and Exchange Commission.

 

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Common Share Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Share, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Share.

 

Common Shares” means the common shares of the Company.

 

Company” shall have the meaning set forth in the introduction.

 

Covering Shares” shall have the meaning set forth in Section 5(b).

 

Dilutive Issuance” shall have the meaning set forth in Section 3(e).

 

Distribution” shall have the meaning set forth in Section 3(c).

 

DWAC” shall have the meaning set forth in Section 2(d)(i).

 

Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

Exempt Issuance” means the issuance of (a) Common Shares or options to employees, officers or directors of the Company or consultants to the Company pursuant to any stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the board of directors or a majority of the members of a committee of non-employee directors established for such purpose for services rendered to the Company, provided, however, such issuance shall not exceed fifteen percent (15%) of the Common Shares issued and outstanding as of the date hereof, (b) securities upon the exercise or exchange of or conversion of any securities exercisable or exchangeable for or convertible into Common Shares issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Warrant to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities (other than in connection with stock splits or combinations) or to extend the term of such securities, (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company or securities issued in financing transactions, the primary purpose of which is to finance acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that such securities are issued as “restricted securities” (as defined in Rule 144) and carry no registration rights that require or permit the filing of any registration statement in connection therewith, and provided that any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries, an operating 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, (d) Common Shares, options or convertible securities issued to in connection with the provision of goods pursuant to transactions approved by a majority of the disinterested directors of the Company, and (e) Common Shares, options or convertible securities issued in connection with sponsored research, collaboration, technology license, development, marketing or other similar agreements or strategic partnerships approved a majority of the disinterested directors of the Company.

 

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Exercise Price” shall have the meaning set forth in Section 2(b).

 

Fundamental Transaction” shall have the meaning set forth in Section 3(d).

 

Holder” shall have the meaning set forth in the introduction.

 

Initial Exercise Date” shall have the meaning set forth in the introduction.

 

Issue Date” means the date of this Warrant.

 

Legend Removal Date” shall have the meaning set forth in Section 5(a)

 

Notice of Exercise” means the document set forth in Exhibit A annexed hereto.

 

Purchase Rights” shall have the meaning set forth in Section 3(b).

 

Securities Act” means the Securities Act of 1933, as amended.

 

Standard Settlement Period” shall have the meaning set forth in Section 2(d)(i).

 

Subsidiary” means, as to any Person, any corporation, partnership, limited liability company or other entity of which more than fifty percent (50%) of the outstanding capital stock or other ownership interests having ordinary voting power to elect a majority of the board of directors or other managers of such corporation, partnership, limited liability company or other entity is at the time, directly or indirectly, owned by such Person (irrespective of whether, at the time, capital stock or other ownership interests of any other class or classes of such corporation or other entity shall have or might have voting power by reason of the happening of any contingency).

 

Successor Entity” shall have the meaning set forth in Section 3(d).

 

Termination Date” shall have the meaning set forth in the introduction.

 

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

 

Trading Market” means any of the following markets or exchanges on which the Common Shares are listed or quoted for trading on the date in question: the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, the NYSE American, the OTCQB, the OTCQX, or the OTC Pink Marketplace (or any successors to any of the foregoing).

 

Transfer Agent” means VStock Transfer, LLC, and any successor transfer agent of the Company.

 

VWAP” shall have the meaning set forth in Section 2(c).

 

Warrant Register of the Company” shall have the meaning set forth in Section 3(g)(ii).

 

Warrant Register” shall have the meaning set forth in Section 4(c).

 

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Warrant Share Delivery Date” shall have the meaning set forth in Section 2(d)(i).

 

Warrant Shares” shall have the meaning set forth in the introduction.

 

Warrant” shall have the meaning set forth in the introduction.

 

2. Exercise.

 

(a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company or the Transfer Agent (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy (or e-mail attachment) of the Notice of Exercise in the form of Exhibit A annexed hereto. Within the earlier of (i) three (3) Trading Days, and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise form be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

 

(b) Exercise Price. The exercise price per share of the Common Share under this Warrant shall be $2.50, subject to adjustment hereunder (the “Exercise Price”).

 

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(c) Cashless Exercise. If at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained therein is not available for the issuance of, the Warrant Shares to the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

(A) = the highest traded price of the Common Shares during the thirty (30) Trading Days prior to the date of the respective Exercise Notice.;

 

(B) = the Exercise Price of this Warrant, as adjusted hereunder; and

 

(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

 

If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the registered characteristics of the Warrants being exercised.  The Company agrees not to take any position contrary to this Section 2(c).

 

Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

 

(d) Mechanics of Exercise.

 

(i) Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by Holder, or (B) this Warrant is being exercised via cashless exercise, and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earlier of (i) one (1) Trading Day and (ii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”). Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within the earlier of (i) three (3) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Shares on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5th) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Share as in effect on the date of delivery of the Notice of Exercise.

 

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VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Shares are then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Shares for such date (or the nearest preceding date) on the Trading Market on which the Common Shares are then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b)  if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Shares for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Shares are not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Shares are then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Shares so reported, or (d) in all other cases, the fair market value of a share of Common Shares as determined by an independent appraiser selected in good faith by the Holder.

 

(ii) Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

 

(iii) Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

 

(iv) Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date (other than any such failure that is solely due to any action or inaction by the Holder with respect to such exercise), and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, Common Shares 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 (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Share so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) 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 (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of Common Shares that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Shares having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of Common Shares with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. 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 shares of Common Share upon exercise of the Warrant as required pursuant to the terms hereof.

 

(v) No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

 

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(vi) Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant, when surrendered for exercise, shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.

 

(vii) Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

 

(e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of Common Shares beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of Common Shares issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of Common Shares which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Share Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding Common Shares, a Holder may rely on the number of outstanding Common Shares as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company, or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of Common Shares outstanding.  Upon the written or oral request of a Holder, the Company shall within two (2) Trading Days confirm orally and in writing to the Holder the number of Common Shares then outstanding.  In any case, the number of outstanding Common Shares shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding Common Shares was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Shares outstanding immediately after giving effect to the issuance of Common Shares issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Shares outstanding immediately after giving effect to the issuance of Common Shares upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

 

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3. Certain Adjustments.

 

(a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Shares or any other equity or equity equivalent securities payable in Common Shares (which, for avoidance of doubt, shall not include any Common Shares issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding Common Shares into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding Common Shares into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Shares any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of Common Shares (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of Common Shares (excluding treasury shares, if any) outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

(b) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Share Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Shares (the “Purchase Rights”), then the Holder will 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 Share acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Share are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such Common Shares as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

(c) Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common Shares, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of Common Shares acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of Common Shares are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any Common Shares as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation). To the extent that this Warrant has not been partially or completely exercised at the time of such Distribution, such portion of the Distribution shall be held in abeyance for the benefit of the Holder until the Holder has exercised this Warrant.

 

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(d) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Shares are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Shares, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Shares or any compulsory share exchange pursuant to which the Common Shares is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions, consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding Common Shares (not including any Common Shares held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of Common Shares of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of Common Shares for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). 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 Share 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 Share 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. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction, purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction. “Black Scholes Value” means the value of this Warrant based on the Black and Scholes Option Pricing Model obtained from the “OV” function on Bloomberg, L.P. (“Bloomberg”) determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction, and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds within five Business Days of the Holder’s election (or, if later, on the effective date of the Fundamental Transaction). The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(d) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Share acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Share pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

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(e) Anti-dilution Adjustment. If at any time while this Warrant is outstanding, the Company sells or grants (or has sold or granted, as the case may be) any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or has sold or issued, as the case may be, or announces any sale, grant or any option to purchase or other disposition), any Common Share or other securities convertible into, exercisable for or otherwise entitled any person or entity the right to acquire Common Shares at an effective price per share that is lower than the then Exercise Price (such lower price, the “Base Exercise Price” and such issuances, collectively, a “Dilutive Issuance”) (it being agreed that if the holder of the Common Share or other securities so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive Common Shares at an effective price per share that is lower than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance), then the Exercise Price shall be reduced to a price equal the Base Exercise Price, and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. Such adjustment shall be made whenever such Common Share or other securities are issued, provided however, that no adjustment will be made under this Section 3(e) in respect of an Exempt Issuance.

 

(f) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of Common Shares deemed to be issued and outstanding as of a given date shall be the sum of the number of Common Shares (excluding treasury shares, if any) issued and outstanding.

 

(g) Notice to Holder.

 

(i) Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

 

(ii) Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Shares, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Shares, (C) the Company shall authorize the granting to all holders of the Common Shares rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Shares, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Shares is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Shares of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Shares of record shall be entitled to exchange their shares of the Common Shares for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

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4. Transfer of Warrant.

 

(a) Transferability. This Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date the Holder delivers an assignment form to the Company assigning this Warrant full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

 

(b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Issue Date of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

 

(c) Warrant Register. 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.

 

5. Legend Removal.

 

(a) Certificates evidencing this Warrant or the Warrant Shares shall not contain any restrictive, securities or other legend: (i) while a registration statement covering the resale of such Warrant or Warrant Shares is effective under the Securities Act, (ii) following any sale of such Warrant or Warrant Shares pursuant to Rule 144, (iii) if such Warrant or Warrant Shares are eligible for sale under Rule 144, without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such Warrant or Warrant Shares and without volume or manner-of-sale restrictions, or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company shall cause its counsel to issue a legal opinion to the Transfer Agent promptly after the events described in clauses (i)-(iv) in the immediately preceding sentence if required by the Transfer Agent to effect the removal of the legend hereunder. The Company agrees that following such time as such legend is no longer required under this Section 5, it will, no later than two days following the delivery by a Holder to the Company or the Transfer Agent of a certificate representing Warrants or Warrant Shares issued with a restrictive legend (such second Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to such Holder a certificate representing such Warrant or Warrant Shares that is free from all restrictive, securities and other legends. The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 5.

 

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(b) If by the Legend Removal Date, the Company shall fail to cause to be issued and delivered to such Holder a certificate representing such Warrant or Warrant Shares that is free from all restrictive and other legends, and if on or after such Trading Day the Holder purchases (in an open market transaction or otherwise) Common Shares to deliver in satisfaction of a sale by the Holder of Common Shares that the Holder anticipated receiving from the Company without any restrictive, securities and other legend (the “Covering Shares”), then the Company shall, (1) within two Trading Days after the Holder’s request, pay cash to the Holder in an amount equal to the excess (if any) of the Investor’s total purchase price (including brokerage commissions, if any) for the Covering Shares, over the product of (A) the number of Covering Shares, times (B) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including brokerage commissions, if any) and (2) deliver to the Holder the Warrant or Warrant Shares that would have been issued had the Company timely complied with its delivery obligations hereunder.

 

6. Miscellaneous.

 

(a) No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3.

 

(b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

 

(c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.

 

(d) Authorized Shares.

 

(i) The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Share a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Share may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

 

12

 

 

(ii) Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant, and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

 

(iii) Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

 

Governing Law. The internal laws of the State of Delaware (irrespective of its choice of law principles) shall govern the validity of this Warrant, the construction of its terms, and the interpretation and enforcement of the rights and duties of the parties hereto.

 

(e) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.

 

(f) Non-Circumvention. The Company covenants and agrees that it will not, by amendment of its certificate of formation, operating agreement or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any Common Shares receivable upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable Common Shares upon the exercise of this Warrant

 

(g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

 

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(h) Notices. All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); or (c) on the date sent by e-mail of a PDF document (with confirmation of transmission), if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient. Such communications must be sent to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 5(g)):

 

If to the Company:

c/o 1847 Holdings LLC.

590 Madison Avenue, 21st Floor

New York, NY 10022

Attn: Ellery W. Roberts

Email: eroberts@1847holdings.com

   
If to the Holder:

Leonite Capital LLC

1 Hillcrest Center Drive, Suite 232

Spring Valley, NY 10977

Attention: Avi Geller

Tel: (845) 517-2340

E-mail: avi@leonitecap.com

 

(i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Shares or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

(j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

 

(k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

 

(l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

 

(m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

 

(n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

 

[Remainder of Page Intentionally Left Blank; Signature Page Follows]

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

 

  1847 HOLDINGS LLC
     
  By: /s/ Ellery W. Roberts
  Name:  Ellery W. Roberts
  Title: Chief Executive Officer

 

Signature Page to Warrant for Common Shares

 

 

 

 

EXHIBIT A

 

NOTICE OF EXERCISE

 

To:         1847 HOLDINGS LLC

 

(1) The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

 

(2) Payment shall take the form of (check applicable box):

 

in lawful money of the United States; or

 

if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in Section 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in Section 2(c).

 

(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

_______________________________

 

 

The Warrant Shares shall be delivered to the following DWAC Account Number:

 

_______________________________

 

_______________________________

 

_______________________________

 

[SIGNATURE OF HOLDER]

 

Name of Investing Entity: _________________________________________________________

Signature of Authorized Signatory of Investing Entity: ___________________________________

Name of Authorized Signatory: _____________________________________________________

Title of Authorized Signatory: ______________________________________________________

Date: __________________________________________________________________________

 

 

 

 

EXHIBIT B

 

ASSIGNMENT FORM

 

(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

w

 
    (Please Print)
Address:  

 

 

(Please Print)

     
Phone Number:    
     
Email Address:    
Dated: _______________ __, ______    
Holder’s Signature:                                                                 
Holder’s Address:                                                                   

 

 

 

 

 

Exhibit 10.1

 

SECURITIES PURCHASE AGREEMENT

 

dated as of September 23, 2021

 

among

 

1847 CABINET INC.

 

HIGH MOUNTAIN DOOR & TRIM, INC.

 

SIERRA HOMES, LLC

 

AND

 

THE OTHER PARTIES SET FORTH IN EXHIBIT A HERETO

 

 

 

 

TABLE OF CONTENTS

 

  Page
ARTICLE I DEFINITIONS 1
1.1 Certain Definitions. 1
ARTICLE II PURCHASE AND SALE OF THE SECURITIES 7
2.1 Purchase and Sale of the Securities. 7
2.2 Working Capital Adjustment. 8
2.3 Adjustments to the Closing Date Payment 10
2.4 Closing. 11
2.5 Transactions to be Effected at the Closing. 11
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLERS 11
3.1 Authority and Enforceability. 11
3.2 Noncontravention. 12
3.3 The Securities. 12
3.4 Brokers’ Fees. 12
3.5 Investment. 12
ARTICLE IV REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANIES 13
4.1 Organization; Standing and Power; Authority and Enforceability. 13
4.2 Subsidiaries. 13
4.3 Capitalization. 13
4.4 Noncontravention. 14
4.5 Financial Statements. 14
4.6 Taxes. 15
4.7 Compliance with Laws and Orders; Permits. 15
4.8 No Undisclosed Liabilities. 15
4.9 Tangible Personal Property. 16
4.10 Real Property. 16
4.11 Intellectual Property. 16
4.12 Absence of Certain Changes or Events. 17
4.13 Contracts. 18
4.14 Litigation. 18
4.15 Employee Benefits. 18
4.16 Labor and Employment Matters. 19
4.17 Environmental Matters. 19
4.18 Insurance. 19
4.19 Brokers’ Fees. 19
4.20 Certain Business Relationships with the Company. 19
4.21 Equipment. 19
4.22 Suppliers. 19
4.23 Inventory. 20
4.24 Officers and Directors; Bank Accounts, Signing Authority, Powers of Attorney. 20
4.25 Accounts Receivable. 20
4.26 No Other Representations and Warranties. 20

 

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TABLE OF CONTENTS

 

 

    Page
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER 20
5.1 Organization. 20
5.2 Authorization. 20
5.3 Noncontravention. 21
5.4 Brokers’ Fees. 21
5.5 Independent Investigation. 21
5.6 Solvency.. 21
ARTICLE VI COVENANTS 22
6.1 Consents; Guarantees. 22
6.2 Operation of the Companies’ Business. 22
6.3 Access. 22
6.4 Transfer of Cash and Cash Equivalents; Transfer of Certain Assets. 22
6.5 Notice of Developments. 23
6.6 No Solicitation of Transaction Proposals. 23
6.7 Covenant not to Compete; Non-Solicitation. 23
6.8 Taking of Necessary Action; Further Action. 24
6.9 Disclosure Schedule. 24
6.10 PPP Loan 24
6.11 Tax Matters. 24
6.12 Confidentiality. 25
6.13 Reference is made to ther. 25
6.14 Purchase and Sale Materials for Personal Use 25
6.15 Financial Information. 25
  ARTICLE VII CONDITIONS TO OBLIGATIONS TO CLOSE 26
7.1 Conditions to Obligation of the Buyer. 26
7.2 Conditions to Obligation of the Sellers and the Companies. 27
ARTICLE VIII TERMINATION; AMENDMENT; WAIVER 28
8.1 Termination of Agreement. 28
8.2 Effect of Termination. 28
8.3 Amendments. 28
8.4 Waiver. 29
ARTICLE IX INDEMNIFICATION 29
9.1 Survival. 29
9.2 Indemnification by Sellers. 29
9.3 Indemnification by Buyer. 30
9.4 Third Party Indemnification Procedures. 30
9.5 Direct Claim Procedures. 31
9.6 Limitations on Indemnification Obligation. 32
9.7 Payments. 32
9.8 Exclusive Remedy.. 32
ARTICLE X MISCELLANEOUS 33
10.1 Press Releases and Public Announcement. 33
10.2 No Third-Party Beneficiaries. 33
10.3 Entire Agreement. 33
10.4 Succession and Assignment. 33
10.5 Construction. 33
10.6 Notices. 33

 

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TABLE OF CONTENTS

 

    Page
10.7 Governing Law. 34
10.8 Consent to Jurisdiction and Service of Process. 34
10.9 Headings. 34
10.10 Severability. 34
10.11 Expenses. 34
10.12 Incorporation of Exhibits and Schedules. 34
10.13 Limited Recourse. 34
10.14 Specific Performance. 34
10.15 Counterparts. 34

 

EXHIBIT A – List of Sellers

EXHIBIT B – Form of Seller Note

EXHIBIT C – Form of Exchange Agreement

 

iii

 

 

SECURITIES PURCHASE AGREEMENT

 

THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”) is entered into as of September 23, 2021 by and among 1847 Cabinet Inc., a Delaware corporation (the “Buyer”), High Mountain Door & Trim, Inc., a Nevada corporation (“High Mountain”), Sierra Homes, LLC, a Nevada limited liability company doing business as “Innovative Cabinets & Design” (“Sierra Homes” and together with High Mountain, each a “Company” and collectively, the “Companies”), and the other parties set forth in Exhibit A hereto (each a “Seller” and, if more than one, the “Sellers”).

 

BACKGROUND

 

Each Seller is the record and beneficial owner of (a) the shares of common stock of High Mountain (the “High Mountain Securities”) and (b) the membership interests or other equity securities of Sierra Homes (the “Sierra Homes Securities” and together with the High Mountain Securities, the “Securities”), set forth opposite each such Seller’s name on Exhibit A. The Sellers collectively own 100% of the issued and outstanding Securities in the Companies. The Sellers desire to sell all of the Securities to the Buyer, and the Buyer desires to purchase all of the Securities from the Sellers, upon the terms and subject to the conditions set forth in this Agreement (such sale and purchase of the Securities, the “Acquisition”).

 

In connection with the Acquisition, the Buyer and Sellers desire for the Sellers to enter into an Exchange Agreement with 1847 Holdings LLC, a Delaware limited liability company (“1847”), the parent company of the Buyer, in the form of Exhibit C hereto (the “Exchange Agreement”) whereby Sellers would have the right to exchange the principal amount and accrued interest under, or any portion of, the Seller Notes (as defined below), which constitute a portion of the consideration payable to the Sellers in connection with the Acquisition, for common shares of 1847 (the “1847 Shares”) on terms as specified in the Exchange Agreement.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing premises and the respective representations and warranties, covenants and agreements contained herein, the parties hereto agree as follows:

 

ARTICLE I
DEFINITIONS

 

1.1 Certain Definitions.

 

(a) When used in this Agreement, the following terms will have the meanings assigned to them in this Section 1.1(a) and other defined terms will have the meanings given to them elsewhere in this Agreement:

 

Accounts Receivable” means accounts receivable, trade receivables, and other similar receivables, and any security, claim, remedy, or other right related to any of the foregoing, in each case relating to or arising out of the business of the Companies.

 

Action” means any claim, action, suit, inquiry, hearing, proceeding or other investigation.

 

Affiliate” means, with respect to a Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with, such Person. For purposes of this definition, “control” (including the terms “controlled by” and “under common control with”) means possession of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of stock, membership interests or other equity interests, as trustee or executor, by Contract or otherwise.

 

 

 

 

Ancillary Agreements” means the Seller Notes, the Exchange Agreement, any Subordination Agreement, and the Escrow Agreement.

 

Benefit Plan” means any “employee benefit plan” as defined in ERISA Section 3(3), including any (i) nonqualified deferred compensation or retirement plan or arrangement which is an Employee Pension Benefit Plan (as defined in ERISA Section 3(2)), (ii) qualified defined contribution retirement plan or arrangement which is an Employee Pension Benefit Plan, (iii) qualified defined benefit retirement plan or arrangement which is an Employee Pension Benefit Plan (including any Multiemployer Plan (as defined in ERISA Section 3(37)), (iv) Employee Welfare Benefit Plan (as defined in ERISA Section 3(1)) or material fringe benefit plan or program, or (v) stock purchase, stock option, severance pay, change-in-control, vacation pay, company award, salary continuation, sick leave, excess benefit, bonus or other incentive compensation, life insurance, or other employee benefit plan, contract, program, policy or other arrangement, whether or not subject to ERISA, under which any present or former employee of the Companies has any present or future right to benefits sponsored or maintained by the Companies or any ERISA Affiliate.

 

Business Day” means a day other than a Saturday, Sunday or other day on which banks located in New York, New York are authorized or required by Law to close.

 

Cash on Hand” means, as of the Closing with respect to the Companies on a consolidated basis, the aggregate amount of all cash and cash equivalents that would be classified as “cash and cash equivalents” on a balance sheet prepared in accordance with GAAP, excluding (i) the amount of all outstanding checks of the Companies that are issued or outstanding at such time; and (ii) the amount of all customer deposits held by the Companies as of the Closing Date.

 

Closing Transaction Expenses Certificate” means a certificate delivered by the Companies stating (i) an itemized list of all Transaction Expenses to be paid on behalf of the Companies at the Closing, (ii) the identity of any Person to whom payment of such Closing Transaction Expenses shall be made, and (iii) with respect to such outstanding Closing Transaction Expenses to be paid on behalf of the Companies at the Closing, wire transfer information for the Person to whom payment shall be made.

 

Closing Indebtedness Certificate” means a certificate delivered by the Companies stating (i) an itemized list of all such outstanding Indebtedness to be paid on behalf of the Companies at the Closing, (ii) the identity of the Person to whom payment of such Closing Indebtedness shall be paid, and (iii) with respect to such outstanding Indebtedness to be paid on behalf of the Companies at the Closing, wire transfer information for the Person to whom payment shall be made.

 

Code” means the Internal Revenue Code of 1986, as amended.

 

Company Accounting Principles” means the accounting principles and methodologies used by the Companies in the preparation of the Annual Financial Statements as of and for the most recent fiscal year end, which include the preparation of combined financial statements of the Companies on an accrual basis (with adjustments made to the financial statements pertaining to such period for High Mountain to change from a cash basis to accrual basis) and the accounting practices set forth in the Disclosure Schedule.

 

Contract” means any written agreement, contract, commitment, arrangement or understanding.

 

2

 

 

COVID-19” means the novel coronavirus, SARS-CoV-2 or COVID-19 (and all related strains and sequences), including any intensification, resurgence or any natural evolutions or mutations thereof, and/or related epidemics, pandemics, disease outbreaks or public health emergencies.

 

Covid-19 Conditions” means conditions brought about by or resulting from the outbreak, spread, impact, or existence of COVID-19 or any Order or Law enacted by any Governmental Entity to address the consequences of COVID-19, including any mandate, directive, ordinance or other action by any Governmental Entity that requires business closures, “sheltering-in-place”, quarantines, “lock-downs”, or government shutdowns or any other actions or measures taken by any Governmental Entity in connection with or in response to COVID-19 that reduce, limit, or delay government services.

 

Disclosure Schedule” means the disclosure schedule to be delivered by the Companies to the Buyer in accordance with Section 6.10. All section headings in the Disclosure Schedule correspond to the sections of this Agreement, but information provided in any section of the Disclosure Schedule shall constitute disclosure for purposes of each section of this Agreement where such information is relevant, and each section of the Disclosure Schedule will be deemed to incorporate by reference all information disclosed in any other section of the Disclosure Schedule.

 

Escrow Agreement” means that certain escrow agreement, dated as of the Closing Date, among Buyer, Sierra Homes, the Sellers and the Escrow Agent, in a form to be agreed among such parties hereto and the Escrow Agent.

 

Escrow Agent” means Heritage Bank of Nevada, Division of Glacier Bank.

 

ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

 

ERISA Affiliate” means any Person who is, or at any time was, a member of a “controlled group of corporations” within the meaning of Section 414(b) or (c) of the Code and, for the purpose of Section 302 of ERISA and/or Section 412, 4971, 4977, 4980D, 4980E and/or each “applicable section” under Section 414(f)(2) of the Code, within the meaning of Section 412(n)(6) of the Code that includes, or at any time included, the Companies or any Affiliate thereof, or any predecessor of any of the foregoing.

 

Equipment Indebtedness” means, without duplication and with respect to the Companies, all (a) indebtedness incurred, created or arising under any equipment lease, any vehicle lease, or any other similar equipment or vehicle financing arrangement in which a Company obtains the right to use any equipment or vehicles from a lessor or vendor, including obligations to pay rent or other amounts under any such lease of (or other arrangement conveying the right to use) any vehicles or equipment; (b) all indebtedness incurred to finance the acquisition of any equipment or vehicles by the Company, including obligations for the deferred purchase price of any equipment or vehicles acquired by a Company, and any other similar payment obligations incurred, created or arising under any conditional sales contract, any title retention agreement, or any capital lease of equipment or vehicles,

 

GAAP” means United States generally accepted accounting principles as in effect on the date hereof.

 

Governmental Entity” means any entity or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to United States federal, state or local government or foreign, international, multinational or other government, including any department, commission, board, agency, bureau, official or other regulatory, administrative or judicial authority thereof.

 

3

 

 

Indebtedness” means, without duplication and with respect to the Companies, all (a) indebtedness for borrowed money; (b) obligations evidenced by bonds, debentures, notes or similar instruments; (c) obligations of third parties for borrowed money that are secured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured by) any Lien on property owned by any Company, whether or not the obligation secured thereby has been assumed; (d) guarantees made by a Company in respect of obligations of third parties for borrowed money; and (e) obligations of the Companies as an account party in respect of letters of credit and letters of guaranty; provided, however, that the PPP Loan shall not be treated as Indebtedness hereunder in any respect.

 

Intellectual Property” means all intellectual property and other similar proprietary rights in any jurisdiction worldwide, whether registered or unregistered, including such rights in and to: (i) patents (including all reissues, divisions, provisionals, continuations and continuations-in-part, re-examinations, renewals and extensions thereof), patent applications, patent disclosures or other patent rights; (ii) copyrights, design, design registration, and all registrations, applications for registration, and renewals for any of the foregoing, and any “moral” rights; (iii) trademarks, service marks, trade names, business names, logos, trade dress, certification marks and other indicia of commercial source or origin together with all goodwill associated with the foregoing, and all registrations, applications and renewals for any of the foregoing; (iv) trade secrets and business, technical and know-how information, databases, data collections and other confidential and proprietary information and all rights therein; (v) software, including data files, source code, object code, application programming interfaces, architecture, files, records, schematics, computerized databases and other software-related specifications and documentation; and (vi) Internet domain name registrations.

 

Inventory” means all inventories of raw materials, supplies, work-in-process, finished goods, and other materials used in or held for use in the business of the Companies.

 

IRS” means the Internal Revenue Service.

 

Knowledge of the Sellers” means the actual knowledge of each Seller.

 

Law” means any statute, law, ordinance, rule or regulation of any Governmental Entity.

 

Liability” means all indebtedness, obligations and other liabilities and contingencies of a Person, whether absolute, accrued, contingent, fixed or otherwise, or whether due or to become due.

 

Lien” means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, hypothecation or other encumbrance in respect of such property or asset.

 

Material Adverse Effect” means any event, occurrence, fact, condition or change that has a materially adverse effect on the assets, properties, condition (financial or otherwise), or results of operations of the Companies and any of their Subsidiaries, taken as a whole, provided, however, that a Material Adverse Effect shall not include any event, occurrence, fact, condition or change, directly or indirectly, arising out of or attributable to: (i) changes in the national or world economy or financial markets as a whole or changes in general economic conditions that affect the industries in which the Companies and their Subsidiaries conduct their business, so long as such changes or conditions do not adversely affect the Companies and their Subsidiaries, taken as a whole, in a materially disproportionate manner relative to other similarly situated participants in the industries or markets in which they operate; (ii) any change in applicable Law or GAAP or interpretation thereof after the date hereof, so long as such changes do not adversely affect the Companies and their Subsidiaries, taken as a whole, in a materially disproportionate manner relative to other similarly situated participants in the industries or markets in which they operate; (iii) the announcement, pendency or completion of the transactions contemplated by this Agreement, including losses or threatened losses of employees, customers, suppliers, distributors or others having relationships with a Company any of its Subsidiaries; (iv) any action permitted or required by the terms of this Agreement or any action taken (or omitted to be taken) at the request of, or with the consent of, the Buyer; (v) any matter of which the Buyer is aware on the date hereof; (vi) any natural or man-made disaster or acts of God; or (vii) any epidemics, pandemics, disease outbreaks, or other public health emergencies (including COVID-19 or any COVID-19 Conditions) or any action taken by any Governmental Entity in response thereto.

4

 

 

Net Working Capital” means the following adjusted net working capital of the Companies, calculated on a consolidated basis in accordance with the Company Accounting Principles and the Net Working Capital Methodology as of 11:59 p.m. Pacific Time on the day immediately preceding the Closing Date:

 

(i) Accounts Receivable, Inventory, prepaid expenses, the Minimum Cash Amount, and other current assets that are expected to have an economic benefit to the Companies post-Closing; less

 

(ii) Accounts payable, accrued expenses, outstanding checks, and other current liabilities, but excluding (i) customer deposits, (ii) the PPP Loan, and (iii) the Closing Transaction Expenses, the Closing Indebtedness, and the current portion of any liabilities of the Companies that are deducted or paid from the Cash Portion in the determination of the Closing Date Payment pursuant to this Agreement.

 

Net Working Capital Target” means $1,000,000.

 

Net Working Capital Methodology” means the principles and methodologies for calculating the Net Working Capital of the Companies.

 

Order” means any award, injunction, judgment, decree, order, ruling, subpoena or verdict or other decision issued, promulgated or entered by or with any Governmental Entity of competent jurisdiction.

 

Permit” means any authorization, approval, consent, certificate, license, clearance, permit or franchise of or from any Governmental Entity of competent jurisdiction or pursuant to any Law.

 

Permitted Liens” means (i) Liens for current Taxes that are not yet due and payable or that may hereafter be paid without material penalty or that are being contested in good faith, (ii) statutory Liens of landlords and workers,’ carriers’ and mechanics’ or other like Liens incurred in the ordinary course of business not yet overdue or that are being contested in good faith, (iii) Liens, easements, servitudes, covenants, conditions, restrictions, encroachments and other similar non-monetary matters affecting title to any assets of the Companies or any of their Subsidiaries and other title defects which do not materially interfere with the present or proposed use of the properties by the Companies or their Subsidiaries or assets they affect taken as a whole, (iv) zoning, building codes, and other land use Laws regulating the use or occupancy of leased real property or the activities conducted thereon that are imposed by any Governmental Entity having jurisdiction over such leased real property and which are not violated in any material respect by the current use and operation of such leased real property or the operation of the business of the Company (v) Liens that will be released prior to or as of the Closing, (vi) Liens arising under this Agreement, (vii) Liens created by or through the Buyer or any of its Affiliates, (viii) Liens that, individually or in the aggregate, do not materially interfere with the ability of the Companies to conduct their business as currently conducted and do not materially adversely affect the value of, or the ability to sell, such personal properties and assets, or (ix) Liens securing any Equipment Indebtedness, including Liens arising under original purchase price conditional sales contracts, vehicle and equipment purchase agreements, and vehicle and equipment leases with third parties entered into in the ordinary course of business.

 

5

 

 

Person” means an individual, a corporation, a partnership, a limited liability company, a trust, an unincorporated association, a Governmental Entity or any agency, instrumentality or political subdivision of a Governmental Entity, or any other entity or body.

 

PPP Loan” means that certain loan under the Paycheck Protection Program made on March 20, 2021 by Heritage Bank of Nevada, Division of Glacier Bank, as lender, to Sierra Homes, as borrower, in the original principal amount of $362,815.00.

 

Pro Rata Basis” means, for each Seller, the ratio of (a) the Aggregate Purchase Price Per Seller to (b) the Aggregate Total Purchase Price, as set forth in Exhibit A hereto.

 

Representatives” means, with respect to any Person, the respective directors, officers, employees, counsel, accountants and other representatives or agents of such Person.

 

Subordination Agreement” means that Subordination Agreement, if any, by and among the Sellers, the Buyer, and the bank or other financial institution providing financing for the Acquisition (the “Financing Lender”), in a commercially reasonable form to be agreed upon by the parties hereto and such Financing Lender prior to the Closing, which sets forth, to the extent generally described below, that the Seller Notes shall be subordinated in right of payment to the indebtedness incurred by the Buyer to fund the payment of the Cash Portion of the Purchase Price (the “Senior Debt”).

 

Subsidiary” means, with respect to any Person, any corporation, partnership, joint venture or other legal entity of which such Person (either alone or through or together with any other Subsidiary), owns, directly or indirectly, more than 50% of the stock or other equity interests, the holders of which are generally entitled to vote for the election of the board of directors or other governing body of a non-corporate Person.

 

Taxes” means all federal, state, local and foreign income, profits, franchise, gross receipts, environmental, customs duty, capital stock, severance, stamp, payroll, sales, transfer, employment, unemployment, disability, use, property, withholding, excise, production, value added, occupancy and other taxes, duties or assessments of any nature whatsoever, in each case, imposed by any Taxing Authority.

 

Taxing Authority” means any Governmental Entity having or purporting to exercise jurisdiction with respect to any Tax.

 

Tax Returns” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof, filed or required to be filed with any Taxing Authority.

 

Transaction Expenses” means, to the extent not paid by the Companies before the Closing, the amount of all fees, costs and expenses (including legal, accounting, investment banking, broker's, finder's and other professional or advisory fees and expenses) of the Companies and the Sellers incurred by or on behalf of, or to be paid by, the Companies or any Seller in connection with the negotiation and execution of this Agreement and the other transaction documents and the consummation of the Acquisition; provided that in no event will Transaction Expenses include any fees, expenses or other liabilities to the extent incurred by or at the direction of Buyer, relating to Buyer's or its Affiliates' financing, including obtaining any consent or waiver relating thereto, for the Acquisition or any other liabilities or obligations incurred or arranged by or on behalf of Buyer or its Affiliates in connection with the Acquisition, including any fees payable to any financing institution or lender or the Companies' accountants on behalf of Buyer or its Affiliates.

 

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Transaction Proposal” means any written bona fide proposal made by a third party relating to (i) any direct or indirect acquisition or purchase of all or substantially all of the assets of the Companies or any of their Subsidiaries, (ii) any direct or indirect acquisition or purchase of a majority of the combined voting power of the Securities or any equity securities of the Companies or any of their Subsidiaries, or (iii) any merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving the Companies in which the other party thereto or its stockholders will own 51% or more of the combined voting power of the parent entity resulting from any such transaction.

 

$” means United States dollars.

 

(b) For purposes of this Agreement, except as otherwise expressly provided herein or unless the context otherwise requires: (i) the meaning assigned to each term defined herein will be equally applicable to both the singular and the plural forms of such term and vice versa, and words denoting any gender will include all genders as the context requires; (ii) where a word or phrase is defined herein, each of its other grammatical forms will have a corresponding meaning; (iii) the terms “hereof”, “herein”, “hereunder”, “hereby” and “herewith” and words of similar import will, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement; (iv) when a reference is made in this Agreement to an Article, Section, paragraph, Exhibit or Schedule without reference to a document, such reference is to an Article, Section, paragraph, Exhibit or Schedule to this Agreement; (v) a reference to a subsection without further reference to a Section is a reference to such subsection as contained in the same Section in which the reference appears, and this rule will also apply to paragraphs and other subdivisions; (vi) the word “include”, “includes” or “including” when used in this Agreement will be deemed to include the words “without limitation”, unless otherwise specified; (vii) a reference to any party to this Agreement or any other agreement or document will include such party’s predecessors, successors and permitted assigns; (viii) a reference to any Law means such Law as amended, modified, codified, replaced or reenacted as of the date hereof, and all rules and regulations promulgated thereunder as of the date hereof; and (ix) the term “as of the Closing” or “as of the Closing Date” when used to calculate financial amounts in this Agreement will be as of 11:59 p.m. local time on the Closing Date.

 

ARTICLE II
PURCHASE AND SALE OF THE SECURITIES

 

2.1 Purchase and Sale of the Securities.

 

(a) Purchase and Sale. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, each Seller will contribute, sell, transfer and deliver to the Buyer, and the Buyer will purchase and receive from each Seller, all the Securities set forth opposite such Seller’s name on Exhibit A for the consideration specified in Section 2.1(b).

 

(b) Purchase Price. The aggregate purchase price for the Securities shall be Fourteen Million Two Hundred Fifty Thousand Dollars ($14,250,000) (the “Purchase Price”), subject to any adjustments pursuant to Section 2.2 and Section 2.3 hereof, and consisting of: (i) Ten Million Six Hundred Eighty Seven Thousand Five Hundred Dollars ($10,687,500) in cash (the “Cash Portion”), and (ii) the Seller Notes (as defined below) in the aggregate principal amount of Three Million Five Hundred Sixty-Two Thousand Five Hundred Dollars ($3,562,500) (the “Aggregate Principal Amount”). The Purchase Price shall be paid at the Closing as described below and allocated among the Sellers on a Pro Rata Basis as set forth on Exhibit A. The parties agree that a portion of the aggregate Purchase Price for the Securities shall be allocated between the Securities of each Company in the amounts set forth on Exhibit A, with the amounts set forth therein being the aggregate amounts paid for all of the Sierra Homes Securities and all of the High Mountain Securities, respectively.

 

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(c) Closing Date Payment. At the Closing, the Buyer will deliver to each of the Sellers an amount equal to their respective Pro Rata Share of the Cash Portion: (i) less the Escrow Amount, and (ii) subject to any adjustment pursuant to Section 2.3 hereof (the net amount after giving effect to such adjustments shall be the “Closing Date Payment”), by wire transfer of immediately available funds to the accounts designated by the Sellers prior to the Closing.

 

(d) Seller Notes. At the Closing, the Buyer will issue to each of the Sellers a subordinated promissory note, in a principal amount equal to their respective Pro Rata Share of the Aggregate Principal Amount plus or minus, as applicable, the Net Working Capital adjustment amount determined pursuant to Section 2.2(a) hereof (the “Adjusted Aggregate Principal Amount”), in the form attached hereto as Exhibit B (a “Seller Note” and, collectively, the “Seller Notes”).

 

(e) Conversion & Exchange Rights. As is more fully set forth in the Exchange Agreement and the Seller Notes, the Sellers shall have the right pursuant to the Exchange Agreement to exchange the principal amount and accrued interest under the Seller Notes or any portion thereof for 1847 Shares based upon an exchange price or rate that is equal to the higher of (a) the 30-day volume weighted average price prior to the date of conversion or (b) $2.50. Additionally, as more fully set forth in the Seller Notes, the Sellers shall have the right pursuant to the Seller Notes to convert up to twenty percent (20%) of the Aggregate Principal Amount plus accrued, but unpaid interest thereon, into Common Stock of the Buyer at any time prior to the first anniversary of Closing at a conversion price that is either mutually agreed upon at the time of conversion or is determined by a valuation opinion provided by an investment bank or similar firm that is mutually agreeable to the Buyer and Sellers.

 

(f) Escrow Account. At the Closing, the Buyer will deliver an amount equal to the outstanding balance of the PPP Loan as of the Closing Date (the “Escrow Amount”), which will be delivered to the Escrow Agent for deposit into an escrow account (the “Escrow Account”) to be established pursuant to the terms of the Escrow Agreement.

 

2.2 Working Capital Adjustment.

 

(a) Closing Date Net Working Capital Adjustment.

 

(i) Estimated Net Working Capital. At least two (2) Business Day prior to the Closing, the Sellers shall deliver to the Buyer a statement setting forth the Sellers’ good faith estimate of the Net Working Capital as of the Closing Date, which statement shall contain: (x) an unaudited combined balance sheet of the Companies (the “Adjustment Balance Sheet”) as of the month end immediately prior to the Closing Date; (y) a calculation of the Sellers’ good faith estimate of the Net Working Capital as of the Closing Date (the “Estimated Net Working Capital Statement”); and (z) a certificate of the Sellers stating that the Adjustment Balance Sheet was prepared in accordance with the Company Accounting Principles. Following delivery of the Adjusted Balance Sheet and Estimated Net Working Capital Statement, the Company shall provide the Buyer with reasonable access, during normal business hours, to its books and records (including financial records and supporting documents) and to its accountants, as Buyer may reasonably request in connection with its review of the Adjustment Balance Sheet and Estimated Net Working Capital Statement.

 

(ii) Adjusted Aggregate Principal Amount. If the Net Working Capital as reflected on the Estimated Net Working Capital Statement (the “Estimated Net Working Capital”) exceeds the Net Working Capital Target, then the Aggregate Principal Amount shall be increased at the Closing by an amount equal to such excess and such increased amount shall be divided among the Seller Notes on a Pro Rata Basis. If the Net Working Capital Target exceeds the Estimated Net Working Capital, then the Aggregate Principal Amount shall be decreased at the Closing by an amount equal to such excess and such decreased amount shall be divided among the Seller Notes on a Pro Rata Basis. Any such adjustment shall be treated as an adjustment to the Purchase Price.

 

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(b) Post-Closing Net Working Capital Adjustment.

 

(i) Closing Net Working Capital Statement. As soon as practicable following the Closing Date (but not later than seventy-five (75) days after the Closing Date), the Buyer shall prepare and deliver to the Sellers a statement setting forth its calculation of the Net Working Capital as of the Closing Date, which statement shall contain (x) an unaudited combined balance sheet of the Companies as of the Closing Date prepared by the Buyer’s independent public accountants (the “Closing Date Balance Sheet”), (y) a detailed calculation of the Net Working Capital as of the Closing Date (the “Closing Net Working Capital Statement”), and (z) a certificate of the Chief Financial Officer or the Chief Executive Officer of Buyer that the Closing Date Balance Sheet was prepared in accordance with the Company Accounting Principles in a manner consistent with the Adjusted Balance Sheet and that the Net Working Capital reflected on the Closing Net Working Capital Statement was prepared and calculated in accordance with the Net Working Capital Methodology. Unless otherwise consented to by the Sellers, in the event that the Buyer fails to deliver to the Closing Net Working Capital Statement to the Sellers prior to the end of such seventy-five (75) day period, the Estimated Net Working Capital as set forth on the Estimated Net Working Capital Statement shall be deemed final and conclusive and binding upon the Sellers and the Buyer as the Final Net Working Capital.

 

(ii) Payments of Post-Closing Adjustment. If the Net Working Capital as reflected on the Closing Net Working Capital Statement (as is deemed final and conclusive in accordance with Section 2.3(c) below, the “Final Net Working Capital”) exceeds the Estimated Net Working Capital, then the Buyer (or, at the Buyer’s direction, the Companies) shall pay promptly (and, in any event, within seven (7) days after the Final Net Working Capital has been established) to the Sellers an amount in cash that is equal to their respective pro rata share of such excess on a Pro Rata Basis. If the Estimated Net Working Capital exceeds the Final Net Working Capital, then the Sellers shall pay promptly (and, in any event, within the seven (7) day period described above) to the Buyer an amount in cash that is equal to their respective pro rata share of such excess on a Pro Rata Basis. Any such adjustment shall be treated as an adjustment to the Purchase Price.

 

(c) Examination and Resolution of Disputes.

 

(i) Examination. After receipt of the Closing Net Working Capital Statement, the Sellers shall have thirty (30) days (the “Review Period”) to review the Closing Net Working Capital Statement and the Closing Date Balance Sheet. During the Review Period, the Sellers shall have full access to the books and records of the Companies and the Buyer’s work papers prepared in connection with the Closing Net Working Capital Statement and the Closing Date Balance Sheet and shall be entitled to discuss such books and records and work papers with the Buyer and those persons responsible for the preparation thereof.

 

(ii) Objections. In the event the Sellers do not agree with the Net Working Capital as reflected on the Closing Net Working Capital Statement, on or before the last day of the Review Period the Sellers shall so inform the Buyer in writing by delivering to Buyer a written statement setting forth Seller's objections in reasonable detail (a “Statement of Objections”). If Seller fails to deliver a Statement of Objections before the expiration of the Review Period, the Net Working Capital reflected in the Closing Net Working Capital Statement shall be deemed to have been accepted by Seller. If Sellers delivers the Statement of Objections before the expiration of the Review Period, Buyer and Sellers shall negotiate in good faith to resolve such objections within thirty (30) days after the delivery of the Statement of Objections (the “Resolution Period”), and, if the same are so resolved within the Resolution Period, the Net Working Capital reflected in the Closing Net Working Capital Statement (with such changes as may have been previously agreed in writing by Buyer and Seller), shall be deemed final and conclusive and binding upon the Sellers and the Buyer.

 

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(iii) Resolution of Disputes. If the Sellers and the Buyer cannot reach agreement as to any disputed matter relating to the Net Working Capital as reflected on the Closing Net Working Capital Statement within the Resolution Period, they shall forthwith refer the disputed items to an independent accounting firm mutually agreeable to the Sellers and the Buyer for resolution (the “Independent Accounting Firm”), with the understanding that such firm shall resolve all disputed items within twenty (20) days after such disputed items are referred to it. If the Buyer and the Sellers are unable to agree on the choice of an Independent Accounting Firm, they shall select an Independent Accounting Firm by lot (after excluding their and their Affiliates’ respective regular outside accounting firms). The Sellers on the one hand, and the Buyer, on the other hand, shall bear one-half of the costs of such Independent Accounting Firm. The decision of the Independent Accounting Firm with respect to all disputed matters relating to the Net Working Capital reflected on the Closing Net Working Capital Statement (with such changes as may have been previously agreed in writing by Buyer and Seller) shall be deemed final and conclusive and shall be binding upon the Sellers and the Buyer. In addition, if the Sellers do not object to the Net Working Capital as reflected on the Closing Net Working Capital Statement within the Review Period, such Net Working Capital as reflected on the Closing Net Working Capital Statement, shall be deemed final and conclusive and binding upon the Sellers and the Buyer.

 

(iv) The Sellers shall be entitled to have access to the books and records of the Company and the Buyer’s work papers prepared in connection with the Closing Date Balance Sheet and shall be entitled to discuss such books and records and work papers with the Buyer and those persons responsible for the preparation thereof.

 

2.3 Adjustments to the Closing Date Payment. At the Closing, the Closing Date Payment shall be:

 

(a) decreased by the amount of any outstanding unpaid Indebtedness of the Companies as of the Closing Date (the “Closing Indebtedness”) (provided, however, that (i) the outstanding amount unpaid Equipment Indebtedness as of the Closing Date; and (ii) the outstanding amount of the PPP Loan as of the Closing Date, in each case, shall remain outstanding, shall not be treated as Closing Indebtedness hereunder, and no adjustment to the Closing Date Payment shall be made in connection therewith);

 

(b) decreased by the amount of any outstanding unpaid Transaction Expenses of the Companies as of the Closing Date (the “Closing Transaction Expenses”); and

 

(c) increased by the amount, if any, by which the Cash on Hand as of the Closing Date exceeds the Minimum Cash Amount (as defined in Section 6.4(a) below) (such excess, if any, the “Excess Cash on Hand Amount”).

 

(d) Any adjustments made pursuant to (a) through (c) above shall be treated as an adjustment to the Purchase Price. For the avoidance of doubt, no adjustments shall be made pursuant to this Section 2.3 in respect of an amounts taken into account in the calculation of Net Working Capital.

 

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2.4 Closing.  The consummation of the Acquisition and the other transactions contemplated hereby (the “Closing”) will take place by the reciprocal delivery of closing documents and signatures (or their electronic counterparts) by electronic mail, regular mail, fax or any other means mutually agreed upon by the parties, no later than the two (2) Business Days after the last of the conditions to closing contained in Article VII of this Agreement have been satisfied or waived in accordance with this Agreement (other than any conditions that by their nature are to be satisfied at the Closing) or on such other date as the Buyer and the Sellers may mutually agree upon in writing (the date on which the Closing actually occurs is referred to as the “Closing Date”).

 

2.5 Transactions to be Effected at the Closing.

 

(a) At the Closing, the Buyer will (i) pay to each Seller their respective Pro Rata Share of the Closing Date Payment, adjusted in accordance with Section 2.3, by paying such sum to each Seller by transfer of immediately available funds in accordance with instructions provided by the Sellers, (ii) issue to each Seller a Seller Note, in a principal amount equal to their respective Pro Rata Share of the Adjusted Aggregate Principal Amount, (iii) pay, on behalf of the Companies, any unpaid Transaction Expenses as of the Closing, via wire transfer of immediately available funds to the accounts and in the amounts reflected in the Closing Transaction Expenses Certificate to be delivered by the Companies to Buyer within one (1) day prior to the Closing, (iv) pay, on behalf of the Companies, any Indebtedness of the Companies to be paid at the Closing, via wire transfer of immediately available funds to the accounts and in the amounts reflected in the Closing Indebtedness Certificate to be delivered by the Companies to Buyer within one (1) day prior to the Closing, (v) deliver to the Escrow Agent (A) the Escrow Amount for deposit into the Escrow Account, and (B) the Escrow Agreement, duly executed by Buyer; and (vi) deliver or cause to be delivered to the Sellers all other documents, instruments or certificates required to be delivered by the Buyer at or prior to the Closing pursuant to Section 7.2 of this Agreement.

 

(b) At the Closing, each Seller will (i) deliver to the Buyer a certificate or certificates representing the Securities, if certificated, duly endorsed or accompanied by stock powers, duly endorsed in blank, (ii) deliver to the Escrow Agent the Escrow Agreement, duly executed by the Sellers; and (iii) deliver or cause to be delivered to the Buyer all other documents, instruments or certificates required to be delivered by the Sellers at or prior to the Closing pursuant to Section 7.1 of this Agreement.

 

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS

 

Each of the Sellers, severally, but not jointly, represents and warrants to the Buyer that, with respect to such Seller, except as will be set forth on the Disclosure Schedule delivered to Buyer pursuant to Section 6.10 of this Agreement and subject to Section 6.10 of this Agreement, each statement contained in this Article III is true and correct as of the date hereof

 

3.1 Authority and Enforceability. The Seller has the requisite power and authority, and, in the case of any Seller that is an individual, the requisite legal capacity, to execute and deliver this Agreement and the Ancillary Agreements to which it is a party, to perform its obligations hereunder and thereunder and to consummate the Acquisition and the other transactions contemplated hereby and thereby. The execution, delivery and performance by the Seller of this Agreement and the Ancillary Agreements to which it is a party and the consummation by the Seller of the Acquisition and the other transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of such Seller and no other action is necessary on the part of such Seller to authorize this Agreement or any Ancillary Agreement or to consummate the Acquisition or the other transactions contemplated hereby or thereby. This Agreement has been duly executed and delivered by the Seller and, assuming the due authorization, execution and delivery by each other party hereto, constitutes a legal, valid and binding obligation of the Seller, enforceable against such Seller in accordance with its terms, except as limited by (a) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar Laws relating to creditors’ rights generally and (b) general principles of equity, whether such enforceability is considered in a proceeding in equity or at Law.

 

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3.2 Noncontravention.

 

(a) Neither The execution and the delivery of this Agreement or any Ancillary Agreement, nor the consummation of the Acquisition or the other transactions contemplated by this Agreement or any Ancillary Agreement, will, with or without the giving of notice or the lapse of time or both, (i) to the actual knowledge of each Seller, violate any Law applicable to such Seller or (ii) violate any Contract related to the Companies to which such Seller is a party, except in the case of clauses (i) and (ii) to the extent that any such violation would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the assets, properties, condition (financial or otherwise), or operations of such Seller.

 

(b) The execution and delivery of this Agreement and any Ancillary by the Seller does not, and the performance of this Agreement by the Seller will not, to the actual knowledge of the Seller, require any consent, approval, authorization or Permit of, or filing with or notification to, any Governmental Entity, except where the failure to make such filings or take such action would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the assets, properties, condition (financial or otherwise), or operations of such Seller.

 

3.3 The Securities.

 

(a) The Seller holds of record and owns beneficially the issued and outstanding Securities of the Companies set forth opposite such Seller’s name on Exhibit A, free and clear of all Liens (except for Permitted Liens and any restriction on transfer arising under applicable securities Laws). The Securities set forth opposite the Seller’s name on Exhibit A correctly sets forth all Securities in the Companies owned of record or beneficially by such Seller.

 

(b) The Seller is not a party to any Contract obligating such Seller to vote or dispose of any Securities, or other equity or voting interests, in the Companies.

 

(c) The Seller has, or as the Closing will have, the full right to sell, convey, transfer, assign and deliver the Securities, without the need to obtain the consent or approval of any third party and, upon the Closing, the Buyer will have, good and valid record and title to the Securities, free and clear of all Liens (except in each case for any restriction on transfer arising under applicable securities Laws).

 

3.4 Brokers’ Fees. Except for fees owed to Crossroads Business Brokers, Inc. (“Crossroads”) which shall be reflected in the Closing Transaction Expenses Certificate and paid, on behalf of the Companies or the Sellers, at the Closing, no broker, finder, agent or investment banker is entitled to any fees or commissions in connection with the Acquisition or the other transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Seller.

 

3.5 Investment. The Seller (A) understands that the Seller Notes and the securities issuable to the Sellers pursuant to the Exchange Agreement have not been, and will not be, registered under the Securities Act, or under any state securities laws, and are being offered and sold in reliance upon federal and state exemptions for transactions not involving any public offering, (B) are acquiring the Seller Notes and the securities issuable pursuant to the Exchange Agreement solely for his, her or its own account for investment purposes, and not with a view to the distribution thereof, (C) are sophisticated investors with knowledge and experience in business and financial matters, (D) have received certain information concerning the Buyer and 1847 and have had the opportunity to obtain additional information as desired in order to evaluate the merits and the risks inherent in holding the Seller Notes and the securities issuable pursuant to the Exchange Agreement, (E) are able to bear the economic risk and lack of liquidity inherent in holding the Seller Notes, and (F) are Accredited Investors as defined in Rule 501 of Regulation D promulgated under the Securities Act.

 

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ARTICLE IV
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANIES

 

Except as set forth in the Disclosure Schedule delivered to Buyer in accordance with Section 6.10, each of the Sellers, severally, but not jointly, represents and warrants to the Buyer that each statement contained in this Article IV is true and correct as of the date hereof and as of the date the Disclosure Schedule is delivered to Buyer in accordance with Section 6.10.

 

4.1 Organization; Standing and Power; Authority and Enforceability.

 

(a) Each Company is a corporation or limited liability company, as applicable, duly organized, validly existing and in good standing (with respect to jurisdictions that recognize the concept of good standing) under the Laws of Nevada, and has the requisite corporate or limited liability company, as applicable, power and authority to own, lease and operate its assets and to carry on its business as now conducted. Each Company is duly qualified or licensed to do business as a foreign corporation, limited liability company or other legal entity and is in good standing (with respect to jurisdictions that recognize the concept of good standing) in each jurisdiction where the character of the assets and properties owned, leased or operated by it or the nature of its business makes such qualification or license necessary, except where the failure to be so qualified or licensed or to be in good standing, would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

(b) Each Company has the requisite power and authority to execute and deliver this Agreement and the Ancillary Agreements to which it is a party, to perform its respective obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. Each Company’s execution, delivery and performance of this Agreement and the Ancillary Agreements to which it is a party, and the consummation by such Company of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of such Company, and no other action is necessary on the part of such Company to authorize this Agreement or to consummate the Acquisition or the other transactions contemplated hereby. This Agreement has been duly executed and delivered by each Company and, assuming the due authorization, execution and delivery by each other party hereto, constitutes a legal, valid and binding obligations of such Company, enforceable against it in accordance with their terms, except as limited by (i) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar Laws relating to creditors’ rights generally and (ii) general principles of equity, whether such enforceability is considered in a proceeding in equity or at Law.

 

4.2 Subsidiaries. The Companies do not have any Subsidiaries.

 

4.3 Capitalization.

 

(a) All of the issued and outstanding Securities of the Companies are set forth on Exhibit A.

 

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(b) The Companies have no plans or agreements pursuant to which they have granted or committed to grant any option or right to acquire stock or membership interests or any other award payable in or based upon the stock or membership interests of the Companies. There are no outstanding options, warrants or other securities or subscriptions, preemptive or other rights convertible into or exchangeable or exercisable for any stock or membership interests or other equity or voting interests of the Companies and there are no “phantom interest” rights, interest appreciation rights or other similar rights with respect to the Companies. There are no Contracts of any kind to which the Companies are a party or by which the Companies are bound, obligating the Companies to issue, deliver, grant or sell, or cause to be issued, delivered, granted or sold, additional stock or membership interests, or other equity or voting interests in, or options, warrants or other securities or subscription, preemptive or other rights convertible into, or exchangeable or exercisable for, stock or membership interests, or other equity or voting interests in, the Companies, or any “phantom interests” right, interest appreciation right or other similar right with respect to the Companies, or obligating the Companies to enter into any such Contract.

 

(c) There are no securities or other instruments or obligations of the Companies, the value of which is in any way based upon or derived from any equity or voting interests of the Companies or having the right to vote (or convertible into, or exchangeable or exercisable for, securities having the right to vote) on any matters on which any of the Companies’ members or stockholders may vote.

 

(d) There are no Contracts, contingent or otherwise, obligating any Company to repurchase, redeem or otherwise acquire any capital stock or membership interests of, or other equity or voting interests in, such Company. There are no voting trusts, registration rights agreements or stockholder or member agreements to which the Companies are a party with respect to the voting of stock or membership interests in the Companies or with respect to the granting of registration rights for any of the stock or membership interests in the Companies. There are no rights plans affecting the Companies.

 

4.4 Noncontravention.

 

(a) The execution and delivery of this Agreement by the Companies does not, and the performance of this Agreement by the Companies will not, (i) violate any provision of the articles of incorporation or bylaws (or comparable organization documents, as applicable) of the Companies, (ii)assuming compliance with the filing and notice requirements set forth in Section 4.4(b)(i), violate any Law applicable to the Companies on the date hereof or (iii) violate any Contract to which the Companies are a party, except in the case of clauses (ii) and (iii) to the extent that any such violation would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

(b) The execution and delivery of this Agreement by the Companies does not, and the performance of this Agreement by the Companies will not, require any consent, approval, authorization or Permit of, or filing with or notification to, any Governmental Entity, except for (i) the filings set forth in Section 4.4 of the Disclosure Schedule or (ii) where the failure to take such action would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

4.5 Financial StatementsSection 4.5 of the Disclosure Schedule contains true and complete copies of (a) (i) the unaudited balance sheet of High Mountain as of December 31, 2019 and December 31, 2020, together with the related unaudited statements  of income and expenses for High Mountain for the years ended December 31, 2019 and December 31, 2020; (ii) the unaudited balance sheet of Sierra Homes as of December 31, 2019 and December 31, 2020, together with the related unaudited statements of income and  expenses for Sierra Homes for the years ended December 31, 2019 and December 31, 2020; (iii) the unaudited combined balance sheet of the Companies as of December 31, 2020, together with the related unaudited combined statements of income and  expenses for the Companies for the year ended December 31, 2020 (the “Annual Financial Statements”), and (b) the unaudited combined balance sheet of the Companies as of August 31, 2021 and the related statements of income and expenses for the eight-month period ended August 31, 2021  (the “Interim Financial Statements” and, together with the Annual Financial Statements, the “Financial Statements”).  Except as set forth in the Financial Statements, the Financial Statements have been internally prepared on an accrual basis (and modified, as they relate to High Mountain, to forego the percentage of completion adjustments).  Except as set forth in, and subject to, Section 4.5 of the Disclosure Schedule, the Financial Statements fairly present, in all material respects, the financial position of the Companies as of the respective dates of the balances sheets included in the Financial Statements and the results of operations of the Companies for the respective periods indicated. The unaudited combined balance sheet of the Companies as of December 31, 2020 is referred to herein as the “Balance Sheet” and the date thereof as the “Balance Sheet Date” and the unaudited combined balance sheet of the Companies as of August 31, 2021  is referred to herein as the “Interim Balance Sheet” and the date thereof as the “Interim Balance Sheet Date”.

 

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4.6 Taxes. Except as set forth in Section 4.6 of the Disclosure Schedule:

 

(a) All material Tax Returns required to have been filed by the Companies have been filed, and each such Tax Return reflects the liability for Taxes in all material respects. All Taxes shown on such Tax Returns as due have been paid or accrued.

 

(b) To the Knowledge of the Sellers, there is no audit pending against the Companies in respect of any Taxes, and there are no Liens on any of the assets of the Companies that arose in connection with any failure (or alleged failure) to pay any Tax, other than Liens for Taxes not yet due and payable.

 

(c) The Companies have withheld and paid or accrued for all material Taxes required to have been withheld and paid or accrued for in connection with amounts paid or owing to any third party.

 

(d) The Companies have not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency.

 

(e) The Companies are not a party to any Tax allocation or sharing agreement.

 

4.7 Compliance with Laws and Orders; Permits.

 

(a) To the Knowledge of the Sellers, the Companies are in compliance with all Laws and Orders to which the businesses of the Companies are subject, except where such failure to comply would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

(b) The Companies own, hold, possess or lawfully use in the operation of their businesses all Permits that are necessary for them to conduct their businesses as now conducted, except where such failure to own, hold, possess or lawfully use such Permit would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

4.8 No Undisclosed Liabilities. The Companies do not have any Liabilities of a type required to be reflected on a balance sheet prepared in accordance with GAAP, except for (a) Liabilities set forth in the Interim Balance Sheet as of the Interim Balance Sheet Date, (b) Liabilities which have arisen since the Interim Balance Sheet Date in the ordinary course of business, (c) Liabilities arising in connection with the Acquisition or the transactions contemplated thereby, (d) Liabilities to be included in the computation of Indebtedness or Transaction Expenses as of the Closing, (e) Liabilities to be included in the computation of Net Working Capital, (f) unknown contingent Liabilities, and (g) Liabilities which, individually or in the aggregate, are not material in amount.

 

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4.9 Tangible Personal Property.

 

(a) Except as set forth in Section 4.9 of the Disclosure Schedule, (i) the Companies have good title to, or a valid leasehold interest in, all of the tangible personal property assets used in the conduct of their business or shown on the Interim Balance Sheet, other than tangible personal property assets sold or otherwise disposed of in the ordinary course of business since the Balance Sheet Date; and (ii) all such tangible personal property assets are free and clear of all Liens, except for Permitted Liens.

 

(b) To the Knowledge of the Sellers, the Companies’ tangible personal property assets reflected in the Financial Statements are in operating condition, working order and repair, when taken as a whole, subject to ordinary wear and tear and repairs from time to time in the ordinary course of business, are free from defects (other than defects that do not interfere with the continued use thereof in the conduct of normal operations), and are suitable for the purposes for which they are currently being used.

 

4.10 Real Property. The Companies do not own any real property. Section 4.10 of the Disclosure Schedule contains a list of all leases and subleases (collectively, the “Real Property Leases”) under which the Companies are either lessee or sublesee. The Sellers have made available to the Buyer true and complete copies of each Real Property Lease. To the Knowledge of the Sellers, (a) each Real Property Lease is a valid and binding Contract of the Company identified therein and is in full force and effect (except for those that have terminated or will terminate by their own terms), and (b) no party to any Real Property Lease is in violation or breach of or default (or with notice or lapse of time, or both, would be in violation or breach of or default) under the terms of any Real Property Lease, in each case, except where such default would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

4.11 Intellectual Property.

 

(a) Section 4.11 of the Disclosure Schedule sets forth a list that includes all material Intellectual Property that is owned by the Companies and either registered by or with any Governmental Entity or subject to a pending application for registration by or with any Governmental Entity (the “Company-Owned Intellectual Property”) (including the jurisdictions where such Company-Owned Intellectual Property is registered or where applications have been filed, and all registration or application numbers, as appropriate).

 

(b) All necessary registration, maintenance and renewal fees have been paid and all necessary documents have been filed with the United States Patent and Trademark Office or foreign patent and trademark office in the relevant foreign jurisdiction for the purposes of maintaining the registered Company-Owned Intellectual Property.

 

(c) Except as set forth in Section 4.11 of the Disclosure Schedule or as would not have a Material Adverse Effect: (i) the Companies are the exclusive owners of the Company-Owned Intellectual Property free and clear of all Liens (other than Permitted Liens); (ii) no proceedings have been instituted, are pending or, to the Knowledge of Sellers, are threatened that challenge the rights of the Companies in or the validity or enforceability of the Company-Owned Intellectual Property; (iii) to the Knowledge of the Sellers, neither the use of the Company-Owned Intellectual Property as currently used by the Companies in the conduct of the Companies’ businesses, nor the conduct of the businesses as presently conducted by the Companies infringes, misappropriates or otherwise violates in any material respect the Intellectual Property rights of any Person; and (iv) as of the date of this Agreement, the Companies have not made any claim of a violation, infringement, misuse or misappropriation by any Person, of their rights to, or in connection with, the Company-Owned Intellectual Property.

 

(d) Except as set forth in Section 4.11 of the Disclosure Schedule, the Companies have not permitted or granted a license to any Person to use any Company-Owned Intellectual Property.

 

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(e) Section 4.11 of the Disclosure Schedule sets forth a complete and accurate list of all licenses, other than “off the shelf” commercially available software programs, pursuant to which the Companies have been granted a license to use Intellectual Property that is material to and used in the conduct of the business by the Companies.

 

(f) To the Knowledge of the Sellers, the Companies are not in default in the performance, observance or fulfillment of any obligation, covenant or condition contained in any Contract pursuant to which any third party is authorized to use any Company-Owned Intellectual Property or pursuant to which the Companies are licensed to use Intellectual Property owned by a third party, except where such default would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

4.12 Absence of Certain Changes or Events.  Except as expressly contemplated by this Agreement or as set forth in Section 4.12 of the Disclosure Schedule, from the Interim Balance Sheet Date until the date of this Agreement, no event has occurred that has had, individually or in the aggregate, a Material Adverse Effect. Without limiting the generality of the foregoing, except as expressly contemplated by this Agreement or as set forth in Section 4.12 of the Disclosure Schedule, from the Interim Balance Sheet Date until the date of this Agreement:

 

(a) the Companies have not sold, leased, transferred, or assigned any of their material assets, tangible or intangible, other than in the ordinary course of business;

 

(b) the Companies have not entered into any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) requiring payments in excess of $50,000 individually or aggregate payments in excess of $100,000 in any 12-month period, except for Contracts involving the purchase of inventory or supplies or the sale of inventory in the ordinary course of business;

 

(c) no party (including the Companies) has accelerated, terminated, or cancelled any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses), involving consideration in excess of $100,000 (individually or in the aggregate), to which the Company are a party or by which any of them is bound;

 

(d) the Companies have not entered into any Contract that imposed any Liens (other than Permitted Liens) upon any of the Companies’ assets, tangible or intangible;

 

(e) the Companies have not made any capital expenditure (or series of related capital expenditures) in excess of $50,000 (individually or in the aggregate), except for capital expenditure made in the ordinary course of business consistent with past practice;

 

(f) the Companies have not made any capital investment in, any loan to, or any acquisition of the securities or assets of, any other Person (or series of related capital investments, loans, and acquisitions) either involving more than $50,000 or outside the ordinary course of business;

 

(g) the Companies have not transferred, assigned, or granted any license or sublicense of any rights under or with respect to any Company-Owned Intellectual Property;

 

(h) there has been no change made or authorized in the articles of incorporation or bylaws (or comparable documents) of the Companies;

 

(i) there has been no issuance, sale or other disposition of any capital stock or membership interest in the Companies or grant of any options, warrants, or other rights to purchase or obtain (including upon conversion, exchange, or exercise) any capital stock or membership interest in the Companies;

 

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(j) the Companies have not made any loan to, or entered into any other transaction with, any of their directors, officers, and employees, outside the ordinary course of business;

 

(k) the Companies have not entered into any employment contract or modified the terms of any existing employment contract or agreement, outside the ordinary course of business;

 

(l) the Companies have not granted any increase in the base compensation of any of its directors, officers, and employees, outside the ordinary course of business;

 

(m) the Companies have not committed in writing to do any of the foregoing.

 

4.13 Contracts.

 

(a) Except as set forth in Section 4.13 of the Disclosure Schedule, as of the date hereof, the Companies are not a party to or bound by any: (i) Contract not contemplated by this Agreement that materially limits the ability of the Companies to engage or compete in any manner of the businesses presently conducted by the Companies; (ii) Contract that creates a partnership or joint venture or similar arrangement with respect to any material businesses of the Companies; (iii) indenture, credit agreement, loan agreement, security agreement, guarantee, note, mortgage or other evidence of Indebtedness, in each case having an outstanding principal balance in excess of $50,000; (iv) Contract that relates to the acquisition or disposition of any material business (whether by merger, sale of equity, sale of assets or otherwise) other than this Agreement; or (v) Contract involving the performance of services provided to the Companies or the delivery of goods or materials to the Companies, in an amount or with a value in excess of $50,000, individually or $100,000 in the aggregate during any 12-month period.

 

(b) The Sellers have made available to the Buyer true and complete copies of each of the Contracts set forth in Section 4.13 of the Disclosure Schedule. To the Knowledge of the Sellers, (i) all such Contracts are valid and binding, (ii) all such Contracts are in full force and effect (except for those that have terminated or will terminate by their own terms), and (iii) neither any Company nor any other party thereto, is in violation or breach of or default under (or with notice or lapse of time, or both, would be in violation or breach of or default under) the terms of any such Contract, in each case, except where such violation, breach, or default has not had or would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

4.14 Litigation. Except as set forth in Section 4.14 of the Disclosure Schedule there is no Action pending or, to the Knowledge of the Sellers, threatened against the Companies that (a) challenges or seeks to enjoin, alter or materially delay the Acquisition or (b) would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

4.15 Employee Benefits.

 

(a) Section 4.15 of the Disclosure Schedule includes a list of all material Benefit Plans maintained or contributed to by the Companies or any of their Subsidiaries (the “Company Benefit Plans”). The Companies have delivered or made available to the Buyer copies of (i) each Company Benefit Plan, (ii) the most recent summary plan description for each Company Benefit Plan for which such a summary plan description is required and (iii) the most recent favorable determination letters from the IRS with respect to each Company Benefit Plan intended to qualify under Section 401(a) of the Code.

 

(b) Except as set forth in Section 4.15 of the Disclosure Schedule: (i) none of the Company Benefit Plans is subject to Title IV of ERISA; (ii) each Company Benefit Plan that is intended to be qualified under Section 401(a) of the Code is subject to a favorable determination letter from the IRS and, to the Knowledge of the Sellers, no event has occurred and no condition exists that is reasonably likely to result in the revocation of any such determination; and (iii) each Company Benefit Plan is in compliance with all applicable provisions of ERISA and the Code, except for instances of noncompliance that would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

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4.16 Labor and Employment MattersSection 4.16 of the Disclosure Schedule sets forth a list of all written employment agreements that obligate the Companies to pay an annual salary of $50,000 or more and to which the Companies are a party. To the Knowledge of the Sellers, there are no pending labor disputes, work stoppages, requests for representation, pickets, work slow-downs due to labor disagreements or any actions or arbitrations that involve the labor or employment relations of the Companies. The Companies are not a party to any collective bargaining agreement.

 

4.17 Environmental Matters. Except for any matter that would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, to the Knowledge of the Sellers (i) the Companies are in compliance with all applicable Laws relating to protection of the environment (“Environmental Laws”), (ii) the Companies possess and are in compliance with all Permits required under any Environmental Law for the conduct of their operations and (iii) there are no Actions pending against the Companies alleging a violation of any Environmental Law.

 

4.18 Insurance. To the Knowledge of Sellers, all insurance policies that are maintained by the Companies as of the date hereof and cover the Companies or their businesses, properties, assets, directors, officers or employees (the “Insurance Policies”) (a) are in full force and effect in all material respects and the Companies are not in violation or breach of or default under any of its obligations under any such insurance policy, except where such default would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, and (b) are sufficient for compliance in all material respects by the Companies with all requirements of applicable Law and of all Contracts to which the Companies are a party.

 

4.19 Brokers’ Fees. Except for fees owed to Crossroads (which shall be reflected in the Closing Transaction Expenses Certificate and paid, on behalf of the Companies or the Sellers, at the Closing), no broker, finder, agent or investment banker is entitled to any fees or commissions in connection with the Acquisition or the other transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Companies.

 

4.20 Certain Business Relationships with the Company. Except as set forth in Section 4.20 of the Disclosure Schedule, no Seller, nor any Affiliate of a Seller, has been involved in any business arrangement or relationship with the Companies within the past 12 months that involves more than $50,000 (other than as a stockholder, member, director, manager, officer or employee), and no Seller, nor any Affiliate of a Seller, owns any material asset, tangible or intangible, which is used by either Company in the conduct of its business.

 

4.21 EquipmentSection 4.21 of the Disclosure Schedule sets forth a complete and accurate list of all plants, fixtures, machinery, installations, equipment, furniture, tools, spare parts, supplies, materials and other tangible personal property (collectively, the “Equipment”) owned by the Companies as of the Interim Balance Sheet Date, other than items having a net book or market value individually of less than twenty thousand dollars ($20,000) or expensed for tax purposes.

 

4.22 SuppliersSection 4.22 of the Disclosure Schedule sets forth a correct and complete list of the top 10 suppliers of the Companies on a combined basis during the fiscal year ended December 31, 2020 and for the six month period ended June 30, 2021 and indicates with respect to each the name and dollar volume of business with the Companies (including the primary categories, based on purchases or sales, of products or services bought or sold). The Companies are not required to provide any material bonding or other financial security arrangements in connection with its transactions with any supplier required to be disclosed on Section 4.22 of the Disclosure Schedule except as set forth therein. To the Knowledge of the Sellers, since the date of the Interim Balance Sheet, no supplier required to be disclosed on Section 4.22 of the Disclosure Schedule has terminated its relationship with, or materially reduced its sales to, the Companies.

 

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4.23 Inventory. The Inventory of the Companies consists of raw materials, supplies, and parts all of which are fit in all material respects for the purpose for which it was procured. All such Inventory is owned by the Companies free and clear of all Liens (other than Permitted Liens), and no such Inventory is held on a consignment basis.

 

4.24 Officers and Directors; Bank Accounts, Signing Authority, Powers of Attorney. Section 4.24 of the Disclosure Schedule lists all officers and directors (or equivalent governing positions) of the Companies. Section 4.24 of the Disclosure Schedule lists (a) the names and locations of all banks and other financial institutions with which the Companies maintain a bank account, brokerage account, or similar account (each, a “Bank Account”), in each case listing the type of Bank Account, the Bank Account number therefor, and the names of all Persons authorized to draw thereupon or that have access thereto and (b) the locations of all safe deposit boxes used by the Companies and the names of all Persons that have access thereto, and (c) the names of all Persons authorized to borrow money or sign notes on behalf of the Companies.

 

4.25 Accounts Receivable. All Accounts Receivable reflected on the Interim Balance Sheet (a) have arisen from bona fide transactions entered into by the Companies in the ordinary course of the business and (b) represent valid obligations due as of the Interim Balance Sheet Date.

 

4.26 No Other Representations and Warranties. Except for the representations and warranties contained in Article III and this Article IV (including the related portions of the Disclosure Schedules) or the representations and warranties contained in any certificate delivered by the Sellers or the Companies hereunder, none of the Sellers, the Companies, or any other Person has made or makes any other express or implied representation or warranty, either written or oral, on behalf of any Seller or the Companies, including any representation or warranty as to the accuracy or completeness of any information regarding the Company furnished or made available to Buyer and its Representatives or as to the future revenue, profitability or success of the Companies, or any representation or warranty arising from statute or otherwise in Law.

 

ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER

 

The Buyer represents and warrants to the Sellers that each statement contained in this Article V is true and correct as of the date hereof and as of the Closing Date.

 

5.1 Organization. The Buyer is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware.

 

5.2 Authorization. The Buyer has the requisite power and authority to execute and deliver this Agreement and the Ancillary Agreements, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by the Buyer of this Agreement and the Ancillary Agreements and the consummation by the Buyer of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Buyer, and no other action is necessary on the part of the Buyer to authorize this Agreement or the Ancillary Agreements or to consummate the Acquisition or the other transactions contemplated hereby or thereby. This Agreement has been, and the Ancillary Agreements upon execution will be, duly executed and delivered by the Buyer and, assuming the due authorization, execution and delivery by each other party hereto, constitute legal, valid and binding obligations of the Buyer, enforceable against the Buyer in accordance with their terms, except as limited by (i) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar Laws relating to creditors’ rights generally and (ii) general principles of equity, whether such enforceability is considered in a proceeding in equity or at Law.

 

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5.3 Noncontravention.

 

(a) Neither the execution and the delivery of this Agreement or any Ancillary Agreement, nor the consummation of the Acquisition and the other transactions contemplated by this Agreement or any Ancillary Agreement, will, with or without the giving of notice or the lapse of time or both, (i) violate any provision of the certificate of incorporation or bylaws of the Buyer, (ii) violate any Law applicable to the Buyer on the date hereof or (iii) violate any Contract to which the Buyer is a party, except in the case of clauses (ii) and (iii) to the extent that any such violation would not reasonably be expected to prevent or materially delay the consummation of the Acquisition and the other transactions contemplated by this Agreement or any Ancillary Agreement.

 

(b) The execution and delivery of this Agreement or any Ancillary Agreement by the Buyer does not, and the performance of this Agreement by the Buyer will not, require any consent, approval, authorization or Permit of, or filing with or notification to, any Governmental Entity, except for (i) post-closing securities filings or notifications required to be made under federal securities laws, or (ii) where the failure to take such action would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on the assets, properties, condition (financial or otherwise), operations of the Buyer and any of its Subsidiaries, taken as a whole.

 

5.4 Brokers’ Fees. The Buyer has no Liability to pay any fees or commissions to any broker, finder or agent with respect to this Agreement, the Acquisition or the transactions contemplated by this Agreement that could result in any Liability being imposed on the Sellers or the Companies.

 

5.5 Independent Investigation. Buyer has conducted its own independent investigation, review and analysis of the business, results of operations, prospects, condition (financial or otherwise) or assets of the Companies, and acknowledges that it has been provided adequate access to the personnel, properties, assets, premises, books and records, and other documents and data of the Sellers and the Companies for such purpose. Buyer acknowledges and agrees that: (a) in making its decision to enter into this Agreement and to consummate the Acquisition and the other transactions contemplated by this Agreement, Buyer has relied solely upon its own investigation and the express representations and warranties of the Sellers set forth in Article III and Article IV of this Agreement (including the related portions of the Disclosure Schedules); and (b) none of the Sellers, the Companies or any other Person has made any representation or warranty as to the Sellers, the Companies or this Agreement, except as expressly set forth in Article III and Article IV of this Agreement (including the related portions of the Disclosure Schedules) or the representations and warranties contained in any certificate delivered by the Sellers or the Companies hereunder.

 

5.6 Solvency. Buyer is solvent as of the date of this Agreement and, Buyer and its Subsidiaries (including the Companies after Closing) will, after giving effect to all of the transactions contemplated by this Agreement including the payment of the Closing Date Payment, the Closing Indebtedness, and Closing Transaction Expenses, delivery of the Escrow Amount, payment of all other amounts required to be paid, borrowed or refinanced in connection with the consummation of the transactions contemplated by this Agreement and all related fees and expenses, be solvent at and immediately after the Closing Date.

 

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ARTICLE VI
COVENANTS

 

6.1 Consents; Guarantees

 

(a) Third Part Consents. The Companies will use their commercially reasonable efforts to obtain any required third-party consents to the Acquisition and the other transactions contemplated by this Agreement in writing from each Person.

 

(b) Seller Guarantees. During the period commencing on the date hereof and ending at the earlier of the Closing and the termination of this Agreement in accordance with Article VIII, the parties hereto shall use commercially reasonable efforts to obtain written releases of all guarantees made by a Seller or any Affiliate of a Seller with respect to the Real Property Leases, and Equipment Leases, or or any other Liabilities or other obligations of a Company.

 

6.2 Operation of the Companies’ Business

During the period commencing on the date hereof and ending at the earlier of the Closing and the termination of this Agreement in accordance with Article VIII, each Company, except (i) as otherwise contemplated by this Agreement, (ii) as required by applicable Law, (iii) as may be required or reasonably necessary due to Covid-19 Conditions, or (iii) with the prior written consent of Buyer (which consent will not be unreasonably withheld, conditioned or delayed), shall:

 

(a) use commercially reasonable efforts to carry on its business in a manner consistent with past practice and refrain from extraordinary transactions;

 

(b) maintain the properties and other assets of the Companies in good working order (normal wear excepted); and

 

(c) use the Companies’ commercially reasonable efforts to maintain its business and employees, customers, assets and operations as a going concern and in accordance with past practice.

 

6.3 Access. During the period commencing on the date hereof and ending at the earlier of the Closing and the termination of this Agreement in accordance with Article VIII, the Companies will provide Buyer with reasonable access to the Companies’ financial, accounting, business records, contracts and other legal documents maintained by the Companies. Buyer shall not contact or communicate with any of the Companies’ employees, customers, suppliers or advisors without the prior written consent of the Companies and in the presence of the Companies’ management.

 

6.4 Transfer of Cash and Cash Equivalents; Transfer of Certain Assets

 

(a) On or prior to the Closing, the Sellers may (in their joint discretion) cause the Companies to utilize, transfer, or distribute any and all cash and cash equivalents of the Companies, including funds in bank accounts, deposits (except for customer deposits for unbilled work as of the Closing), lease deposits and insurance refunds, to, among other things, (i) pay any fees or other Liabilities owed by the Companies to the Sellers or their Affiliates, brokers, advisors, or other Representatives (ii) pay or repay any other Indebtedness or other Liabilities of the Companies, and (iii) pay dividends or other distribution to the Sellers; provided, however, as of the Closing the Companies shall have Cash on Hand (in one or more corporate bank accounts) in an aggregate amount that is not less than an $150,000 (the “Minimum Cash Amount”).

 

(b) On or prior to the Closing, the Companies shall transfer to the Sellers (as instructed by the Sellers in writing) possession and title to the two 2020 Denali trucks that are currently used by the Sellers, which the Companies represent and warrant to the Buyer have been fully paid for.

 

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6.5 Notice of Developments. During the period commencing on the date hereof and ending at the earlier of the Closing and the termination of this Agreement in accordance with Article VIII, (a) the Sellers and the Companies will give prompt written notice to the Buyer of any event that (i) has had, or could reasonably be expected to give rise to, individually or in the aggregate, a Material Adverse Effect, or (ii) has resulted in, or could reasonably be expected to cause, a breach of any of their respective representations, warranties, covenants or other agreements contained herein; and (b) the Buyer will give prompt written notice to the Sellers and the Companies of any event that (i) has resulted in, or could reasonably be expected to cause, a breach of any of its representations, warranties, covenants or other agreements contained herein, or (ii) could reasonably be expected to, individually or in the aggregate, prevent or materially delay the consummation of the Acquisition and the other transactions contemplated by this Agreement. The delivery of any notice pursuant to this Section 6.5 will not limit, expand or otherwise affect the remedies available hereunder (if any) to the party receiving such notice.

 

6.6 No Solicitation of Transaction Proposals.

 

(a) The Companies will, and will cause each of their Representatives, including, without limitation, the Sellers to, cease immediately any existing discussions regarding a Transaction Proposal.

 

(b) During the period commencing on the date hereof and ending at the earlier of the Closing and the termination of this Agreement in accordance with Article VIII, without the prior consent of the Buyer, the Sellers shall not, and shall not authorize or permit any of their Affiliates (including the Companies) or any of their Representatives, to directly or indirectly through another Person, (i) solicit, initiate or encourage (including by way of furnishing information), or take any other action designed to facilitate any inquiries, proposals or offers from any Person (other than Buyer), concerning a Transaction Proposal, (ii) participate in any discussions or negotiations (including by way of furnishing information) with any Person (other than Buyer) regarding any Transaction Proposal or (iii) otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any other Person (other than Buyer) to do or seek any of the foregoing. The Sellers shall immediately communicate to the Buyer the terms of any Transaction Proposal received by any of the Sellers or the Companies, or any of their Representatives.

 

6.7 Covenant not to Compete; Non-Solicitation. For a period of three (3) years from and after the Closing Date (the “Noncompetition Period”), each Seller, severally and not jointly, agrees that it shall not, directly or indirectly, on behalf of any entity other than the Buyer or an Affiliate of the Buyer:

 

(a) Engage in any business that is competitive with the current business of the Companies (the “Business”) within any geographic area in which the Business is conducted or in which the Companies plan to conduct the Business as of the Closing Date; provided, however, that no ownership of less than 5% of the outstanding stock of any publicly-traded corporation shall be deemed to constitute a breach of the obligations contained in this Section 6.7;

 

(b) Induce or attempt to induce any customer or supplier of the Business as of the Closing Date to terminate its relationship with the Buyer or any Affiliate of the Buyer;

 

(c) Solicit or attempt to solicit the employment any Person who is, or was at any time during the preceding twelve (12) months, an employee or officer of the Buyer or an Affiliate of the Buyer, provided, however, that each Seller may undertake such actions directed to the general public (including, without limitation, mass mailing based on commercially acquired mailing lists, newspaper, radio and television advertisements) which shall not constitute solicitation under this Section 6.7.

 

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6.8 Taking of Necessary Action; Further Action. Subject to the terms and conditions of this Agreement, the Sellers, the Companies and Buyer will take all such reasonable and lawful action as may be necessary or appropriate in order to effectuate the Acquisition in accordance with this Agreement as promptly as practicable.

 

6.9 Disclosure Schedule. The parties acknowledge and agree that as of the date hereof (i) the Sellers and the Companies have not yet delivered a definitive Disclosure Schedule to this Agreement to the Buyer, and (ii) the Buyer has not been provided with copies of, nor had an opportunity to review, all of the items to be referred to on the Disclosure Schedule. The Sellers shall deliver (and shall cause the Companies to deliver) to Buyer a definitive Disclosure Schedule (and shall make all documents referred to thereon available to Buyer), in final form within 20 days of the date hereof. The Buyer shall have 20 days following its receipt of the definitive Disclosure Schedule to review the definitive Disclosure Schedule and the documents and other items referred to thereon (the “Disclosure Schedule Review Period”). If such review by Buyer reveals any documents, information or conditions which Buyer finds objectionable and renders the Securities unsuitable for purchase by the Buyer (and provided that such documents, information or conditions were not (x) previously made available to Buyer in the course of its due diligence investigation of the Companies or (y) otherwise known to Buyer prior to the Disclosure Schedule Review), the Buyer may terminate this Agreement by delivering written notice of termination to the Sellers and the Companies on or prior to the last day of the Disclosure Schedule Review Period. Any such notice shall set forth the Buyer's objections in reasonable detail, indicating each newly revealed item or document and the basis for the Buyer’s objection therewith. If the Buyer fails to deliver such written notice of termination before the expiration of the Disclosure Schedule Review Period, the definitive Disclosure Schedule shall be deemed to have been accepted by the Buyer and incorporated into this Agreement.

 

6.10 PPP Loan. Prior to the Closing, the parties shall cooperate to cause Sierra Homes to apply for forgiveness of the PPP Loan in accordance with U.S. Small Business Administration Procedural Notice # 5000-20057 and other applicable requirements under the Paycheck Protection Program. At the Closing, the parties are delivering the Escrow Amount to Escrow Agent to be held by Escrow Agent in accordance with the terms of this Section 6.11 and the Escrow Agreement. Within five (5) days following the Closing Date, the parties shall cooperate to cause Sierra Homes to furnish to the Escrow Agent and the U.S. Small Business Administration (the “SBA”), all information required by the Escrow Agreement and the SBA with respect to the forgiveness of the PPP Loan. The Escrow Agent shall deliver from the Escrow Amount to the Sellers any outstanding balance under the PPP Loan that is forgiven by the SBA, and any remaining PPP Loan amounts that are not forgiven by the SBA shall be paid from the Escrow Amount to the SBA in reduction of the PPP Loan.

 

6.11 Tax Matters.

 

(a) The Buyer shall not, and shall not permit either Company to (i) amend any Tax Return filed with respect to any tax year ending on or before the Closing Date or (ii) make any Tax election that may have a retroactive effect to any such year, in each such case without the prior written consent of the Sellers.

 

(b) The Buyer shall not, and shall not permit either Company to make an election under Section 338(h)(10) of the Code with respect to the Acquisition.

 

(c) Any Tax refund, credit, or similar benefit (a “Tax Refund”) relating to either Company for Taxes paid for any Pre-Closing Tax Period shall be the property of the Sellers. If any Tax Refunds are issued to the Companies that relate to any Pre-Closing Tax Period, the Buyer shall cause the Companies to pay over such Tax Refunds to the Sellers within five (5) days following the receipt by the Companies of the applicable funds.

 

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(d) The Sellers shall have reasonable access to the books and records of the Companies and shall be entitled to discuss such books and records with the Buyer and those persons responsible for the preparation thereof after the Closing for the purpose of, without limitation, claiming any tax credit that may be applicable with respect to any tax year ending on or before the Closing Date.

 

6.12 Confidentiality. 6.13 Reference is made to that certain Buyer’s Acknowledgement of Introduction and Confidentiality Agreement, dated April 12, 2021, by and among the parties hereto (the “Confidentiality Agreement”). Effective upon the Closing, the Confidentiality Agreement will terminate; provided, however, that prior to the Closing, in addition to the exclusions set forth in the Confidentiality Agreement, “Confidential Information” as defined in the Confidentiality Agreement shall not include information which is disclosed by the Buyer pursuant to Applicable Law, the Securities Exchange Act of 1934, as amended, and applicable rules and regulations promulgated thereunder. From and after the Closing each of the Sellers will treat and hold as confidential, refrain from using any of the Confidential Information (as defined in the Confidentiality Agreement) except in connection with this Agreement, deliver promptly to the Buyer or destroy, at the request and option of the Buyer, all tangible embodiments (and all copies) of the Confidential Information which are in his or its possession. In the event that any of the Sellers is requested or required (by oral question or request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar process) to disclose any Confidential Information, that Seller will notify the Buyer promptly of the request or requirement so that the Buyer may seek an appropriate protective order or waive compliance with the provisions of this Section 6.13. If, in the absence of a protective order or the receipt of a waiver hereunder, any of the Sellers is, on the advice of counsel, compelled to disclose any Confidential Information to any tribunal or else stand liable for contempt, that Seller may disclose the Confidential Information to the tribunal; provided, however, that the disclosing Seller shall use his or its best efforts to obtain, at the request of the Buyer, an order or other assurance that confidential treatment will be accorded to such portion of the Confidential Information required to be disclosed as the Buyer shall designate. The foregoing provisions shall not apply to any Confidential Information which is generally available to the public immediately prior to the time of disclosure.

 

6.14 Purchase and Sale Materials for Personal Use. From and after the Closing for a period of one (1) year thereafter, each Seller shall have the right to purchase up to $25,000 of materials from the Companies each, and Buyer agrees to cause and permit the Companies to sell such materials, at the applicable Company’s actual cost; provided that all such materials shall be used solely for personal project and not resold by the applicable Seller.

 

6.15 Financial Information.  The Sellers shall cooperate with the Buyer and the Buyer’s independent certified public accounting firm in order to enable the Buyer to create audited financial statements prepared in accordance with the GAAP for the two full fiscal years preceding the Closing Date and for the calendar year 2021, by making available the Sellers’ records as they are maintained in the ordinary course of business, answering reasonable questions, participating in interviews with the Buyer’s auditor, arranging for previously engaged accounting firms and finance personnel to cooperate with Buyer’s auditor, and signing factually accurate management representation letters covering the periods prior to the Closing Date. The Buyer shall be responsible to pay or reimburse the Sellers for any and all third-party costs incurred by the Sellers in complying with this covenant.

 

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ARTICLE VII
CONDITIONS TO OBLIGATIONS TO CLOSE

 

7.1 Conditions to Obligation of the Buyer. The obligation of the Buyer to consummate the Acquisition is subject to the satisfaction or waiver by the Buyer of the following conditions:

 

(a) The representations and warranties of the Sellers set forth in this Agreement will be true and correct in all respects as of the date of this Agreement and as of the Closing Date (except to the extent such representations and warranties speak as of another date, in which case such representations and warranties will be true and correct as of such other date), except where the failure of such representations and warranties to be so true and correct (without giving effect to any limitation as to “materiality” or “Material Adverse Effect” set forth therein) does not have, and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

(b) Each Seller and each Company will have performed all covenants required to be performed by it under this Agreement at or prior to the Closing, except where the failure to perform does not have, and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or materially adversely affect the ability of each Seller and each Company to consummate the Acquisition or perform its other obligations hereunder.

 

(c) Buyer shall have received a certificate, dated as of the Closing Date and signed by each Seller, certifying that each of the conditions set forth in Section 7.2(a) and Section 7.2(b) have been satisfied.

 

(d) No event has occurred since the date of this Agreement, which has had or is reasonably likely to cause a Material Adverse Effect.

 

(e) All applicable waiting periods with respect to any Permits required by Governmental Entities in connection with the consummation of the Acquisition (and any extensions thereof) will have expired or otherwise been terminated, and the parties hereto will have received all Permits required by Governmental Entities, in connection with the execution, delivery and performance of this Agreement and the transactions contemplated hereby.

 

(f) No temporary, preliminary or permanent restraining Order preventing the consummation of the Acquisition will be in effect.

 

(g) The Sellers shall have obtained any required consents, permits, licenses, approvals or notifications of any lenders, lessors, suppliers, customers or other third parties for which the Buyer will assume responsibility for properly completing any and all necessary forms required when applying for and securing any such consents, permits, licenses, and approvals.

 

(h) The Companies shall have obtained releases of any Liens against any of the assets of the Companies (other than Permitted Liens), at the Companies’ expense.

 

(i) The Buyer shall have received such pay-off letters relating to any Closing Indebtedness, as Buyer shall have requested, and such pay-off letters shall be in form and substance reasonably satisfactory to Buyer.

 

(j) The Sellers shall have executed and delivered the Exchange Agreement to the Buyer.

 

(k) The Sellers shall have executed and delivered to the Buyer the Subordination Agreement, if requested by the Buyer.

 

(l) The Escrow Agreement shall have been executed and delivered by the parties thereto and a copy thereof shall have been delivered to Buyer

 

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(m) Each Company shall have delivered a certificate of good standing, dated within ten (10) days of the Closing Date, from the Secretary of State for the State of Nevada.

 

(n) The Buyer shall have obtained, on terms and conditions reasonably satisfactory to it, financing in an amount, together with other cash or cash equivalents available to Buyer, sufficient to fund the Cash Portion of the Purchase Price.

 

(o) All actions to be taken by the Sellers in connection with consummation of the transactions contemplated hereby and all certificates, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Buyer.

 

7.2 Conditions to Obligation of the Sellers and the Companies. The obligation of the Sellers and the Companies to consummate the Acquisition is subject to the satisfaction or waiver by the Sellers of the following conditions:

 

(a) The representations and warranties of the Buyer set forth in this Agreement will be true and correct in all respects as of the date of this Agreement and as of the Closing Date (except to the extent such representations and warranties speak as of another date, in which case such representations and warranties will be true and correct as of such other date), except where the failure of such representations and warranties to be so true and correct does not adversely affect the ability of the Buyer to consummate the Acquisition and the other transactions contemplated by this Agreement. The Sellers will have received certificates signed on behalf of the Buyer to such effect.

 

(b) The Buyer will have performed all of the covenants required to be performed by it under this Agreement at or prior to the Closing except such failures to perform as do not materially adversely affect the ability of the Buyer to consummate the Acquisition and the other transactions contemplated by this Agreement.

 

(c) The parties hereto will have received all Permits, authorizations, consents and approvals required by Governmental Entities in connection with the execution, delivery and performance of this Agreement and the transactions contemplated hereby.

 

(d) No temporary, preliminary or permanent restraining Order preventing the consummation of the Acquisition will be in effect.

 

(e) The Buyer shall have obtained any consents, permits, licenses, approvals or notifications of any lenders, lessors, suppliers, customers or other third parties required to consummate the Acquisition.

 

(f) The Escrow Agreement shall have been executed and delivered by the parties thereto and a copy thereof shall have been delivered to the Sellers.

 

(g) The Sellers shall have entered into the Exchange Agreement with 1847.

 

(h) The Buyer shall have delivered to the Sellers the Closing Date Payment, the Seller Notes, and Subordination Agreement (if requested by the Buyer) executed by Buyer.

 

(i) Buyer shall have delivered to the Escrow Agent, by wire transfer of immediately available funds, the Escrow Amount.

 

(j) The Buyer shall have delivered to the applicable third parties, by wire transfer of immediately available funds, that amount of money due and owing from the Companies to such third parties as Transaction Expenses as set forth on the Closing Transaction Expenses Certificate.

 

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(k) The Buyer shall have delivered to holders of outstanding Indebtedness of the Companies to be satisfied at the Closing, by wire transfer of immediately available funds, that amount of money due and owing from the Companies to such holder of outstanding Indebtedness as set forth on the Closing Indebtedness Certificate.

 

(l) The Buyer shall have delivered to the Companies a certificate of the Buyer, executed by an officer of the Buyer, dated as of the Closing Date, certifying on behalf of the Buyer that each of the conditions set forth in Section 7.2(a) and Section 7.2(b) have been satisfied in all respects.

 

ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER

 

8.1 Termination of Agreement. This Agreement may be terminated as follows:

 

(a) by mutual written consent of the Buyer and the Sellers at any time prior to the Closing;

 

(b) by either the Buyer or the Sellers if any Governmental Entity will have issued an Order or taken any other action permanently enjoining, restraining or otherwise prohibiting the transactions contemplated by this Agreement;

 

(c) by either the Buyer or the Sellers if the Closing does not occur on or before the ninetieth (90th) day following the delivery by the Sellers to the Buyer of the Disclosure Schedule as required by Section 6.10 of this Agreement; provided that the right to terminate this Agreement under this Section 8.1(c) will not be available to any party whose breach of any provision of this Agreement results in the failure of the Closing to occur by such time;

 

(d) by the Buyer if: (i) subject to Section 6.10 of this Agreement, any Seller or any Company has breached its respective representations and warranties or any covenant or other agreement to be performed by it in a manner such that the Closing conditions set forth in Section 7.1(a) or 7.1(b) would not be satisfied, or (ii) the Buyer objects to information contained in the Disclosure Schedule and makes a timely election to terminate this Agreement in accordance with Section 6.10; or

 

(e) by the Sellers if the Buyer has breached its representations and warranties or any covenant or other agreement to be performed by it in a manner such that the Closing conditions set forth in Section 7.2(a) or 7.2(b) would not be satisfied.

 

8.2 Effect of Termination. In the event of termination of this Agreement as provided in Section 8.1, this Agreement will terminate and all rights and obligations of the parties under this Agreement automatically end without any Liability (other than with respect to any suit for breach of Sections 6.6 (No Solicitation) and 6.13 (Confidentiality) of this Agreement) on the part of the Buyer, the Companies or the Sellers (or any member, stockholder agent, consultant or Representative of any such party), except that that nothing herein shall relieve any party hereto from Liability for any intentional breach of any provision of this Agreement prior to the termination hereof; and, provided, that the provisions of Section 6.13, Sections 10.1 through 10.15 and this Section 8.2 will survive any termination hereof pursuant to Section 8.1.

 

8.3 Amendments. This Agreement may not be amended or modified except by an instrument in writing signed on behalf of the Buyer, the Companies and the Sellers.

 

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8.4 Waiver. At any time prior to the Closing, the Buyer may (a) extend the time for the performance of any of the covenants, obligations or other acts of the Sellers and the Companies or (b) waive any inaccuracy of any representations or warranties or compliance with any of the agreements, covenants or conditions of the Sellers or the Companies. Any agreement on the part of the Buyer to any such extension or waiver will be valid only if such waiver is set forth in an instrument in writing signed on its behalf by its duly authorized officer. At any time prior to the Closing, the Sellers and the Companies may (a) extend the time for the performance of any of the covenants, obligations or other acts of the Buyer or (b) waive any inaccuracy of any representations or warranties or compliance with any of the agreements, covenants or conditions of the Buyer. Any agreement on the part of the Sellers and the Companies to any such extension or waiver will be valid only if such waiver is set forth in an instrument in writing signed by the Sellers and the Companies. Except for any waiver under the preceding sentences of this Section 8.4, the failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise will not constitute a waiver of such rights. The waiver of any such right with respect to particular facts and other circumstances will not be deemed a waiver with respect to any other facts and circumstances, and each such right will be deemed an ongoing right that may be asserted at any time and from time to time.

 

ARTICLE IX
INDEMNIFICATION

 

9.1 Survival. The representations, warranties made herein and in any certificate delivered in connection herewith shall survive for a period of twenty-four (24) months following the Closing Date, at which time they shall expire; provided, however, that the representations and warranties set forth in Sections 3.1, 3.3, 4.1, 4.3, 4.6, 5.1, 5.2, 5.5, and 5.6 of this Agreement (the “Fundamental Representations”) shall survive until the expiration of the applicable statute of limitations. Claims asserted in good faith with reasonable specificity and by written notice given prior to the expiration of the applicable representations and warranties, then notwithstanding any statement herein to the contrary, the relevant representations and warranties shall survive as to such claim, until such claim is finally resolved. Unless a specified period is set forth in this Agreement (in which event such specified period will control), and for covenants that by their terms are to be performed after the Closing Date, all agreements and covenants contained in this Agreement will survive the Closing and remain in effect until thirty (30) days after the expiration of the applicable statutes of limitations. To avoid any doubt, the parties hereto agree that the time limitations herein limit the time in which a claim may be brought even though such time limits may be less than those otherwise afforded under applicable statutes of limitations. In the event that a claim has been brought within such time periods, the running of such time prior to the final adjudication of such claim shall not time bar the continuation of such claim.

 

9.2 Indemnification by Sellers. From and after the Closing, each Seller, on joint and several basis, hereby agrees to indemnify, defend and save the Buyer and, to the extent applicable, its Affiliates, stockholders, officers, directors, employees, agents and representatives (each, a “Buyer Indemnified Party” and collectively, the “Buyer Indemnified Parties”) harmless from and against any and all liabilities, deficiencies, demands, claims, Actions, assessments, losses, costs, expenses, interest, fines, penalties and damages (including reasonable fees and expenses of attorneys and accountants) (individually and collectively, the “Losses”) suffered, sustained or incurred by any Buyer Indemnified Party arising out of or otherwise by virtue of: (a) any breach of any of the representations or warranties of such Seller or the Companies contained in Article III or IV of this Agreement or (b) the failure of such Seller to perform any of its covenants or obligations contained in this Agreement.

 

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9.3 Indemnification by Buyer. From and after the Closing, the Buyer agrees to indemnify, defend and save the Sellers and to the extent applicable, the Sellers’ Affiliates, employees, agents and representatives (each, a “Seller Indemnified Party” and collectively the “Seller Indemnified Parties”) harmless from and against any and all Losses suffered, sustained or incurred by any Seller Indemnified Party arising out of or otherwise by virtue of: (a) any breach of any of the representations and warranties of Buyer contained in Article V of this Agreement, (b) the failure of the Buyer to perform any of its covenants or obligations contained in this Agreement, or (c) any Third Pard Claim involving the enforcement or collection of any guarantees of any Liabilities or other obligations of a Company made by a Seller or an Affiliate or Representative of a Seller which remains in effect as of the Closing Date, and to the extent that such Losses are based upon, result from or arise out of the business, operations, properties, assets, Liabilities or other obligations of a Company conducted, existing or arising after the Closing Date.

 

9.4 Third Party Indemnification Procedures.

 

(a) If a Buyer Indemnified Party or a Seller Indemnified Party seeks indemnification under this Article IX, such party (the “Indemnified Party”) shall promptly give written notice to the other party (the “Indemnifying Party”) of the assertion of any claim or the commencement of any suit, action or proceeding by any third party (a “Third Party Claim”) in respect of which indemnity may be sought under this Article IX. Such notice shall contain details reasonably sufficient to disclose to the Indemnifying Party the nature and scope of the claim including an estimate of the amount of claimed Losses (if known and quantifiable) and copies of all relevant pleadings, documents and information. Any failure in the delivery of such notice shall not affect the obligations of the Indemnifying Party, except to the extent (and only to the extent) that the rights and remedies of the Indemnifying Party are prejudiced as a result of the failure to give, or delay in giving, such notice.

 

(b) The Indemnifying Party shall be entitled to participate in the defense of any Third Party Claim and, subject to the limitations set forth in this Section 9.4(b), shall be entitled to control and appoint lead counsel for such defense, in each case at its own expense; provided, that (i) the Indemnifying Party provides written notice to the Indemnified Party that the Indemnifying Party intends to undertake such defense and (ii) the Indemnifying Party conducts the defense of the Third Party Claim actively and diligently; provided, further, that the Indemnifying Party shall not have the right to defend against such Third Party Claim (unless otherwise agreed to in writing by the Indemnified Party) if (A) the claim for indemnification relates to or arises in connection with any criminal or quasi-criminal proceeding, action, indictment, allegation or investigation, (B) the claim seeks an injunction or other equitable relief against any Indemnified Party or any of its Affiliates, or (C) the Indemnified Party shall in good faith determine after consultation with outside counsel that the Indemnified Party may have available to it one or more defenses or counterclaims that are inconsistent with one or more of the defenses or counterclaims that may be available to the Indemnifying Party in respect of a Third Party Claim that would make it inappropriate for the same counsel to represent both the Indemnifying Party and the Indemnified Party.

 

(c) The Indemnifying Party shall notify the Indemnified Party within fifteen (15) days after having received any claim notice with respect to whether or not it is exercising its right to defend the Indemnified Party against the Third Party Claim. If the Indemnifying Party has the right to and elects to assume the control of the defense of any Third Party Claim in accordance with the provisions of this Section 9.4, (i) the Indemnifying Party shall have the right to defend such Third Party Claim with counsel selected by the Indemnifying Party (which counsel shall be subject to the approval of the Indemnified Party, such approval not to be unreasonably withheld, conditioned or delayed), (ii) the Indemnifying Party shall not enter into any settlement agreement with respect to such Third Party Claim without the prior written consent of the Indemnified Party (which shall not be unreasonably withheld, delayed or conditioned) and (iii) the Indemnified Party shall be entitled to participate in the defense of any Third Party Claim and to employ at its expense separate counsel of its choice for such purpose (in which case the counsel of the Indemnifying Party shall reasonably cooperate with such separate counsel to facilitate such participation, including (x) promptly providing to such separate counsel copies of all written materials received in respect of the Third Party Claim, (y) providing such separate counsel a reasonable opportunity to review and comment on materials being drafted and furnished in respect of such Third Party Claim (which such comments shall be considered in good faith) and (z) providing the opportunity to participate in all meetings (whether in person, by teleconference or otherwise) relating to such Third Party Claim).

 

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(d) If the Indemnifying Party does not notify the Indemnified Party that the Indemnifying Party elects to defend the Indemnified Party pursuant to Section 9.4(c) within fifteen (15) days after receipt of notice of a Third Party Claim, or the Indemnifying Party is otherwise not entitled to defend the Indemnified Party pursuant to Section 9.4(b), then the Indemnified Party may defend, and be reimbursed by the Indemnifying Party for its reasonable costs and expenses in regard to, the Third Party Claim with counsel selected by the Indemnified Party in all appropriate proceedings. In such circumstances, the Indemnified Party may defend any such Third Party Claim and have full control of such defense and proceedings including the settlement, compromise or discharge thereof; provided, however, that no such Third Party Claim shall be settled, compromised or discharged by the Indemnified Party without the prior written consent of the Indemnifying Party (which consent shall not be unreasonably withheld, delayed or conditioned). The Indemnifying Party shall be entitled to participate in the defense of any Third Party Claim described in this Section 9.4(d) and to employ one separate counsel of its choice for such purpose (in which case the counsel of the Indemnified Party shall reasonably cooperate with such separate counsel to facilitate such participation, including (x) promptly providing to such separate counsel copies of all written materials received in respect of the Third Party Claim, (y) providing such separate counsel a reasonable opportunity to review and comment on materials being drafted and furnished in respect of such Third Party Claim (which such comments shall be considered in good faith) and (z) providing the opportunity to participate in all meetings (whether in person, by teleconference or otherwise) relating to such Third Party Claim). The fees and expenses of such separate counsel shall be paid by the Indemnifying Party.

 

(e) Each party shall cooperate, and cause its respective Affiliates to cooperate, in the defense or prosecution of any Third Party Claim and shall furnish or cause to be furnished such records, information and testimony, and attend such conferences, discovery proceedings, hearings, trials or appeals, as may be reasonably requested in connection therewith; provided that no Indemnified Party, upon reasonable advice of counsel, shall have any obligation to disclose any information the disclosure of which would reasonably be expected to result in a violation of applicable Law or is subject to attorney-client or any other privilege, and if requested by an Indemnified Party, the Indemnifying Party will enter into an appropriate joint defense agreement (or other privilege-preserving agreement) in connection with obtaining access to such information.

 

9.5 Direct Claim Procedures. In the event an Indemnified Party brings a claim for indemnity against an Indemnifying Party that does not involve a Third Party Claim (a “Direct Claim”), the Indemnified Party shall give prompt notice in writing of such Direct Claim to the Indemnifying Party. The failure to give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations, except and only to the extent that the Indemnifying Party is materially prejudiced by reason of such failure. Such notice by the Indemnified Party shall describe the Direct Claim in reasonable detail (excluding anything subject to attorney-client or similar privilege) with respect thereto and shall indicate the estimated amount, if reasonably known and quantifiable and assuming the truth of the facts asserted therein, of the Losses that have been or may be sustained by the Indemnified Party; provided, however, that (a) the notice with respect to a Direct Claim (a “Direct Claim Notice”) need only specify such information to the knowledge of such Indemnified Party as of the date of such notice and (b) shall be updated and amended from time to time by the Indemnified Party by delivering an updated or amended Direct Claim Notice. The Indemnifying Party shall have sixty (60) days after its receipt of such notice to respond in writing to such Direct Claim Notice. During such 60-day period, the Indemnified Party shall allow the Indemnifying Party and its professional advisors to investigate the matter or circumstance alleged to give rise to the Direct Claim, and whether and to what extent any amount is payable in respect of the Direct Claim, and the Indemnified Party shall assist the Indemnifying Party’s investigation by giving such information and assistance (including access to the Indemnified Party’s, the Companies’ and its Subsidiaries’ premises and personnel and the right to examine and copy any accounts, documents or records) as the Indemnifying Party or any of its professional advisors may reasonably request. The Indemnifying Party may object to a claim for indemnification set forth in a Direct Claim Notice by delivering a notice to the Indemnified Party seeking indemnification within sixty (60) days of the delivery of the applicable Direct Claim Notice (the “Direct Claim Objection Deadline”), setting forth in reasonable detail the objections to the Direct Claim. If the Indemnifying Party notifies the applicable Indemnified Party that it objects by the Direct Claim Objection Deadline or fails to object by the Direct Claim Objection Deadline, the Indemnifying Party shall be deemed to have rejected such claim, in which case the Indemnified Party shall be free to pursue such remedies as may be available to the Indemnified Party on the terms and subject to the provisions of this Agreement.

 

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9.6 Limitations on Indemnification Obligation. Notwithstanding anything in this Agreement to the contrary, the liability of the Sellers to the Buyer Indemnified Parties with respect to claims for indemnification pursuant to Section 9.2 shall be subject to the following limitations:

 

(a) The Sellers shall not, in the aggregate, be liable to the Buyer Indemnified Parties for Losses arising under Section 9.2(a) (other than with respect to Fundamental Representations or for actual fraud in the making of representations or warranties of the Sellers in this Agreement (“Fraud”)) to the extent that the amount otherwise indemnifiable for such breaches exceeds an amount equal to ten percent (10.00%) of the Purchase Price; and, the Sellers shall not, in the aggregate, be liable to the Buyer Indemnified Parties for Losses arising under Section 9.2(a) with respect to Fundamental Representations or Fraud to the extent that the amount otherwise indemnifiable for such Losses exceeds an amount equal to the Purchase Price.

 

(b) The Sellers shall not be liable to the Buyer Indemnified Parties for Losses arising under Section 9.2(a) (other than with respect to Fundamental Representations or Fraud for which recovery shall not be so limited) until and unless the aggregate amounts indemnifiable for such breaches exceeds $25,000. In the event the Buyer Indemnified Parties’ claim for Losses, in the aggregate, exceed $25,000, the Buyer Indemnified Parties shall be entitled to the entire amount of such Losses back to the first dollar.

 

(c) The Sellers shall not be liable to the Buyer Indemnified Parties for Losses arising under Section 9.2(a) unless the claim therefor is asserted in writing on or prior to the expiration of the applicable representation and/or warranty.

 

(d) A Seller shall not be liable to the Buyer Indemnified Parties for any Losses arising under Section 9.2 based upon or arising out of (i) any inaccuracy in or breach of any of the representations or warranties of the other Seller set forth in Article III of this Agreement; or (ii) the other Seller’s breach of its covenants contained in Section 6.7 of this Agreement.

 

(e) The Sellers shall not be liable to the Buyer Indemnified Parties for any Losses arising under Section 9.2 based upon or arising out of any inaccuracy in or breach of any of the representations or warranties contained in Article IV of this Agreement if the Buyer had knowledge of such inaccuracy or breach prior to the Closing, by reason of the fact that an director, officer or other Representative of Buyer or Parent had actual knowledge any inaccuracy in or breach of any such representation or warranty was inaccurate as of the Closing.

 

(f) In no event shall any Seller be liable to any Buyer Indemnified Party for any punitive, incidental, consequential, special or indirect damages, including loss of future revenue or income, loss of business reputation or opportunity relating to the breach or alleged breach of this Agreement, or diminution of value or any damages based on any type of multiple.

 

(g) All indemnification payments pursuant to this Article IX shall be deemed to be adjustments to the Purchase Price.

 

9.7 Payments. Payments of all amounts owing by an Indemnifying Party under this Article IX shall be made promptly upon the final determination in accordance with this Article IX that an indemnification obligation is owing by the Indemnifying Party to the Indemnified Party.

 

9.8 Exclusive Remedy. Except in the case of (a) the Net Working Capital adjustment set forth in Section 2.2, or (b) the right to specific performance pursuant to Section 10.14, the indemnification obligations set forth in this Article IX constitute each Buyer Indemnified Party’s sole and exclusive remedy for any and all Losses or other claims relating to or arising from this Agreement, the Acquisition or the transactions contemplated hereby or thereby; provided, however, that this Section 9.8 shall not affect or diminish the remedies available to any party under the Seller Note, the Exchange Agreement, or the Escrow Agreement.

 

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ARTICLE X
MISCELLANEOUS

 

10.1 Press Releases and Public Announcement. Neither the Buyer on the one hand, nor the Sellers or the Companies on the other, will issue any press release or make any public announcement relating to this Agreement, the Acquisition or the other transactions contemplated by this Agreement without the prior written approval of the other party; provided, however, that, the Buyer may make regulatory filings referring to this Agreement or attaching a copy hereof as may be required by applicable Law.

 

10.2 No Third-Party Beneficiaries. This Agreement will not confer any rights or remedies upon any Person other than the parties hereto and their respective successors and permitted assigns.

 

10.3 Entire Agreement. This Agreement and the Ancillary Agreements (including the Exhibits and the Schedules hereto) constitutes the entire agreement among the parties hereto and supersedes any prior understandings, agreements or representations by or among the parties hereto, written or oral, to the extent they related in any way to the subject matter hereof.

 

10.4 Succession and Assignment. This Agreement will be binding upon and inure to the benefit of the parties named herein and their respective successors and permitted assigns. No party hereto may assign either this Agreement or any of its rights, interests or obligations hereunder without the prior written approval, in the case of assignment by the Buyer, by the Sellers, and, in the case of assignment by the Sellers or the Companies, the Buyer.

 

10.5 Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement, and, in the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties, and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.

 

10.6 Notices. All notices, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally against written receipt or by facsimile or electronic mail transmission or mailed (by registered or certified mail, postage prepaid, return receipt requested) or delivered by reputable overnight courier, fee prepaid, to the parties hereto at the addresses of the parties as specified below:

 

  If to the Buyer: 1847 Cabinets Inc.
    210849 W. Emerald St
    Boise, ID 83713
    Attn: Kenneth Yuan, CEO
    Email:
     
  with a copy to: BEVILACQUA PLLC
    1050 Connecticut Avenue, NW, Suite 500
    Washington, DC 20036
    Attn: Louis A. Bevilacqua, Esq.
    Facsimile:
    Email:
     
  If to the Companies: High Mountain Door & Trim, Inc.
    Sierra Homes, LLC
    Attn: Each of the Sellers with the addresses specified on Exhibit A
    hereto
     
  with a copy to: McDonald Carano LLP
    100 West Liberty Street
    Tenth Floor
    Reno NV 89501
    Attn: James Robertson
    Facsimile:
    Email:

 

If to the Sellers: To the addresses specified on Exhibit A hereto

 

33

 

Any party may change the address to which notices, requests, demands, claims and other communications hereunder are to be delivered by giving the other parties notice in the manner set forth herein.

 

10.7 Governing Law. This Agreement will be governed by, and construed and enforced in accordance with, the Laws of the State of Nevada, without giving effect to any choice of Law or conflict of Law provision or rule that would cause the application of the Laws of any jurisdiction other than the State of Nevada.

 

10.8 Consent to Jurisdiction and Service of Process. EACH OF THE PARTIES HERETO CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE WASHOE COUNTY, NEVEDA AND IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS RELATING TO THIS AGREEMENT, THE ACQUISITION OR THE OTHER TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT MAY BE LITIGATED IN SUCH COURTS. EACH OF THE PARTIES HERETO ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS RESPECTIVE PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY FINAL AND NONAPPEALABLE JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT, THE ACQUISITION OR THE OTHER TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

 

10.9 Headings. The descriptive headings contained in this Agreement are included for convenience of reference only and will not affect in any way the meaning or interpretation of this Agreement.

 

10.10 Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future Law (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom, (d) with respect to the Sellers’ obligations in Section 6.7 of this Agreement, the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision and (e) in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar in terms of such illegal, invalid or unenforceable provision as may be possible.

 

10.11 Expenses. Except as otherwise provided in this Agreement, whether or not the Acquisition is consummated, all expenses incurred in connection with this Agreement and the transactions contemplated hereby will be paid by the party incurring such expenses. As used in this Section 10.11, “expenses” means the fees and out-of-pocket expenses of the financial advisor, counsel and accountants incurred in connection with this Agreement and the transactions contemplated hereby.

 

10.12 Incorporation of Exhibits and Schedules. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof.

 

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10.13 Limited Recourse. Notwithstanding anything in this Agreement to the contrary, the obligations and Liabilities of the parties hereunder or in any Ancillary Agreement will be without recourse to any stockholder or member of such party or any of such stockholder’s or member’s Affiliates, or any of their respective Representatives or agents (in each case, in their capacity as such).

 

10.14 Specific Performance.  The parties hereto agree that irreparable damage would occur in the event that any provision of this Agreement was not performed in accordance with the terms hereof and that the parties will be entitled to specific performance of the terms hereof in addition to any other remedy at Law or in equity, except as otherwise provided herein.

 

10.15 Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.

 

  BUYER:  
     
  1847 CABINET INC.
     
  By: /s/ Kenneth Yuan
  Name:  Kenneth Yuan
  Title: Chief Executive Officer
     
  COMPANIES:  
     
  HIGH MOUNTAIN DOOR & TRIM, INC.
     
  By: /s/ Steven J. Parkey
  Name: Steven J. Parkey
  Title: President
     
  SIERRA HOMES, LLC
     
  By: /s/ Steven J. Parkey
  Name: Steven J. Parkey
  Title: Managing Member

 

  By: /s/ Jose D. Garcia-Rendon
  Name:  Jose D. Garcia-Rendon
  Title: Managing Member

 

  SELLERS:
   
  /s/ Steven J. Parkey
  Steven J. Parkey
   
  /s/ Jose D. Garcia-Rendon
  Jose D. Garcia-Rendon

 

36

 

EXHIBIT A

 

Schedule of Sellers & Allocations

 

Aggregate Purchase Price between High Mountain Securities & Sierra Homes Securities:

 

All Securities of

High Mountain Door & Trim, Inc.

   

All Securities of

Sierra Homes, LLC

   

Aggregate Purchase Price for

All Securities

 
$ 8,000,000     $ 6,250,000     $ 14,250,000  

 

Aggregate Purchase Price Per Seller:

 

 

Name and Address of Seller

  High Mountain Door & Trim, Inc.   Sierra Homes, LLC   Cash Portion of Purchase Price    

 

Principal Amount of Seller Note

   

 

Aggregate Purchase Price Per Seller

 
Steven Parkey
  50,000 shares of common stock constituting 50% of the issued and outstanding common stock of High Mountain   50% of the membership interests of Sierra Homes constituting 50% of the issued and outstanding equity interests in Sierra Homes   $ 5,343,750     $ 1,781,250     $ 7,125,000  
Jose Garcia
 
  50,000 shares of common stock constituting 50% of the issued and outstanding common stock of High Mountain   50% of the membership interests of Sierra Homes constituting 50% of the issued and outstanding equity interests in Sierra Homes   $ 5,343,750     $ 1,781,250     $ 7,125,000  
Aggregate Total Purchase Price                           $ 14,250,000  

 

 

 

 

 

Exhibit 10.2

 

AMENDMENT NO. 1

TO

SECURITIES PURCHASE AGREEMENT

 

This AMENDMENT NO. 1 TO SECURITIES PURCHASE AGREEMENT, dated October 6, 2021 (this “Amendment”), is entered into by and among 1847 Cabinet Inc., a Delaware corporation (the “Buyer”), High Mountain Door & Trim, Inc., a Nevada corporation (“High Mountain”), Sierra Homes, LLC, a Nevada limited liability company (“Sierra Homes” and together with High Mountain, each a “Company” and collectively, the “Companies”), and the other parties set forth on the signature page hereto (each a “Seller” and, collectively, the “Sellers”). Each of the Buyer, the Companies and the Sellers are sometimes referred to in this Amendment individually as a “Party” and, collectively, as the “Parties.”

 

RECITALS

 

A. The Parties have previously entered into that certain Securities Purchase Agreement, dated as of September 23, 2021 (the “Securities Purchase Agreement”).

 

B. The Parties desire to amend the Securities Purchase Agreement as set forth herein.

 

C. Pursuant to Section 8.3 of the Securities Purchase Agreement, the Securities Purchase Agreement may be amended by the Parties only by an instrument in writing signed on behalf of the Buyer, the Companies and the Sellers.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows:

 

1. Definitions. All capitalized terms used herein without definition shall have the meanings ascribed to them in the Securities Purchase Agreement, as applicable.

 

2. Amendments. The Securities Purchase Agreement is hereby amended as set forth below:

 

A. The definition of “Net Working Capital Target” is hereby amended to mean $2,663,136.

 

B. The first sentence of Section 2.1(b) is hereby amended and restated in its entirety to read as follows:

 

“(b) Purchase Price. The aggregate purchase price for the Securities shall be Fifteen Million Nine Hundred Thirteen Thousand One Hundred Thirty-Six Dollars ($15,913,136) (the “Purchase Price”), subject to any adjustments pursuant to Section 2.2 and Section 2.3 hereof, and consisting of: (i) Ten Million Six Hundred Eighty Seven Thousand Five Hundred Dollars ($10,687,500) in cash (the “Cash Portion”), and (ii) the Seller Notes (as defined below) in the aggregate principal amount of Five Million Two Hundred Twenty-Five Thousand Six Hundred Thirty-Six Dollars ($5,225,636) (the “Aggregate Principal Amount).

 

 

 

C. The first sentence of Section 2.2(a)(i) is hereby amended and restated in its entirety to read as follows:

 

“(i) Estimated Net Working Capital. Prior to the Closing, the Sellers shall deliver to the Buyer a statement setting forth the Sellers’ good faith estimate of the Net Working Capital as of September 30, 2021 or as of the Closing Date, which statement shall contain: (x) an unaudited combined balance sheet of the Companies (the “Adjustment Balance Sheet”) as of August 31, 2021; (y) a calculation of the Sellers’ good faith estimate of the Net Working Capital as of September 30, 2021 or as of the Closing Date (the “Estimated Net Working Capital Statement”); and (z) a certificate of the Sellers stating that the Adjustment Balance Sheet was prepared in accordance with the Company Accounting Principles.

 

D. Exhibit A (Schedule of Sellers & Allocations) to the Securities Purchase Agreement is hereby amended and restated in its entirety to read as set forth on Exhibit A to this Amendment. On and after the date of this Amendment, each reference in the Securities Purchase Agreement to “Exhibit A” and each reference to the “Exhibit A” in any other agreements, documents, or instruments executed and delivered pursuant to, or in connection with, the Securities Purchase Agreement, will mean and be a reference to the Exhibit A attached to this Amendment.

 

3. Effect of Amendment. Except as expressly provided in this Amendment, all of the terms and provisions of the Securities Purchase Agreement are and shall continue in full force and effect. On and after the date hereof, each reference in the Securities Purchase Agreement to “this Agreement,” “the Agreement,” “hereunder,” “hereof,” “herein” or words of like import, and each reference to the Securities Purchase Agreement in any other agreements, documents, or instruments executed and delivered pursuant to, or in connection with, the Securities Purchase Agreement, will mean and be a reference to the Securities Purchase Agreement as amended by this Amendment.

 

4. Counterparts. This Amendment may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.

 

5. Governing Law. This Amendment will be governed by, and construed and enforced in accordance with, the Laws of the State of Nevada, without giving effect to any choice of Law or conflict of Law provision or rule that would cause the application of the Laws of any jurisdiction other than the State of Nevada.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

2

 

IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be duly executed as of the date first above written.

 

  BUYER:
     
  1847 CABINET INC.
     
  By: /s/ Kenneth Yuan
  Name: Kenneth Yuan
  Title: Chief Executive Officer
     
  COMPANIES:
   
  HIGH MOUNTAIN DOOR & TRIM, INC.
     
  By: /s/ Steven J. Parkey
  Name: Steven J. Parkey
  Title: President
     
  SIERRA HOMES, LLC
     
  By: /s/ Steven J. Parkey
  Name: Steven J. Parkey
  Title: Managing Member
     
  By: /s/ Jose D. Garcia-Rendon
  Name: Jose D. Garcia-Rendon
  Title: Managing Member
     
  SELLERS:
     
  /s/ Steven J. Parkey
  Steven J. Parkey
   
  /s/ Jose D. Garcia-Rendon
  Jose D. Garcia-Rendon

 

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EXHIBIT A

 

Schedule of Sellers & Allocations

 

Aggregate Purchase Price between High Mountain Securities & Sierra Homes Securities:

 

All Securities of

High Mountain Door & Trim, Inc.

   

All Securities of

Sierra Homes, LLC

   

 

Aggregate Purchase Price for

All Securities

 
$ 8,000,000     $ 7,913,136     $ 15,913,136  

 

Aggregate Purchase Price Per Seller:

 

Name and Address of Seller   High Mountain Door & Trim, Inc.   Sierra Homes, LLC   Cash Portion of Purchase Price    

 

Principal Amount of Seller Note

   

Aggregate Purchase Price Per Seller

 
Steven J. Parkey   500 shares of common stock constituting 50% of the issued and outstanding common stock of High Mountain   50% of the membership interests of Sierra Homes constituting 50% of the issued and outstanding equity interests in Sierra Homes   $ 5,343,750     $ 2,612,818     $ 7,956,568  
Jose D. Garcia-Rendon   500 shares of common stock constituting 50% of the issued and outstanding common stock of High Mountain   50% of the membership interests of Sierra Homes constituting 50% of the issued and outstanding equity interests in Sierra Homes   $ 5,343,750     $ 2,612,818     $ 7,956,568  
Aggregate Total Purchase Price                           $ 15,913,136  

 

 

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Exhibit 10.3

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A FORM ACCEPTABLE TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.

 

THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT DATED AS OF OCTOBER 8, 2021 IN FAVOR OF AGENT, LEONITE CAPITAL LLC, AS AGENT FOR THE SENIOR CREDITORS, WHICH AGREEMENT (AS AMENDED IN ACCORDANCE WITH ITS TERM) IS INCORPORATED HEREIN BY REFERENCE.

 

1847 CABINETS INC.

 

6% SUBORDINATED CONVERTIBLE PROMISSORY NOTE

 

U.S. $2,940,172.50 October 8, 2021

 

FOR VALUE RECEIVED, 1847 Cabinet Inc., a Delaware corporation (the “Company”), hereby promises to pay to the order of Steven J. Parkey (the “Holder”), the principal sum of Two Million Nine Hundred Forty Thousand One Hundred Seventy-Two Dollars and Fifty Cents ($2,940,172.50) (the “Principal”) in lawful money of the United States of America, together with accrued interest thereon at the rate of six percent (6%) per annum, as provided in this Note. Unless earlier converted, repaid, or due in accordance with this Note, the then outstanding Principal amount together with all accrued but unpaid interest and any other amounts payable under this Note shall mature and become due on the third (3rd) anniversary of the date of this Note (the “Maturity Date”).

 

This Subordinated Convertible Promissory Note (this “Note”) has been issued in connection with that certain Securities Purchase Agreement, dated September 23, 2021 (the “Purchase Agreement”) and its amendment, among the Company (as the “Buyer”), High Mountain Door & Trim, Inc., a Nevada corporation (“High Mountain”), Sierra Homes, LLC, a Nevada limited liability company (“Sierra Homes” and together with High Mountain, collectively, the “Selling Companies”), and the Holder (as a “Seller”) and the other Seller party set forth in Exhibit A thereto (collectively, the “Sellers”), pursuant to which the Company has acquired the Securities from the Sellers. Capitalized terms used herein but not defined herein shall have the meaning ascribed to them in the Purchase Agreement.

 

This Note and a like note being issued by the Company to the other Seller on the date hereof are referred to in the Purchase collectively, the “Seller Notes”, and each individually, as a “Seller Note”.

 

The following is a statement of the rights of the Holder and the terms and conditions to which this Note is subject, and to which the Holder, by acceptance of this Note, agrees:

 

1. Principal Repayment.

 

(a) The Principal shall be paid together with all accrued and unpaid Interest and all other amounts payable hereunder in full on the Maturity Date.

 

 

 

(b) The Principal amount of this Note is subject to adjustment pursuant to the terms of the Purchase Agreement, including but not limited to, a reduction or increase of the Principal Amount as described in Section 3 below.

 

(c) The Company may prepay the Principal amount and accrued, but unpaid, interest thereon in whole or in part, without penalty or premium upon ten (10) business days prior written notice to the Holder. The Holder shall have the right to exchange the Principal balance and all accrued, but unpaid interest thereon, into securities of Parent in accordance with the Exchange Agreement (as defined in Section 8 hereof) or convert the Principal balance and all accrued, but unpaid interest thereon into Conversion Shares (as defined below) in accordance with Section 10 hereof during such ten (10) business day period.

 

2. Interest.

 

(a) Interest. Interest (“Interest”) on the outstanding Principal balance shall accrue and be paid at the rates and at the times provided in this Note. Except as otherwise provided in this Note, Interest shall accrue on the aggregate then outstanding Principal at the rate of six percent (6%) per annum (the “Interest Rate”) and shall be paid on the Maturity Date. All Interest due hereunder shall be paid in cash unless exchanged into securities of Parent in accordance with the Exchange Agreement (as defined in Section 8 hereof) or converted into Conversion Shares (as defined below) in accordance with Section 10 hereof. All computations of Interest hereunder shall be made on the basis of a 360-day year of twelve 30-day months.

 

(b) Default Interest. If an Event of Default, or an event which, with notice or passage of time could become an Event of Default, has occurred and thereafter during the continuation of such Event of Default, or if any amount payable under this Note is not paid when due (without regard to any applicable grace periods), whether at maturity, by acceleration or otherwise, the then outstanding Principal amount and all accrued but unpaid Interest and all other amounts due hereunder shall accrue interest at a rate equal to ten percent (10%) per annum (the “Default Rate”) until (i) such Event of Default is cured (if curable) or such delinquent payment is paid in full, as applicable, and (ii) all Interest accrued at such Default Rate (the “Default Interest”) has been paid in full.

 

(c) Interest Rate Limitation. If any rate of Interest provided for herein shall be determined to be in excess of the maximum rate of interest permitted to be charged by the Holder to the Company under applicable law, such rate of interest, whether the Interest Rate or Default Rate, as applicable, shall be reduced automatically to the highest rate permitted by applicable law. Any payment by the Company of any amount of Interest charged at a rate in excess of that permitted by applicable law shall be deemed to be a voluntary prepayment of Principal and applied to the Principal of this Note without prepayment premium or penalty.

 

3. Adjustments to Principal.

 

(a) The Principal of this Note may be adjusted pursuant to Sections 2.2(a) of the Purchase Agreement.

 

(b) In the event that the Principal of this Note is adjusted pursuant to Section 2.2(a) of the Purchase Agreement, the Company shall execute and issue a new note to Holder in the same form as this Note, however, such New Note shall reflect the updated principal amount of this Note and the New Note will include a provision indicating that upon issuance of the New Note, this Note is cancelled and superseded by the New Note; provided, however, that the maturity date under the new Note issued pursuant to this Section 3(b) shall remain unchanged from the maturity date of this Note.

 

2 

 

4. Events of Default. The occurrence of any of the following events shall constitute an event of default under this Note (each, an “Event of Default”):

 

(a) Failure to Pay. The Company shall default in the payment of the Principal or accrued Interest as and when due and payable hereunder, whether by acceleration or otherwise and such failure continues for two (2) Business Days after the original due date.

 

(b) Breach of Covenants. The Company breaches, or defaults in any material manner in the observance or performance of, any covenants, obligations, conditions or agreements set forth in the Purchase Agreement, this Note, or any other agreement, certificate or other instrument executed and delivered or entered into by the Company in connection with the transactions contemplated by the Purchase Agreement (collectively, the “Transaction Documents”), other than a payment default as specified in subsection 4(a) above, and (if curable) such breach or default has continued for a period of thirty (30) calendar days;

 

(c) Breach of Representations and Warranties. The Company materially breaches any representation or warranty contained in the Transaction Documents or any such representation or warranty of the Company contains an untrue or misleading statement of a material fact as of the date made, and the Company shall have failed to cure such breach or failed to address the adverse effects of such untrue or misleading statement to the reasonable satisfaction of the Holder, within thirty (30) calendar days after the date on which such breach occurs or any officer of the Company becomes aware of such breach or such untrue or misleading statement.

 

(d) Insolvency; Bankruptcy. If the Company, the Parent, or either of the Selling Companies shall: (i) admit in writing its inability to pay its debts as they become due; (ii) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for it or any of its property, or make a general assignment for the benefit of its creditors; (iii) in the absence of such application, consent or acquiescence in, permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for it or for any part of its property; (iv) voluntarily commence, or otherwise consent to, acquiesce in or permit the commencement of, any bankruptcy, reorganization, debt arrangement or any other case or proceeding under any bankruptcy or insolvency law, seeking relief from creditors or any reorganization, arrangement, adjustment, dissolution, winding up, liquidation or other relief with respect to, or any debts of, the Company, the Parent, or a Selling Company; (v) take any action for the purpose of effecting any of the foregoing; or (vi) if any case, proceeding or other action of a nature referred to in clause (iv) above is involuntarily commenced against the Company, the Parent, or either of the Selling Companies, which (A) results in the entry of any order for relief against the Company, the Parent, or Selling Company, as applicable, or (B) is not dismissed or discharged within 60 days of commencement.

 

(e) Cross Default. If a default or an event of default has occurred, or any event which the giving of notice or the passage of time or both would constitute a default or an event of default, under the terms of any Senior Indebtedness (as defined below), which entitles, and has caused, the holder(s) thereof to declare the Senior Indebtedness or a portion thereof to be due and payable prior to its stated maturity.

 

(f) Failure to Give Notice. The Company fails to give notice of the occurrence of an Event of Default or any event which the giving of notice or the passage of time or both would constitute an Event of Default, as specified in Section 7.

 

5. Remedies. Upon the occurrence of any Event of Default and at any time thereafter during the continuation of such Event of Default, the Holder may, by written notice to the Company, declare the outstanding Principal amount, together with all accrued and unpaid interest thereon and all other amounts payable hereunder, immediately due and payable, without presentment, demand, protest, or any other notice or action of any kind, all of which are hereby expressly waived by the Company; provided, however, upon the occurrence of any Event of Default described in Section 4(d), immediately and without notice, declaration or any other action on the part of the Holder, the outstanding Principal amount, together with all accrued and unpaid interest thereon and all other amounts payable hereunder, shall automatically become immediately due and payable. In addition to the forgoing remedies, upon the occurrence and during the continuance of any Event of Default, the Holder may exercise any or all of its rights, powers or remedies under the Transaction Documents or applicable law, whether by suit in equity, action at law, or both

 

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6. Corporate Transactions.

 

(a) Company Notice. Prior to the consummation of any Corporate Transaction (as defined below), the Company shall deliver written notice of such Corporate Transaction to the Holder (the “Transaction Notice”), at least thirty (30) days prior to the date of consummation of such Corporate Transaction. Such Corporate Transaction Notice shall include (i) a description of the material terms and conditions of the Corporate Transaction, (ii) a copy of the definitive agreement(s) that have been, or are expected to be, executed in connection therewith, (iii) the anticipated closing date of the Corporate Transaction, and (iv) all information related thereto as may be reasonably requested by the Holder.

 

(b) Conditional Elections. Following the Holder’s receipt of the Transaction Notice from the Company as described in Section 6(a) above, but in any event not less than five (5) Business Days prior to the closing date of the Corporate Transaction, the Holder may, in its sole discretion, make any or all of the following elections with respect to the outstanding Principal balance of, and the accrued but unpaid Interest under, this Note as of the date of the Corporate Transaction:

 

(i) To exercise its right to convert a portion of the outstanding Principal balance and accrued but unpaid Interest pursuant to Section 10 hereof (to the extent not previously exercised by the Holder or expired);

 

 

(ii) To exercise its right to exchange all or any portion of the outstanding Principal balance and accrued but unpaid Interest pursuant to the Exchange Agreement; and/or

 

(iii) To accelerate the Maturity Date such that the outstanding Principal balance together with all accrued but unpaid Interest and all other amounts payable hereunder (less any amounts to be converted or exchanged, if applicable) shall become due and payable in full upon the consummation of the Corporate Transaction, by wire transfer of immediately available funds.

 

Unless otherwise specified in writing by the Holder at the time they are made, any such elections by the shall be conditioned upon the consummation of the Corporate Transaction and shall be deemed to be effective immediately prior to the consummation of such transaction.

 

(c) Corporate Transactions. The occurrence of any of the following transactions or events, with respect to all or any one of the Company, High Mountain, and/or Sierra Homes (each, a “Group Company” for purposes hereof), shall constitute a “Corporate Transaction” under this Note: (i) the sale, transfer or other disposition, in a single transaction or series of related transactions, of all or substantially all of a Group Company’s assets; (ii) the merger or consolidation of a Group Company with or into another entity, or any other reorganization of a Group Company, other than any such consolidation, merger or reorganization in which in which the holders of the voting securities of the applicable Group Company immediately prior to such transaction continue to hold a majority of the outstanding voting securities of the such Group Company or such other surviving or resulting entity immediately following the consummation of such transaction; (ii) any transfer (whether by sale, merger, consolidation or otherwise), in a single transaction or series of related transactions, of more than 50% of the outstanding voting securities of a Group Company (or such other surviving or resulting entity); provided, however, a transaction will not constitute a “Corporate Transaction” if its sole purpose is to change the state of a Group Company’s incorporation, organization, or domicile, to convert it into another entity type, to consolidate or combine High Mountain and Sierra Homes into a single entity, to create a holding company for one or more Group Companies that will be owned in substantially the same proportions by the Person(s) who owned the securities of the Group Companies immediately prior to such transaction.

 

4 

 

7. Covenants. Until all amounts outstanding under this Note have been paid in full:

 

(a) Maintenance of Existence Qualification. The Company shall: (i) preserve and maintain its and each of the Selling Companies’ corporate or organizational existence, and (ii) take all actions necessary to preserve and maintain all rights, privileges, and franchises necessary for it and each of the Selling Companies to conduct business in all states and other jurisdictions in which the nature of its or their business requires qualification to do business.

 

(b) Financial Statements. The Company shall deliver the following to the Holder: (i) as soon as available, but in any event within 30 days after the end of quarter of each fiscal year of the Company, the unaudited consolidated balance sheets of the Company and the Selling Companies as of the end of such quarter and the related unaudited consolidated statement of income, statement of stockholder’s equity, and statement of cash flows for such quarter and the portion of the fiscal year through the end of such quarter; (ii) as soon as available, but in any event within 120 days after the end of each fiscal year of the Company, a copy of the audited, if available, or unaudited consolidated balance sheet of the Company and the Selling Companies as of the end of such fiscal year and the related audited consolidated statements of income, statement of stockholder’s equity, and statements of cash flows for such fiscal year; and (iii) upon the request of the Holder, such other information concerning the business, operation, and prospects of the Company and the Selling Companies as the Holder may reasonably request.

 

(c) Notice of Event of Default. Upon the occurrence of an Event of Default or of any event which the giving of notice or the passage of time or both would constitute an Event of Default, as soon as possible thereafter, and in any event within two (2) Business Days after the Company becomes aware that such Event of Default or other event has occurred, the Company notify the Holder in writing of the nature and extent of such Event of Default and the action, if any, the Company has taken or proposes to take with respect to such Event of Default.

 

8. Right to Exchange this Note. The Holder has the right to exchange this Note or any portion thereof, for securities of 1847 Holdings, LLC, a Delaware limited liability company and the parent company of the Company (the “Parent”), pursuant to that certain Exchange Agreement, dated on or about the date hereof, between the Holder and the Parent.

 

9. Subordination. By acceptance of this Note, the Holder hereby acknowledges and agrees that the indebtedness evidenced by this Note is subordinated in right of payment to the indebtedness incurred by the Company on or about to the date of this Note to finance the payment of the Cash Portion due upon the Closing of acquisition of the Selling Companies and related costs and expenses as contemplated by the Purchase Agreement (the “Senior Indebtedness”) and certain rights of the holder of the Senior Indebtedness (the “Senior Creditor”), to the extent and as set forth that certain Subordination Agreement, entered into on the date hereof, by and among the Senior Creditor, the Holder, and the Company.

 

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10. Conversion.

 

(a) Conversion Notice. At any time prior to the first anniversary of the Closing Date, the Holder may, in its sole discretion, elect to convert up to twenty percent (20%) of the original Principal amount of this Note and all accrued, but unpaid, Interest as of the Election Date into fully paid and non-assessable shares of the Common Stock, $0.001 par value per share, of the Company (the “Common Stock”), by providing written notice of such election to the Company no later than 11:59 p.m. EST on the first anniversary of the Closing Date (the “Notice of Conversion”), stating that the Holder has elected to exercise the conversion right provided in this Section 10 (the “Conversion Right”), and specifying the dollar amount of Principal and accrued but unpaid Interest (the “Conversion Amount”) to be so converted. Such conversion shall be deemed to have been made on the election date specified by Holder in the Notice of Conversion provided that such Notice of Conversion is delivered or deemed to be delivered to the Company by 11:59 p.m. EST on such election date (the “Election Date”).

 

(b) Conversion Price. The number of shares of Common Stock to be issued upon conversion (the “Conversion Shares”) shall be equal to (i) the Conversion Amount, divided by (ii) the applicable Conversion Price. As used herein, the “Conversion Price” means the quotient (rounded down to the nearest 1/100th of one cent) obtained by dividing (x) the fair market value of the Company (on a going concern basis, without taking into any minority, marketability or similar discounts) as of the last day of the calendar month immediately preceding the Election Date (the “Company FMV”) by (y) the Fully Diluted Share Number immediately prior to the issuance of the Conversion Shares to the Holder.

 

(c) Determination of Company FMV. If the conversion election is subject to the consummation of a proposed Corporate Transaction, then, to the extent applicable, the Company FMV shall be determined by reference to the purchase price or other consideration payable in connection with such Corporate Transaction. In all other instances, the Company FMV shall be determined either: (ii) by mutual written agreement of the Holder and the Company within ten (10) Business Days after the Election Date, or (ii) if no such agreement has been reached within such 10-day period, by a valuation opinion provided by an independent investment bank or similar firm that is mutually agreeable to the Company and the Holder (the “Valuation Firm”). Upon selection a mutually agreeable Valuation Firm, the Company shall promptly engage such Valuation Firm to determine and deliver its opinion of the Company FMV and shall pay all fees and costs associated with such engagement.

 

(d) Fully Diluted Shares. For purposes of this Note, the “Fully Diluted Share Number” means, as of a given date, the number of issued and outstanding shares of Common Stock on a fully-diluted basis, assuming: (i) the conversion all outstanding securities of the Company that are convertible into shares of Common Stock, including shares of preferred stock and convertible promissory notes (other than the Seller Notes); (ii) the exercise of all outstanding options and warrants, whether vested or unvested; and (iii) the issuance of all shares of Common Stock reserved and available for future issuance under any equity incentive plans.

 

(e) Conversion Procedure. As soon as practicable following the determination of the Conversion Price, the Company shall issue and deliver to the Holder a stock certificate or, in the case of uncertificated securities, a notice of issuance, for the number of Conversion Shares to which the Holder is entitled to receive upon conversion hereunder (bearing such legends as are required by applicable state and federal securities laws), together with a replacement Note. The conversion of this Note in accordance with the terms hereof shall be deemed to have been made on the Election Date and the Holder shall be deemed to be the holder of the Conversion Shares as of such date.

 

(f) Fractional Shares. No fractional shares will be issued upon conversion of this Note. In lieu of any fractional share to which the Holder would otherwise be entitled, the Company will pay to the Holder in cash the amount of the unconverted portion of the Conversion Amount that would otherwise be converted into such fractional share.

 

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11. Holder Not Deemed a Stockholder. Unless and until the Holder has provided a Notice of Conversion to the Company in accordance with Section 10 hereof, no Holder, as such, of this Note shall be entitled to vote or receive dividends or be deemed the holder of shares of the Company for any purpose, nor shall anything contained in this Note be construed to confer upon the Holder hereof, as such, any of the rights at law of a stockholder of the Company.

 

12. Mutilated, Destroyed, Lost or Stolen Note. If this Note shall become mutilated or defaced, or be destroyed, lost or stolen, the Company shall execute and deliver a new note of like principal amount in exchange and substitution for the mutilated or defaced Note, or in lieu of and in substitution for the destroyed, lost or stolen Note. In the case of a mutilated or defaced Note, the Holder shall surrender such Note to the Company. In the case of any destroyed, lost or stolen Note, the Holder shall furnish to the Company: (i) evidence to its reasonable satisfaction of the destruction, loss or theft of such Note and (ii) such security or indemnity (which shall not include the posting of any bond) as may be reasonably required by the Company to hold the Company harmless.

 

13. Waiver of Demand, Presentment, etc. The Company hereby expressly waives demand and presentment for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, bringing of suit and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereunder, regardless of and without any notice, diligence, act or omission as or with respect to the collection of any amount called for hereunder. The Company agrees to reimburse the Holder upon demand for all reasonable costs and expenses (including reasonable attorney’s fees and legal expenses) incurred by or on behalf of the Holder in connection with the Holder’s enforcement of any or all of its rights or remedies under this Note, including endeavors to collect any amounts payable hereunder which are not paid when due, whether at maturity, by acceleration or otherwise (“Costs”).

 

14. Payment. All payments with respect to this Note shall be made in lawful money of the United States of America no later than no later than 5:00 p.m. Pacific Standard Time on the date on which such payment is due by check, at the address of the Holder as of the date hereof or as designated in writing by the Holder from time to time, or by wire transfer of immediately available funds to Holder’s account at a bank specified by Holder in writing to the Company from time to time. The receipt by the Holder of immediately available funds with respect to this Note shall constitute a payment of Principal and Interest then due and payable hereunder and shall satisfy and discharge the liability for such amounts of Principal and Interest on this Note to the extent of the sum represented by such payment. Payments shall be credited first to Costs, if any, second to the payment of any accrued Default Interest and then all other accrued Interest then due and payable; and third, the remainder applied to the Principal.

 

15. Assignment. The rights and obligations of the Company and the Holder with respect to this Note shall be binding upon, and inure to the benefit of, their respective successors and permitted assigns. The Company may not assign or transfer this Note or any of its rights hereunder without the prior written consent of the Holder. This Note may be assigned or transferred, in whole or in part, by the Holder to any Person at any time as follows. To complete an assignment or transfer this Note, the Holder shall deliver a completed and executed Form of Assignment substantially in the form attached hereto as Exhibit A and surrender and deliver this Note for registration of transfer to the Company’s office or such other address which the Company shall designate, upon receipt of which a new Note, in the form of this Note (any such new Note, a “New Note”), evidencing the portion of this Note so transferred shall be issued to and registered in the name of the transferee and a New Note evidencing the remaining portion of this Note not so transferred, if any, shall be issued and registered to the transferring Holder. The acceptance of the New Note by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations in respect of the New Note that the Holder has in respect of this Note. Interest and principal are payable only to the registered Holder of this Note set forth on the books and records of the Company.

 

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16. Waiver and Amendment. Any provision of this Note, including, without limitation, the due dates hereof, and the observance of any term hereof, may be amended, waived or modified (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Holder. The waiver of any provision of this Note shall not operate or be construed to be a waiver of any other provision hereof.

 

17. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if given in accordance with the provisions of the Purchase Agreement.

 

18. Governing Law; Submission to Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed by and construed and enforced solely and exclusively in accordance with the laws of the state of Nevada without regard to any statutory or common-law provision pertaining to conflicts of laws. The Parties hereby irrevocably and unconditionally (i) agree that any legal action, suit, or proceeding arising out of or relating to this Note may be brought in the state and federal courts of competent subject matter jurisdiction located in Washoe County, Nevada; and (ii) submit to the personal jurisdiction of any such courts in any such action, suit, or proceeding. Final judgment against a party hereto in any action, suit, or proceeding shall be conclusive and may be enforced in any other jurisdiction by suit on the judgment. The Parties further agree that the mailing of any service process shall constitute valid and lawful service process against each Party hereto. The Parties waive any claim that that any of the foregoing courts is an inconvenient forum. Nothing in this Section shall affect the right of the Holder to: (i) commence legal proceedings or otherwise sue the Company in any other court having jurisdiction over the Company; or (ii) serve process upon the Company in any manner authorized by the laws of any such jurisdiction.

 

19. Severability. If one or more provisions of this Note are held to be unenforceable under applicable law, such provisions shall be excluded from this Note, and the balance of this Note shall be interpreted as if such provisions were so excluded and shall be enforceable in accordance with its terms.

 

20. Headings. Section headings in this Note are for convenience only and shall not be used in the construction of this Note.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the date first above written.

 

  1847 CABINET INC.
     
  By: /s/ Kenneth Yuan
  Name: Kenneth Yuan
  Title: Chief Executive Officer

 

 

 

Exhibit A

 

FORM of assignment

 

TO: 1847 Cabinet Inc.

 

FOR VALUE RECEIVED, the undersigned (“Assignor”) hereby sells, assigns and transfers unto ___________________ (name), __________________________________________ (address) (“Assignee”), all of Assignor’s right, title, and interest in and to US$___________________ of that certain 6% Subordinated Convertible Promissory Note, dated as of the _______ day of ___________, 2021 (the “Note”), issued by 1847 Cabinet Inc. (the “Company”) to the order of Assignor, as Holder, including any and all accrued and unpaid interest owing on the amount specified above, registered in the name of the undersigned on the records of the Company, and does irrevocably appoints ___________________ as its attorney-in-fact to transfer the said Note on the books or register of the Company with full power of substitution.

 

DATED this ________ day of, __________________, 2021.

 

_______________________________  
(Signature of Registered Note Holder)  
   
________________________________  
(Print name of Registered Note Holder)  

 

Instructions:

 

1. Signature of Holder must be the signature of the person appearing on the Note

 

2. If the transfer of Note is signed by a trustee, executor, administrator, curator, guardian, attorney, officer of a corporation or any person acting in a fiduciary or representative capacity, the certificate must be accompanied by evidence of authority to sign satisfactory to the Company.

 

 

 

 

 

Exhibit 10.4

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A FORM ACCEPTABLE TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.

 

THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT DATED AS OF OCTOBER 8, 2021 IN FAVOR OF AGENT, LEONITE CAPITAL LLC, AS AGENT FOR THE SENIOR CREDITORS, WHICH AGREEMENT (AS AMENDED IN ACCORDANCE WITH ITS TERM) IS INCORPORATED HEREIN BY REFERENCE.

 

1847 CABINETS INC.

 

6% SUBORDINATED CONVERTIBLE PROMISSORY NOTE

 

U.S. $2,940,172.50 October 8, 2021

 

FOR VALUE RECEIVED, 1847 Cabinet Inc., a Delaware corporation (the “Company”), hereby promises to pay to the order of Jose D. Garcia-Rendon (the “Holder”), the principal sum of Two Million Nine Hundred Forty Thousand One Hundred Seventy-Two Dollars and Fifty Cents ($2,940,172.50) (the “Principal”) in lawful money of the United States of America, together with accrued interest thereon at the rate of six percent (6%) per annum, as provided in this Note. Unless earlier converted, repaid, or due in accordance with this Note, the then outstanding Principal amount together with all accrued but unpaid interest and any other amounts payable under this Note shall mature and become due on the third (3rd) anniversary of the date of this Note (the “Maturity Date”).

 

This Subordinated Convertible Promissory Note (this “Note”) has been issued in connection with that certain Securities Purchase Agreement, dated September 23, 2021 (the “Purchase Agreement”) and its amendment, among the Company (as the “Buyer”), High Mountain Door & Trim, Inc., a Nevada corporation (“High Mountain”), Sierra Homes, LLC, a Nevada limited liability company (“Sierra Homes” and together with High Mountain, collectively, the “Selling Companies”), and the Holder (as a “Seller”) and the other Seller party set forth in Exhibit A thereto (collectively, the “Sellers”), pursuant to which the Company has acquired the Securities from the Sellers. Capitalized terms used herein but not defined herein shall have the meaning ascribed to them in the Purchase Agreement.

 

This Note and a like note being issued by the Company to the other Seller on the date hereof are referred to in the Purchase collectively, the “Seller Notes”, and each individually, as a “Seller Note”.

 

The following is a statement of the rights of the Holder and the terms and conditions to which this Note is subject, and to which the Holder, by acceptance of this Note, agrees:

 

1. Principal Repayment.

 

(a) The Principal shall be paid together with all accrued and unpaid Interest and all other amounts payable hereunder in full on the Maturity Date.

 

 

 

 

(b) The Principal amount of this Note is subject to adjustment pursuant to the terms of the Purchase Agreement, including but not limited to, a reduction or increase of the Principal Amount as described in Section 3 below.

 

(c) The Company may prepay the Principal amount and accrued, but unpaid, interest thereon in whole or in part, without penalty or premium upon ten (10) business days prior written notice to the Holder. The Holder shall have the right to exchange the Principal balance and all accrued, but unpaid interest thereon, into securities of Parent in accordance with the Exchange Agreement (as defined in Section 8 hereof) or convert the Principal balance and all accrued, but unpaid interest thereon into Conversion Shares (as defined below) in accordance with Section 10 hereof during such ten (10) business day period.

 

2. Interest.

 

(a) Interest. Interest (“Interest”) on the outstanding Principal balance shall accrue and be paid at the rates and at the times provided in this Note. Except as otherwise provided in this Note, Interest shall accrue on the aggregate then outstanding Principal at the rate of six percent (6%) per annum (the “Interest Rate”) and shall be paid on the Maturity Date. All Interest due hereunder shall be paid in cash unless exchanged into securities of Parent in accordance with the Exchange Agreement (as defined in Section 8 hereof) or converted into Conversion Shares (as defined below) in accordance with Section 10 hereof. All computations of Interest hereunder shall be made on the basis of a 360-day year of twelve 30-day months.

 

(b) Default Interest. If an Event of Default, or an event which, with notice or passage of time could become an Event of Default, has occurred and thereafter during the continuation of such Event of Default, or if any amount payable under this Note is not paid when due (without regard to any applicable grace periods), whether at maturity, by acceleration or otherwise, the then outstanding Principal amount and all accrued but unpaid Interest and all other amounts due hereunder shall accrue interest at a rate equal to ten percent (10%) per annum (the “Default Rate”) until (i) such Event of Default is cured (if curable) or such delinquent payment is paid in full, as applicable, and (ii) all Interest accrued at such Default Rate (the “Default Interest”) has been paid in full.

 

(c) Interest Rate Limitation. If any rate of Interest provided for herein shall be determined to be in excess of the maximum rate of interest permitted to be charged by the Holder to the Company under applicable law, such rate of interest, whether the Interest Rate or Default Rate, as applicable, shall be reduced automatically to the highest rate permitted by applicable law. Any payment by the Company of any amount of Interest charged at a rate in excess of that permitted by applicable law shall be deemed to be a voluntary prepayment of Principal and applied to the Principal of this Note without prepayment premium or penalty.

 

3. Adjustments to Principal.

 

(a) The Principal of this Note may be adjusted pursuant to Sections 2.2(a) of the Purchase Agreement.

 

(b) In the event that the Principal of this Note is adjusted pursuant to Section 2.2(a) of the Purchase Agreement, the Company shall execute and issue a new note to Holder in the same form as this Note, however, such New Note shall reflect the updated principal amount of this Note and the New Note will include a provision indicating that upon issuance of the New Note, this Note is cancelled and superseded by the New Note; provided, however, that the maturity date under the new Note issued pursuant to this Section 3(b) shall remain unchanged from the maturity date of this Note.

 

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4. Events of Default. The occurrence of any of the following events shall constitute an event of default under this Note (each, an “Event of Default”):

 

(a) Failure to Pay. The Company shall default in the payment of the Principal or accrued Interest as and when due and payable hereunder, whether by acceleration or otherwise and such failure continues for two (2) Business Days after the original due date.

 

(b) Breach of Covenants. The Company breaches, or defaults in any material manner in the observance or performance of, any covenants, obligations, conditions or agreements set forth in the Purchase Agreement, this Note, or any other agreement, certificate or other instrument executed and delivered or entered into by the Company in connection with the transactions contemplated by the Purchase Agreement (collectively, the “Transaction Documents”), other than a payment default as specified in subsection 4(a) above, and (if curable) such breach or default has continued for a period of thirty (30) calendar days;

 

(c) Breach of Representations and Warranties. The Company materially breaches any representation or warranty contained in the Transaction Documents or any such representation or warranty of the Company contains an untrue or misleading statement of a material fact as of the date made, and the Company shall have failed to cure such breach or failed to address the adverse effects of such untrue or misleading statement to the reasonable satisfaction of the Holder, within thirty (30) calendar days after the date on which such breach occurs or any officer of the Company becomes aware of such breach or such untrue or misleading statement.

 

(d) Insolvency; Bankruptcy. If the Company, the Parent, or either of the Selling Companies shall: (i) admit in writing its inability to pay its debts as they become due; (ii) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for it or any of its property, or make a general assignment for the benefit of its creditors; (iii) in the absence of such application, consent or acquiescence in, permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for it or for any part of its property; (iv) voluntarily commence, or otherwise consent to, acquiesce in or permit the commencement of, any bankruptcy, reorganization, debt arrangement or any other case or proceeding under any bankruptcy or insolvency law, seeking relief from creditors or any reorganization, arrangement, adjustment, dissolution, winding up, liquidation or other relief with respect to, or any debts of, the Company, the Parent, or a Selling Company; (v) take any action for the purpose of effecting any of the foregoing; or (vi) if any case, proceeding or other action of a nature referred to in clause (iv) above is involuntarily commenced against the Company, the Parent, or either of the Selling Companies, which (A) results in the entry of any order for relief against the Company, the Parent, or Selling Company, as applicable, or (B) is not dismissed or discharged within 60 days of commencement.

 

(e) Cross Default. If a default or an event of default has occurred, or any event which the giving of notice or the passage of time or both would constitute a default or an event of default, under the terms of any Senior Indebtedness (as defined below), which entitles, and has caused, the holder(s) thereof to declare the Senior Indebtedness or a portion thereof to be due and payable prior to its stated maturity.

 

(f) Failure to Give Notice. The Company fails to give notice of the occurrence of an Event of Default or any event which the giving of notice or the passage of time or both would constitute an Event of Default, as specified in Section 7.

 

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5. Remedies. Upon the occurrence of any Event of Default and at any time thereafter during the continuation of such Event of Default, the Holder may, by written notice to the Company, declare the outstanding Principal amount, together with all accrued and unpaid interest thereon and all other amounts payable hereunder, immediately due and payable, without presentment, demand, protest, or any other notice or action of any kind, all of which are hereby expressly waived by the Company; provided, however, upon the occurrence of any Event of Default described in Section 4(d), immediately and without notice, declaration or any other action on the part of the Holder, the outstanding Principal amount, together with all accrued and unpaid interest thereon and all other amounts payable hereunder, shall automatically become immediately due and payable. In addition to the forgoing remedies, upon the occurrence and during the continuance of any Event of Default, the Holder may exercise any or all of its rights, powers or remedies under the Transaction Documents or applicable law, whether by suit in equity, action at law, or both

 

6. Corporate Transactions.

 

(a) Company Notice. Prior to the consummation of any Corporate Transaction (as defined below), the Company shall deliver written notice of such Corporate Transaction to the Holder (the “Transaction Notice”), at least thirty (30) days prior to the date of consummation of such Corporate Transaction. Such Corporate Transaction Notice shall include (i) a description of the material terms and conditions of the Corporate Transaction, (ii) a copy of the definitive agreement(s) that have been, or are expected to be, executed in connection therewith, (iii) the anticipated closing date of the Corporate Transaction, and (iv) all information related thereto as may be reasonably requested by the Holder.

 

(b) Conditional Elections. Following the Holder’s receipt of the Transaction Notice from the Company as described in Section 6(a) above, but in any event not less than five (5) Business Days prior to the closing date of the Corporate Transaction, the Holder may, in its sole discretion, make any or all of the following elections with respect to the outstanding Principal balance of, and the accrued but unpaid Interest under, this Note as of the date of the Corporate Transaction:

 

(i) To exercise its right to convert a portion of the outstanding Principal balance and accrued but unpaid Interest pursuant to Section 10 hereof (to the extent not previously exercised by the Holder or expired);

 

 

(ii) To exercise its right to exchange all or any portion of the outstanding Principal balance and accrued but unpaid Interest pursuant to the Exchange Agreement; and/or

 

(iii) To accelerate the Maturity Date such that the outstanding Principal balance together with all accrued but unpaid Interest and all other amounts payable hereunder (less any amounts to be converted or exchanged, if applicable) shall become due and payable in full upon the consummation of the Corporate Transaction, by wire transfer of immediately available funds.

 

Unless otherwise specified in writing by the Holder at the time they are made, any such elections by the shall be conditioned upon the consummation of the Corporate Transaction and shall be deemed to be effective immediately prior to the consummation of such transaction.

 

(c) Corporate Transactions. The occurrence of any of the following transactions or events, with respect to all or any one of the Company, High Mountain, and/or Sierra Homes (each, a “Group Company” for purposes hereof), shall constitute a “Corporate Transaction” under this Note: (i) the sale, transfer or other disposition, in a single transaction or series of related transactions, of all or substantially all of a Group Company's assets; (ii) the merger or consolidation of a Group Company with or into another entity, or any other reorganization of a Group Company, other than any such consolidation, merger or reorganization in which in which the holders of the voting securities of the applicable Group Company immediately prior to such transaction continue to hold a majority of the outstanding voting securities of the such Group Company or such other surviving or resulting entity immediately following the consummation of such transaction; (ii) any transfer (whether by sale, merger, consolidation or otherwise), in a single transaction or series of related transactions, of more than 50% of the outstanding voting securities of a Group Company (or such other surviving or resulting entity); provided, however, a transaction will not constitute a "Corporate Transaction" if its sole purpose is to change the state of a Group Company's incorporation, organization, or domicile, to convert it into another entity type, to consolidate or combine High Mountain and Sierra Homes into a single entity, to create a holding company for one or more Group Companies that will be owned in substantially the same proportions by the Person(s) who owned the securities of the Group Companies immediately prior to such transaction.

 

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7. Covenants. Until all amounts outstanding under this Note have been paid in full:

 

(a) Maintenance of Existence Qualification. The Company shall: (i) preserve and maintain its and each of the Selling Companies’ corporate or organizational existence, and (ii) take all actions necessary to preserve and maintain all rights, privileges, and franchises necessary for it and each of the Selling Companies to conduct business in all states and other jurisdictions in which the nature of its or their business requires qualification to do business.

 

(b) Financial Statements. The Company shall deliver the following to the Holder: (i) as soon as available, but in any event within 30 days after the end of quarter of each fiscal year of the Company, the unaudited consolidated balance sheets of the Company and the Selling Companies as of the end of such quarter and the related unaudited consolidated statement of income, statement of stockholder’s equity, and statement of cash flows for such quarter and the portion of the fiscal year through the end of such quarter; (ii) as soon as available, but in any event within 120 days after the end of each fiscal year of the Company, a copy of the audited, if available, or unaudited consolidated balance sheet of the Company and the Selling Companies as of the end of such fiscal year and the related audited consolidated statements of income, statement of stockholder’s equity, and statements of cash flows for such fiscal year; and (iii) upon the request of the Holder, such other information concerning the business, operation, and prospects of the Company and the Selling Companies as the Holder may reasonably request.

 

(c) Notice of Event of Default. Upon the occurrence of an Event of Default or of any event which the giving of notice or the passage of time or both would constitute an Event of Default, as soon as possible thereafter, and in any event within two (2) Business Days after the Company becomes aware that such Event of Default or other event has occurred, the Company notify the Holder in writing of the nature and extent of such Event of Default and the action, if any, the Company has taken or proposes to take with respect to such Event of Default.

 

8. Right to Exchange this Note. The Holder has the right to exchange this Note or any portion thereof, for securities of 1847 Holdings, LLC, a Delaware limited liability company and the parent company of the Company (the “Parent”), pursuant to that certain Exchange Agreement, dated on or about the date hereof, between the Holder and the Parent.

 

9. Subordination. By acceptance of this Note, the Holder hereby acknowledges and agrees that the indebtedness evidenced by this Note is subordinated in right of payment to the indebtedness incurred by the Company on or about to the date of this Note to finance the payment of the Cash Portion due upon the Closing of acquisition of the Selling Companies and related costs and expenses as contemplated by the Purchase Agreement (the “Senior Indebtedness”) and certain rights of the holder of the Senior Indebtedness (the “Senior Creditor”), to the extent and as set forth that certain Subordination Agreement, entered into on the date hereof, by and among the Senior Creditor, the Holder, and the Company.

 

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10. Conversion.

 

(a) Conversion Notice. At any time prior to the first anniversary of the Closing Date, the Holder may, in its sole discretion, elect to convert up to twenty percent (20%) of the original Principal amount of this Note and all accrued, but unpaid, Interest as of the Election Date into fully paid and non-assessable shares of the Common Stock, $0.001 par value per share, of the Company (the “Common Stock”), by providing written notice of such election to the Company no later than 11:59 p.m. EST on the first anniversary of the Closing Date (the “Notice of Conversion”), stating that the Holder has elected to exercise the conversion right provided in this Section 10 (the “Conversion Right”), and specifying the dollar amount of Principal and accrued but unpaid Interest (the “Conversion Amount”) to be so converted. Such conversion shall be deemed to have been made on the election date specified by Holder in the Notice of Conversion provided that such Notice of Conversion is delivered or deemed to be delivered to the Company by 11:59 p.m. EST on such election date (the “Election Date”).

 

(b) Conversion Price. The number of shares of Common Stock to be issued upon conversion (the “Conversion Shares”) shall be equal to (i) the Conversion Amount, divided by (ii) the applicable Conversion Price. As used herein, the “Conversion Price” means the quotient (rounded down to the nearest 1/100th of one cent) obtained by dividing (x) the fair market value of the Company (on a going concern basis, without taking into any minority, marketability or similar discounts) as of the last day of the calendar month immediately preceding the Election Date (the “Company FMV”) by (y) the Fully Diluted Share Number immediately prior to the issuance of the Conversion Shares to the Holder.

 

(c) Determination of Company FMV. If the conversion election is subject to the consummation of a proposed Corporate Transaction, then, to the extent applicable, the Company FMV shall be determined by reference to the purchase price or other consideration payable in connection with such Corporate Transaction. In all other instances, the Company FMV shall be determined either: (ii) by mutual written agreement of the Holder and the Company within ten (10) Business Days after the Election Date, or (ii) if no such agreement has been reached within such 10-day period, by a valuation opinion provided by an independent investment bank or similar firm that is mutually agreeable to the Company and the Holder (the “Valuation Firm”). Upon selection a mutually agreeable Valuation Firm, the Company shall promptly engage such Valuation Firm to determine and deliver its opinion of the Company FMV and shall pay all fees and costs associated with such engagement.

 

(d) Fully Diluted Shares. For purposes of this Note, the “Fully Diluted Share Number” means, as of a given date, the number of issued and outstanding shares of Common Stock on a fully-diluted basis, assuming: (i) the conversion all outstanding securities of the Company that are convertible into shares of Common Stock, including shares of preferred stock and convertible promissory notes (other than the Seller Notes); (ii) the exercise of all outstanding options and warrants, whether vested or unvested; and (iii) the issuance of all shares of Common Stock reserved and available for future issuance under any equity incentive plans.

 

(e) Conversion Procedure. As soon as practicable following the determination of the Conversion Price, the Company shall issue and deliver to the Holder a stock certificate or, in the case of uncertificated securities, a notice of issuance, for the number of Conversion Shares to which the Holder is entitled to receive upon conversion hereunder (bearing such legends as are required by applicable state and federal securities laws), together with a replacement Note. The conversion of this Note in accordance with the terms hereof shall be deemed to have been made on the Election Date and the Holder shall be deemed to be the holder of the Conversion Shares as of such date.

 

(f) Fractional Shares. No fractional shares will be issued upon conversion of this Note. In lieu of any fractional share to which the Holder would otherwise be entitled, the Company will pay to the Holder in cash the amount of the unconverted portion of the Conversion Amount that would otherwise be converted into such fractional share.

 

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11. Holder Not Deemed a Stockholder. Unless and until the Holder has provided a Notice of Conversion to the Company in accordance with Section 10 hereof, no Holder, as such, of this Note shall be entitled to vote or receive dividends or be deemed the holder of shares of the Company for any purpose, nor shall anything contained in this Note be construed to confer upon the Holder hereof, as such, any of the rights at law of a stockholder of the Company.

 

12. Mutilated, Destroyed, Lost or Stolen Note. If this Note shall become mutilated or defaced, or be destroyed, lost or stolen, the Company shall execute and deliver a new note of like principal amount in exchange and substitution for the mutilated or defaced Note, or in lieu of and in substitution for the destroyed, lost or stolen Note. In the case of a mutilated or defaced Note, the Holder shall surrender such Note to the Company. In the case of any destroyed, lost or stolen Note, the Holder shall furnish to the Company: (i) evidence to its reasonable satisfaction of the destruction, loss or theft of such Note and (ii) such security or indemnity (which shall not include the posting of any bond) as may be reasonably required by the Company to hold the Company harmless.

 

13. Waiver of Demand, Presentment, etc. The Company hereby expressly waives demand and presentment for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, bringing of suit and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereunder, regardless of and without any notice, diligence, act or omission as or with respect to the collection of any amount called for hereunder. The Company agrees to reimburse the Holder upon demand for all reasonable costs and expenses (including reasonable attorney’s fees and legal expenses) incurred by or on behalf of the Holder in connection with the Holder’s enforcement of any or all of its rights or remedies under this Note, including endeavors to collect any amounts payable hereunder which are not paid when due, whether at maturity, by acceleration or otherwise ("Costs").

 

14. Payment. All payments with respect to this Note shall be made in lawful money of the United States of America no later than no later than 5:00 p.m. Pacific Standard Time on the date on which such payment is due by check, at the address of the Holder as of the date hereof or as designated in writing by the Holder from time to time, or by wire transfer of immediately available funds to Holder’s account at a bank specified by Holder in writing to the Company from time to time. The receipt by the Holder of immediately available funds with respect to this Note shall constitute a payment of Principal and Interest then due and payable hereunder and shall satisfy and discharge the liability for such amounts of Principal and Interest on this Note to the extent of the sum represented by such payment. Payments shall be credited first to Costs, if any, second to the payment of any accrued Default Interest and then all other accrued Interest then due and payable; and third, the remainder applied to the Principal.

 

15.  Assignment. The rights and obligations of the Company and the Holder with respect to this Note shall be binding upon, and inure to the benefit of, their respective successors and permitted assigns. The Company may not assign or transfer this Note or any of its rights hereunder without the prior written consent of the Holder. This Note may be assigned or transferred, in whole or in part, by the Holder to any Person at any time as follows. To complete an assignment or transfer this Note, the Holder shall deliver a completed and executed Form of Assignment substantially in the form attached hereto as Exhibit A and surrender and deliver this Note for registration of transfer to the Company’s office or such other address which the Company shall designate, upon receipt of which a new Note, in the form of this Note (any such new Note, a “New Note”), evidencing the portion of this Note so transferred shall be issued to and registered in the name of the transferee and a New Note evidencing the remaining portion of this Note not so transferred, if any, shall be issued and registered to the transferring Holder. The acceptance of the New Note by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations in respect of the New Note that the Holder has in respect of this Note. Interest and principal are payable only to the registered Holder of this Note set forth on the books and records of the Company.

 

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16. Waiver and Amendment. Any provision of this Note, including, without limitation, the due dates hereof, and the observance of any term hereof, may be amended, waived or modified (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Holder. The waiver of any provision of this Note shall not operate or be construed to be a waiver of any other provision hereof.

 

17. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if given in accordance with the provisions of the Purchase Agreement.

 

18. Governing Law; Submission to Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed by and construed and enforced solely and exclusively in accordance with the laws of the state of Nevada without regard to any statutory or common-law provision pertaining to conflicts of laws. The Parties hereby irrevocably and unconditionally (i) agree that any legal action, suit, or proceeding arising out of or relating to this Note may be brought in the state and federal courts of competent subject matter jurisdiction located in Washoe County, Nevada; and (ii) submit to the personal jurisdiction of any such courts in any such action, suit, or proceeding. Final judgment against a party hereto in any action, suit, or proceeding shall be conclusive and may be enforced in any other jurisdiction by suit on the judgment. The Parties further agree that the mailing of any service process shall constitute valid and lawful service process against each Party hereto. The Parties waive any claim that that any of the foregoing courts is an inconvenient forum. Nothing in this Section shall affect the right of the Holder to: (i) commence legal proceedings or otherwise sue the Company in any other court having jurisdiction over the Company; or (ii) serve process upon the Company in any manner authorized by the laws of any such jurisdiction.

 

19. Severability. If one or more provisions of this Note are held to be unenforceable under applicable law, such provisions shall be excluded from this Note, and the balance of this Note shall be interpreted as if such provisions were so excluded and shall be enforceable in accordance with its terms.

 

20. Headings. Section headings in this Note are for convenience only and shall not be used in the construction of this Note.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the date first above written.

 

  1847 CABINET INC.
     
  By: /s/ Kenneth Yuan
  Name:  Kenneth Yuan
  Title: Chief Executive Officer

 

 

 

 

Exhibit A

 

FORM of assignment

 

TO: 1847 Cabinet Inc.

 

FOR VALUE RECEIVED, the undersigned (“Assignor”) hereby sells, assigns and transfers unto ___________________ (name), __________________________________________ (address) (“Assignee”), all of Assignor’s right, title, and interest in and to US$___________________ of that certain 6% Subordinated Convertible Promissory Note, dated as of the _______ day of ___________, 2021 (the “Note”), issued by 1847 Cabinet Inc. (the “Company”) to the order of Assignor, as Holder, including any and all accrued and unpaid interest owing on the amount specified above, registered in the name of the undersigned on the records of the Company, and does irrevocably appoints ___________________ as its attorney-in-fact to transfer the said Note on the books or register of the Company with full power of substitution.

 

DATED this ________ day of, __________________, 2021.

 

   
(Signature of Registered Note Holder)  
   
   
(Print name of Registered Note Holder)  

 

Instructions:

 

1. Signature of Holder must be the signature of the person appearing on the Note

 

2. If the transfer of Note is signed by a trustee, executor, administrator, curator, guardian, attorney, officer of a corporation or any person acting in a fiduciary or representative capacity, the certificate must be accompanied by evidence of authority to sign satisfactory to the Company.

 

 

 

 

 

Exhibit 10.5

 

EXCHANGE AGREEMENT

 

October 8, 2021

 

Mr. Steven J. Parkey

 

Mr. Jose D. Garcia

 

  Re: Exchange of Notes for Common Shares of 1847 Holdings LLC (“Holdings”)

 

Mr. Parkey and Mr. Garcia:

 

Reference is made to that certain Securities Purchase Agreement, dated September 23, 2021 (the “Purchase Agreement”), by and among 1847 Cabinet Inc., a Delaware corporation and subsidiary of Holdings (the “Buyer”), High Mountain Door & Trim, Inc., a Nevada corporation (“High Mountain”), Sierra Homes, LLC, a Nevada limited liability company (“Sierra Homes” and together with High Mountain, each a “Company” and collectively, the “Companies”), and each of you as the sellers of the Securities (each a “Seller” and together, the “Sellers”). This letter agreement is the Exchange Agreement referred to in the Purchase Agreement. Capitalized terms used, but not otherwise defined, herein have the meanings ascribed to them in the Purchase Agreement.

 

In order to facilitate the Acquisition pursuant to the Purchase Agreement, and in order to induce the Companies and the Sellers to enter into the Purchase Agreement and to proceed with the Acquisition, and as a condition to their willingness to enter the Purchase Agreement and consummate the Acquisition, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Holdings has agreed to enter into this letter agreement (this “Agreement”), pursuant to which Holdings is granting to each of the Sellers an option to exchange all of the principal amount of, and all accrued interest under, the Seller Note issued to such Seller at the Closing or any portion thereof as may be outstanding from time to time (in the aggregate with respect to each Seller Note, the “Exchangeable Amount”), for Common Shares of Holdings, on the terms and conditions set forth herein.

 

Accordingly, Holdings and each of the Sellers, intending to be legally bound, hereby agree as follows:

 

1. Exchange Rights. On the terms and subject to the conditions set forth in this Agreement, Holdings hereby grants to each of you as the holder of your Seller Note and your permitted and registered assigns (each, a “Noteholder”) the right (the “Exchange Right”), but not the obligation, to exchange all of the principal amount of, and all accrued but unpaid interest under, such Seller Note as may be the outstanding from time to time or any portion thereof (up to the aggregate Exchangeable Amount applicable such Seller Note) for fully paid and non-assessable Common Shares of Holdings. The number of Common Shares to be issued to a Noteholder upon the exchange of the Exchangeable Amount of its Seller Notes, in whole or in part, shall be equal to the quotient of (i) the aggregate dollar amount of the outstanding principal of, and accrued but unpaid interest under, its Seller Note to be exchanged (as specified in a Notice of Exchange delivered pursuant to section 2 hereof (the “Exchange Amount”); divided by (ii) the Exchange Price in effect on the applicable Exercise Date. As used herein, the “Exchange Price” means the higher of (a) the 30-day volume weighted average price for the Common Shares on the primary national securities exchange or over the counter market on which the Common Share are traded over the thirty (30) trading days immediately prior to the applicable Exercise Date or (b) $2.50, (subject to equitable adjustments for stock splits, stock combinations, recapitalizations and similar transactions).

 

 

 

2. Exercise of Exchange Rights. A Noteholder may exercise the Exchange Right with respect to all or any portion of the outstanding principal amount of, and all accrued but unpaid interest under, its Seller Note, in whole or in part, at any time or from time to time after the date hereof and prior to 6:00 p.m. New York time on the Maturity Date (for each Seller Note, as defined in such Seller Note) or, if such day is not a business day, on the next preceding business day (the "Exercise Period") by (a) submitting to Holdings a notice of exchange in the form of Exhibit A to this Agreement (each, a “Notice of Exchange”) (by facsimile, e-mail or other reasonable means of communication dispatched on or prior to 6 p.m. New York time on any business day during the Exercise Period); and (b) a copy of the Seller Note subject to such Notice of Exchange. As soon as practical thereafter, the Noteholder shall surrender such Seller Note to the Company for cancellation and reissuance of a replacement note that reflects the portion of the principal amount of such Seller Note that has not been so exchanged, if any. Each notice of exchange shall indicate the Noteholder’s name and address, the Noteholder’s tax identification number or social security number, and the principal amount of, and accrued but unpaid interest under, its Seller Note (the “Exchange Amount”) to be exchanged, which amount in the aggregate, along with all prior similar notices by such Noteholder or any other prior holder of such Seller Note shall not, in the aggregate, exceed the Exchangeable Amount with respect to such Seller Note. The notice of exchange shall be in the form of Exhibit A to this Agreement and also contain the representations and warranties included in such exhibit, which must be made as a condition to the exchange.

 

3. Delivery of Common Shares. As promptly as practicable, and in any event no later than the fifth (5th) business day following the date on which Holdings shall have received a Notice of Exchange, together with a copy of the Seller Note subject to such Notice of Exchange, and the surrender of such Seller Note to the Company for cancellation and/or reissuance of a replacement note (together with the Notice of Exchange, the “Exchange Delivery Documents”), Holdings shall cause its transfer agent to issue the Common Shares issuable upon such exchange, registered in the name of the Noteholder or its designee, in book-entry form at the transfer agent. Upon delivery of a Notice of Exchange pursuant to this Agreement, the exchange described therein shall be deemed to have been made immediately prior to the close of business on the applicable Exercise Date set forth in the Notice of Exchange and the Noteholder shall be deemed for all purposes to have become the holder of record of the number of Common Shares to which the Noteholder is entitled pursuant to such exchange as of the Exercise Date, regardless of whether the Seller Note has been surrendered on such date.

 

4 . Conditional Exercise. Notwithstanding any other provision hereof, if an exercise of the Exchange Right is to be made in connection with a Corporate Transaction (as defined in the Seller Note) or a change or control or other sale of Holdings (pursuant to a merger, sale of stock, or otherwise), such exercise of the Exchange Right may at the election of the Noteholder be conditioned upon the consummation of such transaction, in which case such exercise shall not be deemed to be effective until immediately prior to the consummation of such transaction.

 

5. Valid Issuance of Common Shares. With respect to each Noteholders exercise of its Exchange Rights pursuant to this Agreement, Holdings hereby represents, covenants and agrees:

 

(a) That all Common Shares issuable upon the exercise of the Exchange Rights pursuant to the terms hereof shall be, upon issuance, and Holdings shall take all such actions as may be necessary or appropriate in order that such Common Shares are, validly issued, fully paid and non-assessable, issued without violation of any preemptive or similar rights of any person or entity, including any holder of Common Shares or Allocation Shares of Holdings or any holder of any other securities Holdings and free and clear of all taxes, liens and charges.

 

(b) Holdings shall take all such actions as may be necessary to ensure that all such Common Shares are issued without violation by Holdings of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which Common Shares may be listed at the time of such exercise (except for official notice of issuance which shall be immediately delivered by Holdings upon each such issuance).

 

(c) Holdings shall use its best efforts to cause all of the Common Shares issuable upon the exercise of the Exchange Rights, immediately upon such exercise, to be listed on any domestic securities exchange upon which Common Shares are listed at the time of such exercise.

 

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6. Compliance with Securities Laws. The Common Shares issuable upon exchange of the Exchangeable Amount may not be sold or transferred unless (i) such Common Shares are sold pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Act”) or (ii) Holdings or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the Common Shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such Common Shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv) such Common Shares are transferred to an “affiliate” (as defined in Rule 144) of the Seller who agrees to sell or otherwise transfer the Common Shares only in accordance with this Section 3 and who is an Accredited Investor. Except as otherwise provided (and subject to the removal provisions set forth below), until such time as the Common Shares issuable upon exchange been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for Common Shares issuable upon exchange that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:

 

“THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT 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.”

 

7. Reservation of Shares. During the period prior to the Maturity Date of the Seller Notes, Holdings will reserve from its authorized and unissued Common Shares a sufficient number of Common Shares, free from preemptive rights, to provide for the issuance of Common Shares upon the full exchange of the Exchangeable Amount. Holdings represents that upon issuance, such Common Shares will be duly and validly issued, fully paid and non-assessable.

 

8. No Impairment. Holdings covenants and agrees that it will not, by amendment of its certificate of formation, operating agreement or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Agreement, and will at all times in good faith carry out all the provisions of this Agreement and take all action as may be required to protect the rights of the Noteholders.

 

9. Miscellaneous Terms.

 

(a) Entire Agreement; Amendments and Waivers. This Agreement constitutes the entire agreement and understanding of the parties hereto in respect of the subject matter hereof and supersedes all prior understandings, agreements, or representations by or among the parties hereto, written or oral, to the extent they relate in any way to the subject matter hereof. Notwithstanding the forgoing, Holding’s agreement with each of the Noteholders are and shall be deemed to be separate agreements, and each Seller’s exercise of its exchange rights granted hereby with respect to its Seller Note and corresponding Exchangeable Amount are separate transactions between Holdings and to such applicable Noteholder. Accordingly, terms of this Agreement may be amended, modified or waived as between Holdings and a Noteholder, by a written instrument executed by Holdings and such Noteholder; provided that such amendment, modification, or waiver and does not change, diminish or eliminate the rights or obligations of another the Noteholder. Except as otherwise provided herein, the terms of this Agreement may not be changed, amended, modified or waived (other he than to correct a typographical error) as to any particular provision, except by a written instrument executed by all parties hereto.

 

(b) Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provisions will be excluded from this Agreement and the balance of this Agreement will be interpreted as if such provisions were so excluded and this Agreement will be enforceable in accordance with its terms.

 

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(c) Assignment; Successors and Assigns. A Noteholder may assign this Agreement and all of its rights hereunder, in whole or in part, in connection with an assignment if its Seller Note in accordance therewith, upon notice of any such assignment from assigning Noteholder to Holdings. From and after delivery of such notice, if requested or required by Holdings, the assigning Noteholder and its assignee shall execute a written instrument of assignment, in a commercially reasonable form as may be required by Holdings to evidence such assignment and comply with any applicable federal or state securities laws. Except as otherwise provided herein, the terms and conditions of this Agreement will inure to the benefit of, and be binding upon, the parties hereto and their respective successors and permitted assigns. Holdings may not assign this Agreement or any of its rights, interests, or obligations hereunder without the prior written consent of all of the Noteholders except in connection with a business combination transaction including a sale of all or substantially all of the assets of Holdings in which case the consent of the Noteholders shall not be required; provided, however that Holdings shall provide the Noteholders with at least ten (10) business days written notice of any such business combination and during such ten (10) business day period the Noteholders shall be entitled ot exercise their exchange rights hereunder. Any purported assignment in violation of this paragraph shall be void and ineffectual and shall not operate to transfer or assign any interest or title to the purported assignee. This Agreement shall inure to the benefit of, and shall be binding on, the undersigned and their respective successors and permitted assigns.

 

(d) Governing law; Jurisdiction. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to conflicts of law principles that would result in the application of the substantive laws of another jurisdiction. Each of the parties hereto consents to the non-exclusive jurisdiction of any state or federal court located within the state of New York or any state or federal court located within the state of Nevada and irrevocably agrees that all actions or proceedings relating to this Agreement or the transactions contemplated by this Agreement may be brought and litigated in such courts. Each of the parties hereto accepts for itself and in connection with its respective properties, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts and waives any defense of forum non conveniens, and irrevocably agrees to be bound by any final and nonappealable judgment rendered thereby in connection with this Agreement or the transactions contemplated by this Agreement.

 

(e) Notice. Any notice, consent or request or other communications required to be given or made pursuant to any of the terms or provisions of this Agreement shall be in writing and shall be sent and deemed effectively given (i) within two (2) days after deposit with and delivery by express mail or similar private overnight courier service, (ii) within five (5) days after deposit with and delivery by certified mail (return receipt requested), (iii) upon personal delivery to the party to be notified by hand delivery, or (iv) when sent by confirmed electronic mail or facsimile transmission if sent during normal business hours of the recipient, if not, then on the next bbusiness day.

 

(f) Counterparts. This Agreement may be executed in counterparts, each of which will be deemed an original, but all of which together will be deemed to be one and the same agreement. Counterparts may be delivered via facsimile, email (including PDF or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method, and any counterpart so delivered will be deemed to have been duly and validly delivered and be valid and effective for all purposes.

 

[Remainder of Page Intentionally Left Blank

 

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

 

  1847 Holdings LLC
  a Delaware limited liability company
     
  By: /s/ Ellery W. Roberts
    Name:  Ellery W. Roberts
    Title: Chief Executive Officer

 

   
ACCEPTED AND AGREED TO  
AS OF THE DATE FIRST ABOVE WRITTEN:  
   
/s/ Steven J. Parkey  
Steven J. Parkey  
   
/s/ Jose D. Garcia  
Jose D. Garcia  

 

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EXHIBIT A

NOTICE OF EXCHANGE

 

This Notice of Exchange (this “Notice”) is given by the undersigned pursuant to that certain Exchange Agreement, dated as of ______ 2021, by and between 1847 Holdings LLC, a Delaware limited liability company (“Holdings”) and each of the undersigned and the other Seller party named therein (the “Exchange Agreement”). Capitalized terms used but not defined herein have the meanings ascribed to them in the Exchange Agreement.

 

Exercise of Exchange Right. The undersigned hereby elects to exchange: (i) $ of the outstanding principal amount evidenced by the Seller Note identified below; and (ii) $_____________ of accrued but unpaid interest under the Seller Note (the sum such principal and interest, in the aggregate, the “Exchanged Amount”), into [------------] the number of Common Shares of Holdings issuable upon the exchange of such Exchanged Amount at the applicable Exchange Price as of the Exercise Date set forth below.

 

Seller Note. The undersigned is the registered holder of the attached copy of certain Subordinated Convertible Promissory Note, dated as of the ____ day of _______, 2021 (the “Seller Note”), issued and made by 1847 Cabinet Inc., a Delaware corporation (the “Company”) to the order of [____________], as the Holder, in the original principal amount set forth thereon.

 

Exercise Date. ____________.

 

Exchange Price. $___________.

 

Representations and Warranties. In connection with the exchange described in this Notice (the “Exchange”), the undersigned (“you”) hereby represents and warrants to Holdings as of the date written below as follows (and the exchange described in this notice is subject to such representations and warranties being accurate and true as of the date written below):

 

The Common Shares are being acquired by you for your account, for investment purposes and not with a view to the sale or distribution of all or any part of the Common Shares, nor with any present intention to sell or in any way distribute the same, as those terms are used in the Securities Act of 1933, as amended (the “Act”), and the rules and regulations promulgated thereunder.

 

You have sufficient knowledge and experience in financial matters so as to be capable of evaluating the merits and risks of acquiring the Common Shares.

 

You have reviewed copies of such documents and other information as you have deemed necessary in order to make an informed investment decision with respect to its acquisition of the Common Shares.

 

You understand that the Common Shares may not be sold, transferred or otherwise disposed of without registration under the Act or the availability of an exemption therefrom, and that in the absence of an effective registration statement covering the Common Shares or an available exemption from registration under the Act, the Common Shares must be held indefinitely.

 

Further, you understand and have the financial capability of assuming the economic risk of an investment in the Common Shares for an indefinite period of time.

 

You have been advised by Holdings that you will not be able to dispose of the Common Shares, or any interest therein, without first complying with the relevant provisions of the Act and any applicable state securities laws.

 

You understand that the provisions of Rule 144 promulgated under the Act, permitting the routine sales of the securities of certain issuers subject to the terms and conditions thereof, are not currently, and may not hereafter be, available with respect to the Common Shares.

 

You acknowledge that Holdings is under no obligation to register the Common Shares or to furnish any information or take any other action to assist you in complying with the terms and conditions of any exemption which might be available under the Act or any state securities laws with respect to sales of the Common Shares in the future.

 

You are an “Accredited Investor” as defined in rule 501 (a) of Regulation D of the Act.

 

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IN WITNESS WHEREOF, the undersigned has duly executed this notice of exercise as of this ______ day of __________, 20__.

 

   
  Print Name Above
   
  Sign Above
   
  Address:______________________________
   
   
   
  Tax Identification Number or
  Social Security Number: ___________________

 

 

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Exhibit 10.7

 

 

 

 

 

 

 

AMENDED AND RESTATED MANAGEMENT SERVICES AGREEMENT

 

BY AND BETWEEN

 

1847 CABINET INC.

 

AND

 

1847 PARTNERS LLC

 

 

 

Dated as of October 8, 2021

 

 

 

 

 

 

 

 

AMENDED AND RESTATED MANAGEMENT SERVICES AGREEMENT

 

AMENDED AND RESTATED MANAGEMENT SERVICES AGREEMENT (as amended, revised, supplemented or otherwise modified from time to time, this “Agreement”), dated as of October 8, 2021, by and between 1847 CABINET INC., a Delaware corporation (the “Company”), and 1847 PARTNERS LLC, a Delaware limited liability company (the “Manager”). Each party hereto shall be referred to as, individually, a “Party” and, collectively, the “Parties.”

 

BACKGROUND

 

On August 21, 2020, the Company and the Manager entered into a Management Services Agreement (the “Original Agreement”). The Parties now desire to amend and restate the Original Agreement as set forth herein.

 

The Board of Directors of the Company has determined that it would be in the best interests of the Company to appoint the Manager to perform the Services (as such term is defined herein) and, therefore, the Company has agreed to appoint the Manager to perform the Services on the terms and subject to the conditions set forth herein. The Manager has agreed to act as Manager and to perform the Services on the terms and subject to the conditions set forth herein.

 

The Manager also acts as an external manager for 1847 Holdings LLC (the “Parent”), the Company’s parent entity, pursuant to the Management Services Agreement by and between the Manager and the Parent, dated as of April 15, 2013, as amended (the “Parent MSA”). This Agreement is an Offsetting Management Services Agreement as defined and referenced in the Parent MSA.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements contained herein, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the Parties hereto hereby amend and restate the Original Agreement in its entirety to read as follows:

 

ARTICLE I

DEFINITIONS

 

For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; any reference to an “Article,” “Section” or an “Exhibit” refers to an Article, Section or an Exhibit, as the case may be, of this Agreement; and the words “herein,” “hereinafter,” “hereof,” “hereto” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision:

 

Affiliate” means, with respect to any Person, (i) any Person directly or indirectly controlling, controlled by or under common control with such Person or (ii) any officer, director, general member, member or trustee of such Person. For purposes of this definition, the terms “controlling,” “controlled by” or “under common control with” shall mean, with respect to any Persons, the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise, or the power to elect at least 50% of the directors, managers, general members, or Persons exercising similar authority with respect to such Person.

 

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Agreement” has the meaning set forth in the preamble of this Agreement.

 

Board of Directors” means the Board of Directors of the Company or any committee thereof that has been duly authorized by the Board of Directors to make a decision on the matter in question or bind the Company as to the matter in question.

 

Business Day” means any day other than a Saturday, a Sunday or a day on which banks in the City of New York are required, permitted or authorized, by applicable law or executive order, to be closed for regular banking business.

 

Commencement Date” means the date of this Agreement.

 

Company” has the meaning set forth in the preamble of this Agreement.

 

Company Information” means any information concerning the Company or any of the Subsidiaries of the Company and their respective financial condition, business or operations that (i) relates to earnings, (ii) is competitively sensitive, (iii) relates to trade secrets, (iv) is proprietary or (v) is similar to any of the foregoing information.

 

Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

Federal Securities Laws” means, collectively, the Securities Act, the Exchange Act and the rules and regulations promulgated thereunder.

 

Fiscal Quarter” means each fiscal quarter of the Company for purposes of the Parent’s reporting obligations under the Exchange Act.

 

Fiscal Year” means each fiscal year of the Company for purposes of the Parent’s reporting obligations under the Exchange Act.

 

GAAP” means generally accepted accounting principles in effect in the United States, consistently applied.

 

Gross Income” has the meaning set forth in Section 61(a) of the Internal Revenue Code of 1986, as amended.

 

Incur” means, with respect to any Indebtedness or other obligation of a Person, to create, issue, acquire (by conversion, exchange or otherwise), assume, suffer, guarantee or otherwise become liable in respect of such Indebtedness or other obligation.

 

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Indebtedness” means, with respect to any Person, (i) any liability for borrowed money, or under any reimbursement obligation relating to a letter of credit, (ii) all indebtedness (including bond, note, debenture, purchase money obligation or similar instrument) for the acquisition of any businesses, properties or assets of any kind (other than property, including inventory, and services purchased, trade payables, other expenses accruals and deferred compensation items arising in the Ordinary Course of Business), (iii) all obligations under leases that have been or should be, in accordance with GAAP, recorded as capital leases, (iv) any liabilities of others described in the preceding clauses (i) to (iii) (inclusive) that such Person has guaranteed or for which such Person is otherwise legally obligated, and (without duplication) any amendment, supplement, modification, deferral, renewal, extension or refunding of any liability of the types referred to in clauses (i) through (iv) above.

 

Indemnified Parties” has the meaning set forth in Article IX hereof.

 

Losses” has the meaning set forth in Article IX hereof.

 

Management Fee” has the meaning set forth in Section 7.1(a) hereof.

 

Management Fee Payment Date” means the first Business Day of each Fiscal Quarter or, in the case of the Fiscal Quarter in which this Agreement is terminated, the Termination Date.

 

Manager” has the meaning set forth in the preamble of this Agreement.

 

Non-Critical Services” means any Services other than the Services for which the Manager was engaged by the Company in light of the experience and expertise of the employees of the Manager.

 

Ordinary Course of Business” means, with respect to any Person, an action taken by such Person if such action is (i) consistent with the past practices of such Person and is taken in the normal day-to-day business or operations of such Person and (ii) which is not required to be specifically authorized or approved by the board of directors of such Person.

 

Parent” has the meaning set forth in the recitals to this Agreement.

 

Parent Management Fee” has the meaning set forth in Section 7.1(a) hereof.

 

Parent MSA” has the meaning set forth in the recitals to this Agreement.

 

Party” and “Parties” have the meaning set forth in the preamble of this Agreement.

 

Person” means any individual, company (whether general or limited), limited liability company, corporation, trust, estate, association, nominee or other entity.

 

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Securities Act” means the Securities Act of 1933, as amended.

 

Services” has the meaning set forth in Section 3.1(b) hereof.

 

Subsidiary” means, with respect to any Person, any corporation, company, joint venture, limited liability company, association or other entity in which such Person owns, directly or indirectly, more than 50% of the outstanding voting equity securities or interests, the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such entity.

 

Termination Date” means the date upon which this Agreement is terminated pursuant Article VIII hereof.

 

ARTICLE II

APPOINTMENT OF THE MANAGER

 

Section 2.1 Appointment

 

The Company hereby agrees to, and hereby does, appoint the Manager to perform the Services as set forth in Section 3.1 herein and in accordance with the terms and conditions of this Agreement.

 

Section 2.2 Term

 

The Manager shall provide Services to the Company from the Commencement Date until the termination of this Agreement in accordance with Article VIII hereof.

 

ARTICLE III

OBLIGATIONS OF THE PARTIES

 

Section 3.1 Obligations of the Manager

 

(a) Subject always to the oversight and supervision of the Board of Directors and the terms and conditions of this Agreement, the Manager shall during the term of this Agreement perform the Services as set forth in Section 3.1(b) below and comply with the operational objectives and business plans of the Company in existence from time to time. The Company shall promptly provide the Manager with all stated operational objectives and business plans of the Company approved by the Board of Directors and any other available information reasonably requested by the Manager.

 

(b) The Manager agrees and covenants that it shall perform, or cause to be performed, the following services hereunder (as may be modified from time to time pursuant to Section 3.3 hereof, the “Services”):

 

(i) conduct general and administrative supervision and oversight of the Company’s day-to-day business and operations, including, but not limited to, recruiting and hiring of personnel, administration of personnel and personnel benefits, development of administrative policies and procedures, establishment and management of banking services, managing and arranging for the maintaining of liability insurance, arranging for equipment rental, maintenance of all necessary permits and licenses, acquisition of any additional licenses and permits that become necessary, participation in risk management policies and procedures; and

 

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(ii) oversee and consult with respect to the Company’s business and operational strategies, the implementation of such strategies and the evaluation of such strategies, including, but not limited to, strategies with respect to capital expenditure and expansion programs, acquisitions or dispositions and product or service lines.

 

(c) In connection with the performance of the Services under this Agreement, the Manager shall have all necessary power and authority to perform, or cause to be performed, such Services on behalf of the Company.

 

(d) In connection with the performance of its obligations under this Agreement, the Manager is not permitted to engage in any activities that would cause it to become an “investment adviser” as defined in Section 202(a)(11) of the Investment Advisers Act of 1940, as amended, or any successor provision thereto.

 

(e) While the Manager is providing the Services under this Agreement, the Manager shall also be permitted to provide services, including services similar to the Services covered hereby, to other Persons, including Affiliates of the Manager. This Agreement and the Manager’s obligation to provide the Services under this Agreement shall not create an exclusive relationship between the Manager and its Affiliates, on the one hand, and the Company and its Subsidiaries, on the other.

 

Section 3.2 Obligations of the Company

 

(a) The Company shall, and the Company shall cause its Subsidiaries to, do all things reasonably necessary on their part as requested by the Manager consistent with the terms of this Agreement to enable the Company to fulfill its obligations under this Agreement.

 

(b) The Company shall, and the Company shall cause its Subsidiaries to, take reasonable steps to ensure that:

 

(i) the officers and employees of the Company and its Subsidiaries, as the case may be, act in accordance with the terms of this Agreement and the reasonable directions of the Manager in fulfilling the Manager’s obligations hereunder and allowing the Manager to exercise its powers and rights hereunder; and

 

(ii) the Company and its Subsidiaries provide to the Manager alt reports (including monthly management reports and all other relevant reports) that the Manager may reasonably require and on such dates as the Manager may reasonably require.

 

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Section 3.3 Change of Services

 

(a) The Company and the Manager shall have the right at any time during the term of this Agreement to change the Services provided by the Manager and such changes shall in no way otherwise affect the rights or obligations of any Party hereunder.

 

(b) Any change in the Services shall be authorized in writing and evidenced by an amendment to this Agreement, as provided in Section 12.9 hereof. Unless otherwise agreed in writing, the provisions of this Agreement shall apply to all changes in the Services.

 

ARTICLE IV

POWERS OF THE MANAGER

 

Section 4.1 Powers of the Manager

 

(a) The Manager shall have no power to enter into any contract for or on behalf of the Company or otherwise subject it to any obligation, such power to be the sole right and obligation of the Company, acting through its Board of Directors and/or the Company’s officers.

 

(b) Subject to Section 4.2 and for purposes other than to delegate its duties and powers to perform the Services hereunder, the Manager shall have the power to engage any agents (including real estate agents and managing agents), valuers, contractors and advisors (including operational, accounting, financial, tax and legal advisors) that it deems necessary or desirable in connection with the performance of its obligations hereunder, which costs therefor shall be subject to reimbursement in accordance with Section 7.2 hereto.

 

Section 4.2 Delegation

 

The Manager may delegate or appoint:

 

(a) Any of its Affiliates as its agent, at its own cost and expense, to perform any or all of the Services hereunder; or

 

(b) Any Person, whether or not an Affiliate of the Manager, as its agent, at its own cost and expense, to perform those Services hereunder which, in the sole discretion of the Manager, are Non-Critical Services; provided, however, that, in each case, the Manager shall not be relieved of any of its obligations or duties owed to the Company hereunder as a result of such delegation. The Manager shall be permitted to share Company Infom1ation with its appointed agents subject to appropriate, reasonable and customary confidentiality arrangements. For the avoidance of doubt, any reference to Manager herein shall include its delegates or appointees pursuant to this Section 4.2.

 

Section 4.3 Manager’s Obligations, Duties and Powers Exclusive

 

The Company agrees that during the term of this Agreement, the obligations, duties and powers imposed on and granted to the Manager under Article III and this Article IV are to be performed or held exclusively by the Manager, subject to Section 4.2 hereof, and the Company shall not, either directly or indirectly, through its employees, Board of Directors or any other Person, as the case may be, perfo1m any of the Services except in circumstances where it is necessary to do so to comply with applicable law or as otherwise agreed by the Manager.

 

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ARTICLE V

INSPECTION OF RECORDS

 

Section 5.1 Books and Records of the Company

 

At all reasonable times and on reasonable notice, the Manager and any Person authorized by the Manager shall have access to, and the right to inspect, for any reasonable purpose, during the term of this Agreement and for a period of five (5) years after termination hereof, the books, records and data stored in computers and all documentation of the Company pertaining to all Services performed, or to be performed, by the Manager or the Management Fee paid, or to be paid, by the Company to the Manager, in each case, hereunder. There shall be no cost or expense charged by any Party to another Party pursuant to the exercise of any right under this Section 5.1.

 

Section 5.2 Books and Records of the Manager

 

At all reasonable times and on reasonable notice, the Company and any Person authorized by the Company shall have access to, and the right to inspect the books, records and data stored in computers and all documentation of the Manager pertaining to all Services performed, or to be performed, by the Manager or the Management Fee paid, or to be paid, by the Company to the Manager, in each case, hereunder. There shall be no cost or expense charged by any Party to another Party pursuant to the exercise of any right under this Section 5.2.

 

ARTICLE VI

AUTHORITY OF THE COMPANY AND THE MANAGER

 

Each Party represents and warrants to the other that it is duly authorized with full power and authority to execute, deliver and perform its obligations and duties under this Agreement. The Company represents and warrants that the engagement of the Manager has been duly authorized by the Board of Directors and is in accordance with all governing documents of the Company.

 

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ARTICLE VII

MANAGEMENT FEE; EXPENSES

 

Section 7.1 Management Fee

 

(a) Subject to the terms and conditions set forth in this Section 7.1, for the term of this Agreement, as payment to the Manager for performing Services hereunder during any Fiscal Quarter or any part thereof, the Company shall pay a quarterly management fee (the “Management Fee”) to the Manager on each Management Fee Payment Date equal to the greater of $125,000 or 2% of Adjusted Net Assets (as defined in the Parent MSA) of the Company; provided, however, that (i) with respect to the Fiscal Quarter in which the Commencement Date occurs, the Management Fee with respect to such Fiscal Quarter or part thereof shall be equal to the product of (x) the Management Fee, multiplied by (y) a fraction, the numerator of which is the number of days from and including the Commencement Date to and including the last day of such Fiscal Quarter and the denominator of which is the number of days in such Fiscal Quarter, (ii) with respect to the Fiscal Quarter in which this Agreement is terminated, the Management Fee with respect to such Fiscal Quarter or part thereof shall be equal to the product of (x) the Management Fee, multiplied by (y) a fraction, the numerator of which is the number of days from and including the first day of such Fiscal Quarter to but excluding the date upon which this Agreement is terminated and the denominator of which is the number of days in such Fiscal Quarter, (iii) if the aggregate amount of Management Fees paid or to be paid by the Company, together with all other management fees paid or to be paid by all other Subsidiaries of the Parent to the Manager, in each case, with respect to any Fiscal Year exceeds, or is expected to exceed, 9.5% of the Parent’s Gross Income with respect to such Fiscal Year, then the Manager agrees that the Management Fee to be paid by the Company for any remaining Fiscal Quarters in such Fiscal Year shall be reduced, on a pro rata basis determined by reference to the management fees to be paid to the Manager by all of the Subsidiaries of the Parent, until the aggregate amount of the Management Fee paid or to be paid by the Company, together with all other management fees paid or to be paid by all other Subsidiaries of the Parent to the Manager, in each case, with respect to such Fiscal Year, does not exceed 9.5% of the Parent’s Gross Income with respect to such Fiscal Year, and (iv) if the aggregate amount the Management Fee paid or to be paid by the Company, together with all other management fees paid or to be paid by all other Subsidiaries of the Parent to the Manager, in each case, with respect to any Fiscal Quarter exceeds, or is expected to exceed, the aggregate amount of the management fee (before any adjustment thereto) calculated and payable under the Parent MSA (the “Parent Management Fee”) with respect to such Fiscal Quarter, then the Manager agrees that the Management Fee to be paid by the Company for such Fiscal Quarter shall be reduced, on a pro rata basis, until the aggregate amount of the Management Fee paid or to be paid by the Company, together with all other management fees paid or to be paid by all other Subsidiaries of the Parent to the Manager, in each case, with respect to such Fiscal Quarter, does not exceed the Parent Management Fee calculated and payable with respect to such Fiscal Quarter. The Management Fee shall be paid in U.S. dollars by wire transfer in immediately available funds to an account or accounts designated by the Manager from time to time.

 

(b) If the Company does not have sufficient liquid assets to timely pay the entire amount of the Management Fee due on any Management Fee Payment Date, the Company shall liquidate assets or Incur Indebtedness in order to pay such Management Fee in full on such Management Fee Payment Date; provided, however, that if the Management Fee due on any Management Fee Payment Date cannot be paid by the Company as the result of subordination provisions or other restrictions contained in financing or other agreements between the Company and its senior lenders or the senior lenders of any of its affiliates, then the Management Fee shall accrue and be paid as soon as the Company is able to pay the Management Fee without violation such subordination provision or other restrictions.

 

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Section 7.2 Reimbursement of Expenses

 

(a) Subject to Section 7.2(b), the Company shall reimburse the Manager for all costs and expenses of the Company, including all out-of-pocket costs and expenses, that are actually Incurred by the Manager or its Affiliates on behalf of the Company in connection with performing Services hereunder, and all costs and expenses the reimbursement of which is specifically approved by the Board of Directors.

 

(b) Notwithstanding the foregoing or anything else to the contrary herein, neither the Company nor any Subsidiary of the Company shall be obligated or responsible for reimbursing or otherwise paying for any costs or expenses relating to the Manager’s overhead or to the Manager’s conduct or maintenance of its business and operations as a provider of management services.

 

(c) Any such reimbursement shall be made upon demand by the Manager in U.S. dollars by wire transfer in immediately available funds to an account or accounts designated by the Manager from time to time.

 

ARTICLE VIII

TERMINATION; RESIGNATION AND REMOVAL OF THE MANAGER

 

Section 8.1 Resignation by the Manager

 

The Manager may resign at any time with 120 days’ prior written notice to the Company, which right shall not be contingent upon the finding of a replacement manager. However, if the Manager resigns, until the date on which the resignation becomes effective, the Manager shall, upon request of the Company’s Board of Directors, use reasonable efforts to assist the Company’s Board of Directors to find a replacement manager at no cost and expense to the Company.

 

Section 8.2 Removal of the Manager

 

The Manager may be removed by the Company at any time, if:

 

(a) (i) a majority of the Company’s Board of Directors vote to terminate this Agreement, and (ii) the holders of at least a majority of the then outstanding voting stock (other than voting stock beneficially owned by the Manager) vote to terminate this Agreement;

 

(b) neither Ellery W. Roberts nor his designated successor, heirs, beneficiaries or permitted assigns control the Manager, and such change occurred without the prior written consent of the Company’s Board of Directors;

 

(c) there is a finding by a court of competent jurisdiction in a final, non-appealable order that (i) the Manager materially breached the terms of this Agreement and such breach continued unremedied for sixty (60) days after the Manager received written notice from the Company setting forth the terms of such breach, or (ii) the Manager (x) acted with gross negligence, willful misconduct, bad faith or reckless disregard in performing its duties and obligations under this Agreement or (y) engaged in fraudulent or dishonest acts in connection with the business and operations of the Company;

 

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(d) (i) the Manager has been convicted of a felony under Federal or State law, (ii) the Company’s Board of Directors finds that the Manager is demonstrably and materially incapable of performing its duties and obligations under this Agreement, and (iii) the holders of at least sixty-six and two-thirds percentage (66 ⅔%) of then outstanding voting stock (other than voting stock beneficially owned by the Manager) vote to terminate this Agreement; or

 

(e) (i) there is a finding by a court of competent jurisdiction that the Manager has (x) engaged in fraudulent or dishonest acts in connection with the business or operations of the Company or (y) acted with gross negligence, willful misconduct, bad faith or reckless disregard in performing its duties and obligations under this Agreement, and (ii) the holders of at least sixty-six and two-thirds percentage (66 ⅔%) of the then outstanding voting stock (other than voting stock beneficially owned by the Manager) vote to terminate this Agreement.

 

Section 8.3 Termination

 

Subject to Section 12.4, this Agreement shall terminate upon the effective date of the resignation or removal of the Manager in accordance with Section 8.1 or Section 8.2.

 

Section 8.4 Seconded Individuals

 

Upon the termination of this Agreement, all seconded officers and employees, representatives and delegates of the Manager and its Affiliates who perform Services hereunder, shall resign their respective positions with the Company and cease working on behalf of the Company as of the date of such termination or at such other time as determined by the Manager. Any Manager appointed director may continue to serve on the Company’s Board of Directors.

 

Section 8.5 Directions

 

After a written notice of termination has been given under this Article VIII, the Company may direct the Manager to undertake any actions necessary to transfer any aspect of the ownership or control of the assets of the Company to the Company or to any nominee of the Company and to do all other things necessary to bring the appointment of the Manager to an end, and the Manager shall comply with all such reasonable directions. In addition, the Manager shall, at the Company’s expense, deliver to any new manager or the Company any books or records held by the Manager under this Agreement and shall execute and deliver such instruments and do such things as may reasonably be required to permit new management of the Company to effectively assume its responsibilities.

 

Section 8.6 Payments Upon Termination

 

(a) Notwithstanding anything in this Agreement to the contrary, the fees, costs and expenses payable to the Manager pursuant to Article VII hereof shall be payable to the Manager upon, and with respect to, the termination of this Agreement pursuant to this Article VIII. All payments made pursuant to this Section 8.6(a) shall be made in accordance with Article VII hereof.

 

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(b) Upon termination of this Agreement pursuant to the event set forth in Section 8.2(a) hereof, the Company shall pay a termination fee to the Manager that is equal to three times (3x) the then current maximum annual Management Fee payable to the Manager hereunder (the “Termination Fee”). The Termination Fee shall be payable in eight (8) equal quarterly installments, with the first such installment being paid on or within five (5) Business Days of the last day of the Fiscal Quarter in which the termination occurs and each subsequent installment being paid on or within five (5) Business Days of the last day of each subsequent Fiscal Quarter, until such time as the Termination Fee is paid in full to the Manager. Any payments made pursuant to this Section 8.6(b) shall be made in U.S. dollars by wire transfer in immediately available funds to an account or accounts designated by the Manager from time to time.

 

(c) Subject to Section 8.6(a), no termination fee shall be due or payable by the Company to the Manager upon termination of this Agreement pursuant to any of the events set forth in Section 8.2(b) to Section 8.2(e), inclusive.

 

ARTICLE IX

INDEMNITY

 

The Company shall indemnify, reimburse, defend and hold harmless the Manager and its Affiliates and their respective successors and permitted assigns, together with their respective employees, officers, members, managers, directors, agents and representatives (collectively the “Indemnified Parties”), from and against all losses (including lost profits), costs, damages, injuries, taxes, penalties, interests, expenses, obligations, claims and liabilities joint or severable) of any kind or nature whatsoever (collectively “Losses”) that are Incurred by such Indemnified Parties in connection with, relating to or arising out of (i) the breach of any term or condition of this Agreement, or (ii) the performance of any Services hereunder; provided, however, that the Company shall not be obligated to indemnify, reimburse, defend or hold harmless any Indemnified Party for any Losses Incurred, by such Indemnified Party in connection with, relating to or arising out of:

 

(a) a breach by such Indemnified Party of this Agreement;

 

(b) the gross negligence, willful misconduct, bad faith or reckless disregard of such Indemnified Party in the performance of any Services hereunder; or

 

(c) fraudulent or dishonest acts of such Indemnified Party with respect to the Company or any of its Subsidiaries.

 

The rights of any Indemnified Party referred to above shall be in addition to any rights that such Indemnified Party shall otherwise have at law or in equity.

 

Without the prior written consent of the Company, no Indemnified Party shall settle, compromise or consent to the entry of any judgment in, or otherwise seek to terminate any, claim, action, proceeding or investigation in respect of which indemnification could be sought hereunder unless (a) such Indemnified Party indemnifies the Company from any liabilities arising out of such claim, action, proceeding or investigation, (b) such settlement, compromise or consent includes an unconditional release of the Company and Indemnified Party from all liability arising out of such claim, action, proceeding or investigation and (c) the parties involved agree that the terms of such settlement, compromise or consent shall remain confidential.

 

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ARTICLE X

LIMITATION OF LIABILITY OF THE MANAGER

 

Section 10.1 Limitation of Liability

 

The Manager shall not be liable for, and the Company shall not take, or permit to be taken, any action against the Manager to hold the Manager liable for, any error of judgment or mistake of law or for any loss suffered by the Company or its Subsidiaries (including, without limitation, by reason of the purchase, sale or retention of any security or assets) in connection with the performance of the Manager’s duties under this Agreement, except for a loss resulting from gross negligence, willful misconduct, bad faith or reckless disregard on the part of the Manager in the performance of its duties and obligations under this Agreement, or its fraudulent or dishonest acts with respect to the Company or any of its Subsidiaries.

 

Section 10.2 Reliance of Manager

 

The Manager may take and may act and rely upon:

 

(a) the opinion or advice of legal counsel, which may be in-house counsel to the Company or the Manager, any U.S.-based law firm, or other legal counsel reasonably acceptable to the Board of Directors, in relation to the interpretation of this Agreement or any other document (whether statutory or otherwise) or generally in connection with the Company;

 

(b) advice, opinions, statements or information from bankers, accountants, auditors,

 

(c) valuation consultants and other Persons consulted by the Manager who are in each case believed by the Manager in good faith to be expert in relation to the matters upon which they are consulted; and

 

(d) any other document provided to the Manager in connection with the Company upon which it is reasonable for the Manager to rely.

 

The Manager shall not be liable for anything done, suffered or omitted by it in good faith in reliance upon such opinion, advice, statement, information or document.

 

ARTICLE XI

LEGAL ACTIONS

 

The Manager shall notify the Company promptly of any claim made by any third party in relation to the assets of the Company ai1d shall send to the Company any notice, claim, summons or writ served on the Manager concerning the Company.

 

The Manager shall not, without the prior written consent of the Board of Directors, purport to accept or admit any claims or liabilities of which it receives notification on behalf of the Company or make any settlement or compromise with any third party in respect of the Company.

 

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ARTICLE XII

MISCELLANEOUS

 

Section 12.1 Obligation of Good Faith; No Fiduciary Duties

 

The Manager shall perform its duties under this Agreement in good faith and for the benefit of the Company. The relationship of the Manager to the Company is as an independent contractor and nothing in this Agreement shall be construed to impose on the Manager any express or implied fiduciary duties.

 

Section 12.2 Binding Effect

 

This Agreement shall be binding upon, shall inure to the benefit of and be enforceable by the Parties hereto and their respective successors and permitted assigns.

 

Section 12.3 Compliance

 

(a) The Manager shall (and must ensure that each of its officers, agents and employees) comply with any law, including the Federal Securities Laws and the securities laws of any applicable jurisdiction, in each case, as in effect from time to time, to the extent that it concerns the functions of the Manager under this Agreement.

 

(b) The Manager shall maintain management systems, policies and internal controls and procedures that reasonably ensure that the Manager and its employees comply with the terms and conditions of this Agreement, as well as comply with the internal policies, controls and procedures established by the Company from time to time, including, without limitation, those relating to trading policies, conflicts of interest and similar corporate governance measures.

 

Section 12.4 Effect of Termination; Survival

 

This Agreement shall be effective as of the date first above written and shall continue in full force and effect thereafter until termination hereof in accordance with Article VIII. The obligations of the Company set forth in Articles VII, VIII and IX and Sections 10.1, 12.5, 12.7, 12.8, 12.9, 12.17 and 12.20 hereof shall survive such termination of this Agreement, subject to applicable law.

 

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Section 12.5 Notices

 

Any notice or other communication required or permitted under this Agreement shall be deemed to have been duly given (a) five (5) Business Days following deposit in the mails if sent by registered or certified mail, postage prepaid, (b) when sent, if sent by facsimile transmission, if receipt thereof is confirmed by telephone, (c) when delivered, if delivered personally to the intended recipient and (d) two Business Days following deposit with a nationally recognized overnight courier service, in each case addressed as follows:

 

If to the Company, to:

 

10849 W. Emerald St.

Boise, ID 83713

Attn: Kenneth Yuan

Facsimile:

 

If to the Manager, to:

 

c/o The 1847 Companies LLC

590 Madison Avenue, 21st Floor

New York, NY 10022

Attn: Ellery W. Roberts

Facsimile: 917-793-5950

 

or to such other address or facsimile number as any such Party may, from time to time, designate in writing to all other Parties hereto, and any such communication shall be deemed to be given, made or served as of the date so delivered or, in the case of any communication delivered by mail, as of the date so received.

 

Section 12.6 Headings

 

The headings in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect.

 

Section 12.7 Applicable Law

 

This Agreement, the legal relations between and among the Parties and the adjudication and the enforcement thereof shall be governed by and interpreted and construed in accordance with the laws of the State of New York, without regard to the conflicts of law provisions thereof to the extent such principles or rules would require or permit the application of the laws of another jurisdiction.

 

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Section 12.8 Submission to Jurisdiction; Waiver of Jury Trial

 

Subject to Section 12.20 hereof, each of the Parties hereby irrevocably acknowledges and agrees that any legal action or proceeding brought with respect to any of the obligations arising under or relating to this Agreement shall be brought only in the courts of the State of New York, County of New York or in the United States District Court for the Southern District of New York and each of the Parties hereby irrevocably submits to and accepts with regard to any such action or proceeding, for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts. Each Party hereby further irrevocably waives any claim that any such courts lack jurisdiction over such Party, and agrees not to plead or claim, in any legal action or proceeding with respect to this Agreement or the transactions contemplated hereby brought in any of the aforesaid courts, that any such court lacks jurisdiction over such Party. Each Party irrevocably consents to the service of process in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to such party, at its address for notices set forth in Section 12.5 hereof, such service to become effective ten (10) days after such mailing. Each Party hereby irrevocably waives any objection to such service of process and further irrevocably waives and agrees not to plead or claim in any action or proceeding commenced hereunder or under any other documents contemplated hereby that service of process was in any way invalid or ineffective. The foregoing shall not limit the rights of any Party to serve process in any other manner permitted by applicable law. The foregoing consents to jurisdiction shall not constitute general consents to service of process in the State of New York for any purpose except as provided above and shall not be deemed to confer rights on any Person other than the respective Parties.

 

Each of the Parties hereby waives any right it may have under the laws of any jurisdiction to commence by publication any legal action or proceeding with respect this Agreement. To the fullest extent permitted by applicable law, each of the Parties hereby irrevocably waives the objection which it may now or hereafter have to the laying of the venue of any suit, action or proceeding arising out of or relating to this Agreement in any of the courts referred to in this Section 12.8 and hereby further irrevocably waives and agrees not to plead or claim that any such court is not a convenient forum for any such suit, action or proceeding.

 

The Parties agree that any judgment obtained by any Party or its successors or assigns in any action, suit or proceeding referred to above may, in the discretion of such Party (or its successors or assigns), be enforced in any jurisdiction, to the extent permitted by applicable law.

 

The Parties agree that the remedy at law for any breach of this Agreement may be inadequate and that should any dispute arise concerning any matter hereunder, this Agreement shall be enforceable in a court of equity by an injunction or a decree of specific performance. Such remedies shall, however, be cumulative and nonexclusive, and shall be in addition to any other remedies which the Parties may have.

 

Each Party hereby waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any litigation as between the Parties directly or indirectly arising out of, under or in connection with this Agreement or the transactions contemplated hereby or disputes relating hereto. Each Party (a) certifies that no representative, agent or attorney of any other Party has represented, expressly or otherwise, that such other Party would not, in the event of litigation, seek to enforce the foregoing waiver and (b) acknowledges that it and the other Parties have been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 12.8.

 

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Section 12.9 Amendment; Waivers

 

No term or condition of this Agreement may be amended, modified or waived without the prior written consent of the Party against whom such amendment, modification or waiver will be enforced.

 

Any waiver granted hereunder shall be deemed a specific waiver relating only to the specific event giving rise to such waiver and not as a general waiver of any term or condition hereof.

 

Section 12.10 Remedies to Prevailing Party

 

If any action at law or equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs, and necessary disbursements in addition to any other relief to which such party may be entitled.

 

Section 12.11 Severability

 

Each provision of this Agreement is intended to be severable from the others so that if, any provision or term hereof is illegal, invalid or unenforceable for any reason whatsoever, such illegality, invalidity or unenforceability shall not affect or impair the validity of the remaining provisions and terms hereof; provided, however, that the provisions governing payment of the Management Fee described in Article VII hereof are not severable.

 

Section 12.12 Benefits Only to Parties

 

Nothing expressed by or mentioned in this Agreement is intended or shall be construed to give any Person, other than the Parties and their respective successors or permitted assigns and the Indemnified Parties, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained, terms Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of the Parties and their respective successors and permitted assigns, and for the benefit of no other Person.

 

Section 12.13 Further Assurances

 

Each Party hereto shall take any and all such actions, and execute and deliver such further agreements, consents, instruments and any other documents as may be necessary from time to time to give effect to the provisions and purposes of this Agreement.

 

Section 12.14 No Strict Construction

 

The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event any ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by all Parties, and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provision of this Agreement.

 

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Section 12.15 Entire Agreement

 

This Agreement constitutes the sole and entire agreement of the Parties with regards to the subject matter of this Agreement. Any written or oral agreements, statements, promises, negotiations or representations not expressly set forth in this Agreement are of no force and effect.

 

Section 12.16 Assignment

 

This Agreement shall not be assignable by either party except by the Manager to any Person with which the Manager may merge or consolidate or to which the Manager transfers substantially all of its assets, and then only in the event that such assignee assumes all of the obligations to the Company and the Subsidiaries of the Company hereunder.

  

Section 12.17 Confidentiality

 

(a) The Manager shall not, and the Manager shall cause its Affiliates and their respective agents and representatives not to, at any time from and after the date of this Agreement, directly or indirectly, disclose or use any confidential or proprietary information, including Company Information, involving or relating to (x) the Company, including any information contained in the books and records of the Company and (y) the Subsidiaries of the Company, including any information contained in the books and records of any such Subsidiaries; provided, however, that disclosure and use of any information shall be permitted (i) with the prior written consent of the Company, (ii) as, and to the extent, expressly permitted by this Agreement or any other agreement between the Manager and the Company or any of the Company’s Subsidiaries (but only to the extent that such information relates to such Subsidiaries), (iii) as, and solely to the extent, necessary or required for the performance by the Manager, any of its Affiliates or its delegates, of any of their respective obligations under this Agreement, (iv) as, and to the extent, necessary or required in the operation of the Company’s business or operations in the Ordinary Course of Business, (v) to the extent such information is generally available to, or known by, the public or otherwise has entered the public domain (other than as a result of disclosure in violation of this Section 12.17 by the Manager or any of its Affiliates), (vi) as, and to the extent, necessary or required by any governmental order, applicable law or any governmental authority, subject to Section 12.17(d), and (vii) as, and to the extent, necessary or required or reasonably appropriate in connection with the enforcement of any right or remedy relating to this Agreement or any other agreement between the Manager and the Company or any of the Company’s Subsidiaries.

 

(b) The Manager shall produce and implement policies and procedures that are reasonably designed to ensure compliance by the Manager’s directors, officers, employees, agents and representatives with the requirements of this Section 12.17.

 

(c) For the avoidance of doubt, confidential information includes business plans, financial information, operational information, strategic information, legal strategies or legal analysis, formulas, production processes, lists, names, research, marketing, sales information and any other information similar to any of the foregoing or serving a purpose similar to any of the foregoing with respect to the business or operations of the Company or any of its Subsidiaries. However, the Parties are not required to mark or otherwise designate information as “confidential or proprietary information,” “confidential” or “proprietary” in order to receive the benefits of this Section 12.17.

 

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(d) In the event that the Manager is required by governmental order, applicable law or any governmental authority to disclose any confidential information of the Company or any of its Subsidiaries that is subject to the restrictions of this Section 12.17, the Manager shall (i) notify the Company or any of its Subsidiaries in writing as soon as possible, unless it is otherwise affirmatively prohibited by such governmental order, applicable law or such governmental authority from notifying the Company or any such Subsidiaries, as the case may be, (ii) cooperate with the Company or any such Subsidiaries to preserve the confidentiality of such confidential information consistent with the requirements of such governmental order, applicable law or such governmental authority and (iii) use its reasonable best efforts to limit any such disclosure to the minimum disclosure necessary or required to comply with such governmental order, applicable law or such governmental authority, in each case, at the cost and expense of the Company.

 

(e) Nothing in this Section 12.17 shall prohibit the Manager from keeping or maintaining any copies of any records, documents or other information that may contain information that is otherwise subject to the requirements of this Section 12.17, subject to its compliance with this Section 12.17.

 

(f) The Manager shall be responsible for any breach or violation of the requirements of this Section 12.17 by any of its agents or representatives.

 

Section 12.18 Counterparts

 

This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute but one and the same instrument.

 

Section 12.19 Designation

 

This Agreement is an “Offsetting Management Services Agreement” as such term is defined and used pursuant to the Parent MSA, and the Management Fee is an “Offsetting Management Fee” as such term is defined and used pursuant to the Parent MSA.

 

Section 12.20 Dispute Resolution

 

All disputes arising out of this Agreement or relating to the performance of either Party of its obligations hereunder, which disputes the Parties are unable to resolve directly between themselves, shall be settled by arbitration in New York, New York (unless the Company and the Manager agree upon another location) before three arbitrators in accordance with the rules then in effect of the American Arbitration Association.

 

*      *      *

 

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

 

  1847 CABINET INC.
     
  By: /s/ Kenneth Yuan
  Name: Kenneth Yuan
  Title: Chief Executive Officer
     
  1847 PARTNERS LLC
     
  By: /s/ Ellery W. Roberts
  Name: Ellery W. Roberts
  Title: Manager

 

[Signature Page to Amended and Restated Management Services Agreement]

 

 

 

 

Exhibit 10.10

 

SECOND AMENDED AND RESTATED

SUBORDINATD SECURED PROMISSORY NOTE

 

Up to $15,955,325.00 As of October 8, 2021

 

This is a second amendment and restatement of that certain secured promissory note, which was originally for up to $4,525,000, and originally dated as of September 30, 2020, and thereafter amended and restated on December 11, 2020, among 1847 Cabinet Inc., 1847 Holdings LLC and Kyle’s Custom Wood Shop, Inc. (“KCWS”). The Lender is funding an additional $11,430,325 to the Borrower on the date hereof and the additional Guarantors, High Mountain Door & Trim Inc. (“High Mountain”) and Sierra Homes, LLC (“Sierra Homes”) are being added as parties to this Note.

 

1. Principal and Interest.

 

FOR VALUE RECEIVED, 1847 Cabinet Inc., a Delaware corporation (“Borrower”), hereby unconditionally promises to pay to the order of 1847 Holdings LLC, a Delaware limited liability company (together with its permitted successors and assigns, “Lender”), at Lender’s address as designated in writing by the holder of this Second Amended and Restated Secured Promissory Note (“Note”), the sum of the principal amount of up to Fifteen Million, Nine Hundred Fifty Five Thousand, Three Hundred Twenty Five and No/100 U.S. DOLLARS ($15,955,325.00), with interest thereon, pursuant to the terms of this Note. As of September 30, 2021, the outstanding principal amount of this Note was $4,525,000 with accrued but unpaid interest of $332,306.27. The Lender is making an additional advance to the Borrower on the date hereof in the amount of Eleven Million, Four Hundred Thirty Thousand, Three Hundred Twenty Five and No/100 U.S. DOLLARS ($11,430,325) which funds are being used to pay the purchase price and related expenses for the acquisition of High Mountain and Sierra Homes.

 

In the event Borrower requests funds from Lender in excess of the Commitment (as hereinafter defined), and Lender advances such funds to Borrower, the amounts funded in excess of the Commitment shall be deemed, as of the date such funds are advanced, part of the outstanding principal balance of this Note, repayable hereunder, until repaid for all purposes hereunder.

 

The “Obligations” (as hereinafter defined) are being guaranteed by Borrower’s wholly-owned subsidiaries, KCWS, High Mountain and Sierra (collectively, the “Guarantors”), which guaranty is secured by all of the assets of each of the Guarantors, all as provided in Section 3 below.

 

(a) Defined Terms. Unless otherwise defined herein, capitalized terms used herein that are defined in the UCC shall have the meanings assigned to them in the UCC, however, if a term is defined in Article 9 of the UCC differently than in another Article of the UCC, the term has the meaning specified in Article 9. In addition, the following terms shall have the following meanings:

 

(i) “Business Day” means (a) with respect to any borrowing or payment or interest rate provision related to an Advance (as hereinafter defined) or the Note, a day (other than a Saturday or Sunday) on which banks generally are open in New York, New York and for the conduct of substantially all of their commercial lending activities and (b) for all other purposes, a day other than a Saturday, Sunday or any other day on which national banking associations are authorized to be closed.

 

 

 

 

(ii) “Collateral” means, with respect to Borrower and each Guarantor, all of Borrower’s and each Guarantor’s present and future right, title and interest in and to any and all of the personal property of Borrower and each Guarantor whether such property is now existing or hereafter created, acquired or arising and wherever located from time to time, including without limitation: (1) accounts; (2) chattel paper; (3) goods; (4) inventory; (5) equipment; (6) fixtures; (7) instruments; (8) investment property; (9) documents; (10) commercial tort claims; (11) deposit accounts; (12) letter-of-credit rights; (13) general intangibles; (14) supporting obligations; and (15) all proceeds and products of the foregoing.

 

(iii) “Commitment” means the maximum unpaid principal amount of Advances which may from time to time be outstanding hereunder, being Fifteen Million, Nine Hundred Fifty Five Thousand, Three Hundred Twenty Five and No/100 U.S. DOLLARS ($15,955,325.00) on the date hereof and, as the context may require, the agreement of Lender to make Advances to Borrower subject to the terms and conditions of this Note.

 

(iv) “Termination Date” means the earliest of (i) the Maturity Date (as hereinafter defined), or (ii) the date on which the Commitment is terminated pursuant to Section 3(j)(i) hereof.

 

(b) The Commitment; Advances; Use of Proceeds.

 

(i) Subject to the terms and conditions hereof and in reliance upon the representations, covenants and warranties of Borrower herein, Lender agrees to make advances of funds (each an “Advance” and, collectively, the “Advances”) to Borrower from time to time from the date hereof until the Termination Date, in an aggregate principal amount at any one time outstanding not to exceed the Commitment. Borrower acknowledges that Advances, once advanced pursuant to this Section 1 and repaid pursuant to this Note are not eligible to be subsequently re-borrowed by Borrower.

 

(ii) Notwithstanding anything to the contrary in this Note, upon Borrower’s request, Lender may, in its sole discretion, advance funds under this Note in excess of the Commitment, and the amounts funded in excess of the Commitment shall be deemed, as of the date such funds are advanced, part of the outstanding principal balance of this Note for all purposes hereunder and due hereunder until repaid.

 

(iii) Subject to section 1(f) below, Borrower shall use the additional loan proceeds being made available on the date hereof under the Commitment to pay the cash portion of the purchase price for the acquisition of High Mountain and Sierra Homes and otherwise solely for proper business purposes of Borrower, including acquisition expenses, working capital and general corporate purposes.

 

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(c) Borrowing Procedures.

 

(i) Borrower’s Request. Any request by Borrower for an Advance shall be in writing, or by telephone promptly confirmed in writing, and must be given so as to be received by Lender no later than 11:00 a.m., New York City time three (3) Business Days before the date of the requested Advance. Subject to the foregoing, any request by Borrower for an Advance that is received by Lender after 11:00 a.m., New York City time will be deemed to be made as of the following Business Day. Each request for an Advance shall specify the borrowing date (which shall be a Business Day), Borrower’s instructions (if any) regarding the Advance, the purpose for the Advance, and supporting documentation. Unless Lender determines that any applicable condition specified in Section 1(c)(iv) has not been satisfied, Lender will make the amount of the requested Advance available to Borrower as provided in Section 1(c)(ii).

 

(ii) Payments of Advances. Lender shall pay amounts, in whole or part, under any Advance requested by Borrower either directly to Borrower, or, on behalf of Borrower, to any third party due such funds from Borrower as specified in Borrower’s written request to Lender for such Advance, as Lender shall determine in its sole discretion, and any such direct third party payment shall be deemed made hereunder to Borrower and shall constitute outstanding principal hereunder.

 

(iii) Recordation. The date (the “Funding Date”) and amount of each Advance and each repayment and prepayment of principal thereof shall be endorsed by Lender on the Schedule of Advances attached hereto. Lender may provide Borrower with statements of account with respect to this Note on a quarterly basis, or such other periodic basis Lender deems appropriate from time to time. The aggregate unpaid principal amount so recorded shall be prima facie evidence of the principal amount owing and unpaid on the Note.

 

(iv) Conditions Precedent to Advances. The obligation of Lender to make any Advance hereunder shall be subject to the satisfaction of the following conditions precedent:

 

(1) Lender shall have received Borrower’s request for such Advance as required by Section 1(c)(i) hereof, and said request shall be for a proper business purpose of Borrower consistent with the use of proceeds provisions of this Note; and

 

(2) As of the date of such Advance, and after giving effect thereto:

 

(A) no Event of Default (as hereinafter defined) exists, and no event or condition exists which with notice, lapse of time and/or the making of the Advance would constitute an Event of Default;

 

(B) the representations and warranties of Borrower and Guarantor contained herein are true and correct on, and as of, such date; and

 

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(C) all of the covenants, conditions and agreements of Borrower and Guarantor in this Note, and all of the requirements of this Note with respect to the Advance, have been complied with.

 

(d) Interest. The unpaid principal balance of this Note shall bear interest at the rate of sixteen percent (16%) per annum. Interest shall accrue for each and every date on which any indebtedness remains outstanding hereunder and shall be computed on the daily outstanding principal balance hereunder based on a three hundred sixty-five (365) day year. Interest shall be cumulative and any unpaid accrued interest will compound on each anniversary date of this Note. Interest shall be due and payable in accordance with the terms of Section 1(e) below. All payments of interest and principal shall be made in lawful money of the United States of America no later than 12:00 PM on the date on which such payment is due by cashier’s check, certified check or by wire transfer of immediately available funds to Lender’s account at a bank specified by Lender in writing to Borrower from time to time. All payments made hereunder shall be applied: first, to the payment of any fees or charges outstanding hereunder; second, to accrued interest; and third, to the payment of the principal amount outstanding under this Note.

 

(e) Interest Payments. Interest shall be due and payable in arrears to Lender on December 1, March 1, June 1, and October 1 (each, a “Quarterly Payment Date”), commencing December 1, 2021.

 

(f) Silac Financing; Subordination.

 

(i) In order to, in part, fund the Advances to be made hereunder, Lender and several of its affiliated guarantors entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with Silac Insurance Company (“Silac”) and Leonite Capital LLC (together, the “Purchasers”), pursuant to which, Lender sold an aggregate of Twenty-Four Million Eight Hundred Sixty Thousand Dollars and NO/100 ($24,860,000) in aggregate original principal amount of convertible promissory notes (the “Silac Notes” and together with the Note Purchase Agreement and all related transaction documents, the “Silac Financing Documents”). If and to the extent any amounts are owing under the Silac Financing Documents due to a default or redemption pursuant to the terms of the Silac Financing Documents (the “Silac Payments”), in addition to payment obligations hereunder, Borrower is required to immediately make payments to Lender so that Lender may make the Silac Payments in compliance with the terms of the Silac Financing Documents.

 

(ii) By acceptance of this Note, Lender hereby acknowledges and agrees that the lien created hereunder, and the indebtedness evidenced by this Note and all of the other rights of the Lender hereunder are subordinated in right of payment and otherwise to the indebtedness arising now or in the future under the Silac Financing Documents. Upon the request of a Purchaser, Lender shall enter into such other documents or agreements evidencing such subordination as the Purchaser may request. The Purchasers are intended third party beneficiaries of this Note.

 

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(g) Maturity Date and Payments at Maturity. Borrower shall pay to Lender the principal balance of the outstanding amount due hereunder together with any accrued and unpaid interest and other amounts, if any, owed hereunder ON DEMAND, as herein provided. Lender may demand payment in full of this Note, at any time, even if Borrower has complied with all of the terms of this Note; and this Note shall be due in full, without demand, upon the third party sale of all or substantially all the assets and business of Borrower or the third party sale or other disposition of any capital stock of Borrower. The date on which Lender declares this Note to be, or this Note otherwise becomes, due shall be the Maturity Date (the “Maturity Date”). In the event payment of principal or interest due under this Note is not made when due, giving effect to any grace period which may be applicable, or in the event of any other Default (as hereinafter defined), the outstanding principal balance hereof shall from the date of Default immediately bear interest at the rate of five percent (5%) above the then applicable interest rate for so long as such Default continues.

 

(h) Prepayment. This Note may be prepaid at any time without penalty. All amounts paid toward the satisfaction of this Note shall be applied: first, to the payment of amounts, if any, owed hereunder, other than interest and principal; second, to the payment of accrued and unpaid interest hereunder; and third, to the payment of principal hereunder.

 

(i) Business Day. Whenever any payment on this Note shall be stated to be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension will be taken into account in calculating the amount of interest payable under this Note.

 

(j) Maximum Interest. If at any time and for any reason whatsoever, the interest rate payable on this Note shall exceed the maximum rate of interest permitted to be charged by Lender to Borrower under applicable law, such interest rate shall be reduced automatically to the maximum rate of interest permitted to be charged under applicable law.

 

(k) Surrender of Note. Upon payment in full of all principal and interest payable hereunder, this Note shall be surrendered to Borrower for cancellation.

 

(l) Obligations. For purposes of this Note, “Obligations” means and includes all loans, advances, debts, liabilities and obligations, howsoever arising, owed by Borrower to Lender and evidenced by this Note, including, all principal, interest, fees, charges, expenses, attorneys’ fees and costs and accountants’ fees and costs chargeable to and payable by Borrower hereunder, whether direct or indirect, absolute or contingent, due or to become due, and whether or not arising after the commencement of a proceeding under Title 11 of the United States Code (11 U.S.C. Section 101 et seq.), as amended from time to time (including post-petition interest) and whether or not allowed or allowable as a claim in any such proceeding.

 

2. Covenants. Without the prior written consent of Lender, Borrower shall not incur indebtedness other than (i) indebtedness incurred in connection with the acquisition of a Guarantor, (ii) trade accounts payable incurred in the ordinary course of business or (iii) other indebtedness either reflected in Borrower’s latest balance sheet delivered to Lender prior to the date hereof or otherwise disclosed to Lender in writing prior to the date hereof.

 

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3. Guaranty, Security and Related Matters.

 

(a) To induce Lender to make the loan to Borrower under this Note, each Guarantor hereby absolutely, unconditionally and irrevocably guarantees to Lender the due and punctual payment, observance, performance and discharge of all of the Obligations of Borrower under this Note if and when due. Each Guarantor agrees that Lender may proceed against each Guarantor separately or collectively with Borrower without prejudicing or waiving any of Lender’s rights under any other obligations or under this Note. In the event Borrower fails to perform, satisfy or observe the terms of this Note required to be performed, satisfied or observed by Borrower, each Guarantor will promptly and fully perform, satisfy and observe such obligations in the place of Borrower. Each Guarantor shall pay, reimburse and indemnify Lender for any and all reasonable attorneys’ fees arising or resulting from the failure of Borrower to perform, satisfy or observe any of the terms of this Note. The guarantee described in this Section 3(a) (the “Guarantee”) is binding upon each Guarantor and each Guarantor’s successors in interest and assigns of each Guarantor and inures to the benefit of Lender and it successors and assigns.

 

(b) As security for the Obligation and the Guarantee, each of Borrower and each Guarantor hereby pledges to Lender, and grants to Lender, a security interest in and to the Collateral owned by it. Each of Borrower and each Guarantor hereby agrees not to transfer or assign any of the Collateral as long as any Obligations remain unpaid. Lender shall have all of the rights, powers and privileges of a secured party under the Delaware Uniform Commercial Codes in force and effect from time to time with respect to the security interest granted hereunder.

 

(c) Each of Borrower and each Guarantor hereby irrevocably authorizes Lender at any time and from time to time to file in any relevant jurisdiction any financing statements (including fixture filings) and amendments thereto that contain the information required by Article 9 of the UCC of each applicable jurisdiction for the filing of any financing statement or amendment relating to the Collateral.

 

(d) Each of Borrower and each Guarantor represents and warrants to Lender that, on the date hereof, any and all financing statements, agreements, instruments and other documents necessary to perfect the security interests granted by Borrower and each Guarantor to Lender in respect of the Collateral and, to the extent necessary or appropriate, to the extent requested and delivered to Borrower or each Guarantor by Lender, have been duly executed and delivered to Lender. Each of Borrower and each Guarantor agrees that they will maintain the security interests created by this Note in the Collateral as a perfected security interest.

 

(e) Each of Borrower and each Guarantor shall take such further actions, and execute and/or deliver to Lender such additional financing statements, amendments, assignments, agreements, supplements, powers and instruments, as Lender may in its judgment deem necessary or appropriate in order to perfect, preserve and protect the security interests in the Collateral as provided herein and the rights and interests granted to Lender hereunder, and enable Lender to exercise and enforce its rights, powers and remedies hereunder with respect to any Collateral. If a Default has occurred and is continuing, Lender may institute and maintain, in its own name, such suits and proceedings as Lender may deem to be necessary or expedient to prevent any impairment of the security interests in or the perfection thereof in the Collateral. Each of Borrower and Guarantor shall cooperate with all of the foregoing at their sole cost and expense.

 

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(f) Each of Borrower and each Guarantor represents and warrants that he or it has good title to all of its or his Collateral, and none of such property is subject to any lien, claim, option or right of others, except for those liens identified on Exhibit A hereto and the security interest granted to Lender hereunder. This Section 3 is effective to create in favor of Lender, a legal, valid and enforceable security interest in the Collateral and the proceeds thereof.

 

(g) Each of Borrower and each Guarantor shall, jointly and severally, at their sole cost and expense, defend title to the Collateral and the security interest and lien granted to Lender with respect thereto against all claims and demands of all persons at any time claiming any interest therein adverse to Lender.

 

(h) Neither Borrower nor Guarantor, as applicable, shall change (i) his or its legal name, identity, type of organization or corporate structure; (ii) the location of Borrower’s chief executive office or Borrower’s principal place of business, except with not less than thirty (30) days written notice to Lender; (iii) Borrower’s organizational identification number (if any); or (iv) Borrower’s jurisdiction of organization, with not less than thirty (30) days written notice to Leader, (in each case, including by merging with or into any other entity, reorganizing, organizing, dissolving, liquidating, reincorporating or incorporating in any other jurisdiction).

 

(i) In the event that the proceeds of any casualty insurance claim are paid to Borrower or Guarantor in respect of the Collateral, such net cash proceeds shall be used to repair or replace Borrower’s damaged or lost property within 180 days of such damage or loss, or in the event that such repair or replacement is not feasible following the casualty, such net cash proceeds shall instead be held in trust for the benefit of Lender and immediately after receipt thereof shall be paid to Lender for application in accordance with this Note.

 

(j) If any Default shall have occurred and be continuing:

 

(i) Lender shall have no further obligation to and may then forthwith cease advancing monies or extending credit to or for the benefit of Borrower under this Note and shall not be obligated to extend any advance monies or extend credit to or for the benefit of Lender under the Commitment.

 

(ii) Lender may exercise, without any other notice to or demand upon Borrower and/or any Guarantor, in addition to the other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party upon default under the UCC (whether or not the UCC applies to the affected Collateral) and also may, in compliance with applicable law:

 

(A) with written notice specified below, sell, resell, assign and deliver or grant a license to use or otherwise dispose of the Collateral or any part thereof, in one or more parcels at public or private sale (in which Borrower and/or any Guarantor and/or any of their stockholders, creditors or designees shall be entitled to participate), for cash, on credit or for future delivery, and upon such other terms as are commercially reasonable; and

 

(B) exercise any and all rights and remedies of Lender under or in connection with the Collateral, or otherwise in respect of the Collateral.

 

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(k) Lender shall give at least 10 days’ written notice (which notice can run concurrently with any required notice periods as to default set forth herein) to Borrower and/or a Guarantor, as the case may be, of the time and place of any public or private sale of Collateral. At any sale of the Collateral, if permitted by applicable law, Lender may be the purchaser, licensee, assignee or recipient of the Collateral or any part thereof and shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold, assigned or licensed at such sale, to use and apply any of the obligations under this Note as a credit on account of the purchase price of the Collateral or any part thereof payable at such sale. To the extent permitted by applicable law, each of Borrower and each Guarantor waives all claims, damages and demands it may acquire against Lender arising out of the exercise by it of any rights hereunder. Each of Borrower and each Guarantor hereby waives and releases to the fullest extent permitted by law any right or equity of redemption with respect to the Collateral after any sale hereunder, and all rights, if any, of marshaling the Collateral and any other security for the obligations under the Note or otherwise, in accordance with applicable law. Lender shall not be liable for failure to collect or realize upon any or all of the Collateral or for any delay in so doing, nor shall it be under any obligation to take any action with regard thereto. Lender shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Lender may adjourn any public or private sale from time to time by announcement at the time and place fixed therefore, and such sale, may, without further notice, be made at the time and place to which it was so adjourned. Lender shall not be obligated to clean-up or otherwise prepare the Collateral for sale.

 

(l) Upon the exercise by Lender of its remedies hereunder, any proceeds received by Lender in respect of any realization upon any Collateral shall be applied pursuant to this Note. Guarantor and Borrower shall remain liable hereunder for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay the obligations under this Note and the fees and other charges of any attorneys employed by Lender to collect such deficiency.

 

(m) Upon payment in full of all Obligations, the security interest in the Collateral shall be terminated and Lender will, at Borrower’s or a Guarantor’s request and expense, take all necessary action and make such appropriate filings as required to terminate the security interest.

 

4. Attorney Fees, Expenses and Costs of Collection. If this Note or any installment of principal or interest is not paid when due, Borrower agrees to pay all costs and expenses of collection, including without limitation, reasonable attorneys’ fees, court costs, and all costs and expenses in connection with the protection or realization of the Collateral and the payment and performance of each of the Obligations, whether or not suit is filed hereon or thereon. Such costs and expenses shall include, without limitation, (i) all costs, expenses and reasonable attorneys’ fees incurred by Lender in connection with any insolvency, bankruptcy, receivership or other similar proceedings involving Borrower, and (ii) all costs, expenses and reasonable attorney’s fees incurred by Lender in connection with all negotiations, documentation and other actions relating to any work-out, compromise, settlement or resolution of Lender’s claim. In addition thereto, Borrower agrees that it shall reimburse the Lender on demand for all reasonable out-of-pocket costs, expenses and fees (including reasonable expenses and fees of its outside counsel) incurred by Lender in connection with the transactions contemplated hereby including the negotiation, documentation and execution of this Note.

 

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5. Notices. All notices and other communications given or made pursuant to this Note shall be in writing and shall be deemed effectively given upon the earlier of actual receipt or (a) personal delivery to the party to be notified, (b) when sent, if sent by electronic mail or facsimile during normal business hours of the recipient, and if not sent during normal business hours, then on the recipient’s next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) business day after deposit with a nationally recognized overnight courier, freight prepaid, specifying next business day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their address as set forth on the signature page of this Note.

 

6. Default. Upon the occurrence of any of the following events (each, a “Default”) and at any time thereafter during the continuance of such Default, Lender may at its option, by written notice to Borrower (x) declare the entire principal amount of this Note, together with all accrued interest thereon and all other amounts payable hereunder, immediately due and payable and/or (y) exercise any or all of its rights, powers or remedies under this Note or under applicable law; provided, however that, if an event of Default described in clause (a) below shall occur, the principal of and accrued interest on this Note shall become immediately due and payable without any notice, declaration or other act on the part of Lender:

 

(a) (i) Borrower or any Guarantor commences any proceeding in bankruptcy or for dissolution, liquidation, winding-up, composition or other relief under state or federal bankruptcy laws; (ii) such proceedings are commenced against Borrower or any Guarantor, or a receiver or trustee is appointed for Borrower or any Guarantor or a substantial part of its or his property, and such proceeding or appointment is not dismissed or discharged within thirty (30) days after its commencement; provided, that all interest shall continue to accrue as set forth above until all amounts owed under this Note are paid in cash in full; (iii) any assignment for the benefit of the creditors of Borrower or any Guarantor;

 

(b) Borrower or any Guarantor fails to pay when due any principal, interest or other amounts owing under this Note, which failure to pay is not cured within five (5) days from the delivery of notice thereof by the Lender;

 

(c) Any representation or warranty made by Borrower or any Guarantor in this Note is incorrect in any material respect on the date as of which such representation or warranty was made and is not cured, to the extent curable, within ten (10) days from the delivery of notice thereof by the Lender;

 

(d) Borrower or any Guarantor shall default in the observance or performance of any covenant or agreement contained in this Note (other than as provided in clause (b) of this Section), and such default shall continue unremedied for a period of ten (10) days from the delivery of notice thereof by Lender;

 

(e) Borrower or any Guarantor fails to pay when due any of its or his indebtedness (other than indebtedness under this Note) or any interest or premium thereon when due (whether by scheduled payment hereunder, demand or otherwise) and such failure continues after the applicable grace period, if any, specified in the agreement or instrument relating to such indebtedness, it being understood that for purposes of this subsection “indebtedness” shall mean financial indebtedness and not ordinary course accounts payable; or

 

(f) A judgment or decree is entered against Borrower or any Guarantor and such judgment or decree has not been vacated, discharged, stayed or bonded pending appeal within thirty (30) days from the entry thereof.

 

-9-

 

7. Waivers. Each of Borrower and each Guarantor hereby irrevocably and unconditionally (a) except with respect to notices required under Section 6(b), waives presentment, demand for performance, diligence in enforcement, notice of non-performance, protest, notice of protest and notice of dishonor and all other protests or notices to the full extent permitted by applicable laws or regulations; and (b) waives any right Borrower or any Guarantor may have to require Lender to exhaust any of the Collateral, or pursue a particular remedy to the exclusion of others. No delay on the part of Lender in exercising any right hereunder shall operate as a waiver of such right or any other right nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

 

8. Confidentiality. Borrower and each Guarantor shall, and shall cause its or his affiliates, employees, officers, directors, and other agents (the “Representatives”) to hold in confidence any and all information, whether written or oral, concerning the terms of this Note (including the existence of this Note), the discussions and negotiations between the parties contemplating this Note, or any information regarding the Lender obtained during the discussions and negotiations of this Note; provided, however, nothing in this Section 8 shall prohibit Borrower, each Guarantor or any of their Representatives from disclosing or sharing any information regarding the terms of this Note with Borrower’s investors and potential investors, existing lenders, and professional advisors, including without limitation its accountants and attorneys, or from enforcing or defending Borrower’s or a Guarantor’s rights pursuant to this Note.

 

9. Choice of Law; Jurisdiction; Venue; Waiver or Jury Trial. This Note is being delivered in and shall be construed in accordance with the laws of the State of New York, without regard to the conflicts of law provisions thereof. Each of Borrower and Guarantor, by its or his execution hereof, hereby irrevocably submits to the in personam jurisdiction of the state courts of the State of New York and of the United States District Court for the Southern District of New York, for the purpose of any suit, action or other proceeding arising out of or based upon this Note, and such courts shall be the exclusive venue for resolution of any disputes arising from or relating to this Note, the loan made hereunder, or security interest granted herein. EACH OF BORROWER AND EACH GUARANTOR HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT OR HE MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY RELATING TO THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY.

 

10. Amendment and Waiver. The provisions of this Note may be modified or amended only in a writing executed by Borrower, each Guarantor and Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given.

 

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11. Rights and Remedies. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies that Lender may otherwise have.

 

12. Severability; Effectiveness. If one or more provisions of this Note are held to be unenforceable under applicable law, such provision(s) shall be excluded from this Note, and the balance of this Note shall be interpreted as if such provision(s) were so excluded and shall be enforceable in accordance with its terms. This Note may be signed in any number of counterparts, each of which is an original and all of which taken together form one single document. Delivery of an executed counterpart of a signature page to this Note by facsimile or in electronic (i.e., “pdf” or “tif”) format shall be effective as delivery of a manually executed counterpart of this Note.

 

13. Successors and Assigns. This Note may be assigned, transferred or negotiated by Lender at any time to any third party without notice to or consent by Borrower. Neither Borrower nor any Guarantor may assign or transfer this Note or any of its rights hereunder without the prior written consent of Lender, which consent may be withheld for any or no reason whatsoever. This Note shall inure to the benefit of and be binding upon the parties hereto and their permitted assigns.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the undersigned have caused this Secured Promissory Note to be executed as of the date first set forth above.

 

  LENDER:
     
  1847 Holdings LLC
     
  By:   /s/ Ellery W. Roberts
    Name: Ellery W. Roberts
    Title:   Chief Executive Officer

 

 

BORROWER:

     
 

1847 Cabinet Inc.

     
  By:  

/s/ Kenneth Yuan

    Name: Kenneth Yuan
    Title:   Chief Executive Officer

 

 

GUARANTORS:

     
 

Kyle’s Custom Wood Shop, Inc.

     
  By:  

/s/ Kenneth Yuan

    Name: Kenneth Yuan
    Title:   Chief Executive Officer

 

 

Mountain Door & Trim Inc.

     
  By:  

/s/ Kenneth Yuan

    Name: Kenneth Yuan
    Title:   Chief Executive Officer

 

 

Sierra Homes, LLC

     
  By:  

/s/ Kenneth Yuan

    Name: Kenneth Yuan
    Title:   Chief Executive Officer

 

-12-

 

EXHIBIT A

 

EXISTING LIENS

 

Liens in favor of Leonite Capital LLC, as administrative agent, pursuant to the Silac Financing Documents.

 

 

 

 

Exhibit 10.11

 

Execution Version

 

NOTE PURCHASE AGREEMENT

 

THIS NOTE PURCHASE AGREEMENT, dated as of October 8, 2021 (this “Agreement”), is entered into by and among 1847 HOLDINGS LLC, a Delaware limited liability company (the “Issuer”), with its principal executive office at 590 Madison Ave., 21st Floor, New York, NY 10022 (the “Principal Office”), each of the parties listed on the signature page as Guarantor (each a “Guarantor” and collectively, the “Guarantors”; the Issuer and the Guarantors are hereinafter sometimes referred to individually as an “Obligor” and collectively as the “Obligors”), the purchasers identified on the signature pages hereof (such purchasers, together with their respective successors and permitted assigns, each a “Purchaser” and, collectively, the “Purchasers”), and LEONITE CAPITAL LLC, a Delaware limited liability company, as administrative agent for the Purchasers (together with its successors and permitted assigns in such capacity, the “Agent”).

 

RECITALS

 

A. The Issuer seeks to sell to Purchasers certain Secured Convertible Promissory Notes, each dated as of the date hereof (collectively, as each may be amended, restated, or otherwise modified from time to time, the “Notes”), in the aggregate original principal amount of Twenty-Four Million Eight Hundred Sixty Dollars ($24,860,000).

 

B. The obligations of the Issuer under this Agreement are (i) guaranteed by the Guarantors pursuant to that certain Guaranty Agreement (as defined herein) and (ii) secured by liens on and security interests in all or substantially all assets of the Issuer and the Guarantors, pursuant to the Security Agreement (as defined herein) and the other Transaction Documents.

 

NOW THEREFORE, in consideration of the foregoing, and the representations, warranties, and conditions set forth below, the parties hereto, intending to be legally bound, hereby agree as follows:

 

1. Definitions. In addition to the other terms defined herein, the following terms used herein shall have the meanings herein specified:

 

“Affiliate” means, as to any Person, any other Person that directly, or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such Person. For the purposes of this definition, “Control” shall mean the power, directly or indirectly, either to (i) vote 10% or more of the securities having ordinary voting power for the election of directors (or persons performing similar functions) of a Person or (ii) direct or cause the direction of the management and policies of a Person, whether through the ability to exercise voting power, by control or otherwise. The terms “Control”, “Controlled by”, and “under common Control with” have the meanings correlative thereto.

 

Agent-Related Persons” means the Agent, together with its Affiliates and their respective directors, officers, agents, employees, advisors, shareholders and attorneys.

 

Business Day” means any day other than a Saturday, a Sunday or a day on which banking institutions in New York, New York are authorized or obligated to close.

 

 

 

 

Change of Control” means the occurrence of any of the following events: (a) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), other than the holders of the Issuer’s Equity Interests as of the Closing Date, shall become, or obtain rights (whether by means of warrants, options or otherwise) to become, the “beneficial owner” (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly, of more than 50% of the ordinary voting power for the election of directors of the Issuer (determined on a fully diluted basis); or (b) at any time, the Issuer shall cease to own and control, of record and beneficially, directly or indirectly, 100% of the outstanding Equity Interests of each other Obligor free and clear of all Liens (except Liens created by the Transaction Documents).

 

Closing Date” means the date of this Agreement.

 

Closing Date Acquisitions” means the acquisition of High Mountain Door & Trim, Inc. and Sierra Homes, LLC by 1847 Cabinet Inc.

 

Closing Date Acquisition Documents” means (i) that certain Securities Purchase Agreement dated as of even date herewith, among 1847 Cabinet Inc., High Mountain Door & Trim, Inc., Sierra Homes, LLC and the sellers party thereto and any other agreement entered into in connection with or relating thereto.

 

Closing Date Redemption” means the redemption of 2,632,278 Preferred Shares that were issued in connection with the acquisition of Kyle’s Custom Woodshop, Inc. and up to an additional 869,565 Preferred Shares that were issued in connection with the acquisition of Wolo Manufacturing Corp. and related companies for aggregate consideration not to exceed $8,054,239.

 

Collateral” shall have the meaning provided in the Security Agreement.

 

Commission” means the United States Securities and Exchange Commission.

 

Common Shares” means the common shares of the Issuer.

 

Conversion Shares” means, collectively, the shares of Common Shares issuable upon conversion of any Note.

 

EBITDA” means with respect to any period, an amount equal to the sum of (a) net income of Issuer for such fiscal period, plus (b) in each case to the extent deducted in the calculation of Issuer’s net income and without duplication, (i) depreciation and amortization for such period, plus (ii) income tax expense for such period, plus (iii) the aggregate amount of interest required to be paid or accrued by Issuer during such period on all Indebtedness of the Issuer and its Subsidiaries outstanding during all or any part of such period, whether such interest was or is required to be reflected as an item of expense or capitalized, including payments consisting of interest in respect of any capitalized lease or any synthetic lease, and including commitment fees, agency fees, facility fees, balance deficiency fees and similar fees or expenses in connection with the borrowing of money, all as determined in accordance with GAAP.

 

Equity Interests” means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any of the foregoing.

 

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Existing Debt” means all Indebtedness of any Obligor existing on the Closing Date and disclosed on Schedule 1.1.

 

Fixed Charge Coverage Ratio” means, for any period, the ratio of (a) EBITDA for such period minus unfinanced capital expenditures for such period to (b) the sum of (i) interest expense actually paid in cash for such period (excluding for the avoidance of doubt, any paid in kind or accrued interest), (ii) the aggregate amount of scheduled principal payments made during such period in respect of Indebtedness of Issuer and its Subsidiaries, (iii) without duplication of any amount set forth in the preceding subclause (ii), the aggregate amount of principal payments (other than scheduled principal payments) made during such period in respect of Indebtedness of Issuer and its Subsidiaries, to the extent that such payments reduced any scheduled principal payments that would have become due within one year after the date of the applicable payment, and (iv) the aggregate amount of taxes paid in cash by Issuer and its Subsidiaries during such period.

 

GAAP” means generally accepted accounting principles as in effect from time to time.

 

Guaranty” means that certain Guaranty Agreement, dated of even date herewith, by the Guarantors in favor of the Agent for the benefit of the Agent and the Purchasers, as the same may be further amended, restated, supplemented or otherwise modified from time to time.

 

Indebtedness” of any Person means, without duplication (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of business; provided, that trade payables overdue by more than 120 days shall be included in this definition except to the extent that any of such trade payables are being disputed in good faith and by appropriate measures), (iv) all obligations of such Person under any conditional sale or other title retention agreement(s) relating to property acquired by such Person, (v) all capital lease obligations of such Person, (vi) all obligations, contingent or otherwise, of such Person in respect of letters of credit, acceptances or similar extensions of credit, (vii) all guarantees of such Person of the type of Indebtedness described in clauses (i) through (vi) above, (viii) all Indebtedness of a third party secured by any lien or security interest on property owned by such Person, whether or not such Indebtedness has been assumed by such Person, and (ix) all obligations of such Person, contingent or otherwise, to purchase, redeem, retire or otherwise acquire for value any capital stock or other equity interests of such Person. The Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer, except to the extent that the terms of such Indebtedness provide that such Person is not liable therefor.

 

Information Certificate” means that certain information certificate, dated of even date herewith, delivered by Issuer and Guarantors to Agent.

 

Intellectual Property Security Agreement” means that certain Intellectual Property Security Agreement, dated of even date herewith, by each Subsidiary that owns material patents or trademarks in favor of the Agent, for the benefit of the Agent and the Purchasers, as the same may be further amended, restated, supplemented or otherwise modified from time to time.

 

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Interest Reserve Account” means an account of the Issuer that is subject to no Liens other than Liens in favor of the Agent, for the benefit of the Purchasers.

 

Minimum Interest Reserve” means unrestricted cash in an amount equal to six (6) months of interest under the Notes.

 

Leonite Capital” means Leonite Capital LLC, a Delaware limited liability company.

 

Leverage Ratio” means, as of any date of determination, the ratio of (a) all Indebtedness, including New Subsidiary Debt, but excluding any Subordinated Debt as of such date to (b) EBITDA as of such date for the rolling four fiscal quarter period ending on such date, for Issuer and its Subsidiaries on a consolidated basis in accordance of GAAP.

 

Lien” means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

 

Management Agreements” means, collectively, those certain management agreements between the Manager and each Obligor.

 

Management Fee Subordination Agreements” means those certain management fee subordination agreements, dated as of even date herewith, by and among each Obligor, Manager and Agent.

 

Manager” means 1847 Partners LLC.

 

Material Adverse Effect” means, as reasonably determined by Purchasers, a material adverse effect on (i) the business, assets, operations or financial or other condition of the Issuer and the Guarantors, taken as a whole; (ii) the ability of the Issuer or the Guarantors to pay or perform the Obligations in accordance with the terms of this Agreement, any Note, and any other Transaction Document and to avoid an Event of Default, or an event which, with the giving of notice or the passage of time or both, would constitute an Event of Default, under this Agreement, any Note, and any other Transaction Document; or (iii) the rights and remedies of the Agent or any Purchaser under this Agreement, any Note, and any other Transaction Document or any related document, instrument or agreement.

 

Material Agreement” means any agreement to which the Issuer, Guarantors or any of their respective Affiliates becomes a party after the date hereof, the termination of which could reasonably be expected to result in a Material Adverse Effect.

 

New Subsidiary Debt” means Indebtedness of a Subsidiary of Issuer that becomes an Obligor after the Closing Date, which Indebtedness is used to finance the acquisition of assets or a business that will be held by such Subsidiary, as long as (w) such Indebtedness is subject to the Most Favored Lender Provisions and was incurred after each Purchaser declined in writing to exercise its right of first refusal in respect thereof pursuant to the terms of the Notes, (x) the applicable holder of such Indebtedness is not an Affiliate of Issuer or any of its Subsidiaries, (y) the applicable Holder of such Indebtedness enters into a customary subordination agreement with the Agent pursuant to which the Agent shall have a second Lien upon the assets of the applicable Obligor and otherwise in form and substance acceptable to the Agent and the Required Purchasers, and (z) no other Obligor has guaranteed such Indebtedness or granted any Liens upon its property to secure such Indebtedness.

 

- 4 -

 

Note” means the convertible secured promissory notes issued by the Issuer to each Purchaser hereunder, as may be amended, amended and restated, or modified from time to time.

 

Obligations” means and includes all loans, advances, debts, liabilities and obligations, howsoever arising, owed by the Issuer to the Agent and the Purchasers, or any of them, of every kind and description (whether or not evidenced by any note or instrument and whether or not for the payment of money), now existing or hereafter arising under or pursuant to the terms of each Note, including, all interest, fees, charges, expenses, attorneys’ fees and costs and accountants’ fees and costs chargeable to and payable by the Issuer under each Note, this Agreement, and the other Transaction Documents, in each case, whether direct or indirect, absolute or contingent, due or to become due, and whether or not arising after the commencement of a proceeding under Title 11 of the United States Code (11 U. S. C. Section 101 et seq.), as amended from time to time (including post-petition interest) and whether or not allowed or allowable as a claim in any such proceeding.

 

Permitted Indebtedness” means (i) Indebtedness to the Purchasers under the Transaction Documents, (ii) the Seller Notes, (iii) the Indebtedness listed on Schedule 5(d), (iv) promissory notes issued to sellers of businesses that are acquired by the Issuer or any Subsidiary of the Issuer after the date hereof, and (v) New Subsidiary Debt.

 

Permitted Issuances” means the issuance of (a) Common Shares or options to employees, officers or directors of the Issuer or consultants to the Issuer pursuant to any stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose for services rendered to the Issuer, provided, however, such issuance shall not exceed fifteen percent (15%) of the Common Shares issued and outstanding as of the date hereof, (b) securities upon the exercise or exchange of or conversion of any securities exercisable or exchangeable for or convertible into Common Shares issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities (other than in connection with stock splits or combinations) or to extend the term of such securities, (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Issuer or securities issued in financing transactions, the primary purpose of which is to finance acquisitions or strategic transactions approved by a majority of the disinterested directors of the Issuer, provided that such securities are issued as “restricted securities” (as defined in Rule 144) and carry no registration rights that require or permit the filing of any registration statement in connection therewith, and provided that any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries, an operating company and shall provide to the Issuer additional benefits in addition to the investment of funds, but shall not include a transaction in which the Issuer is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities, (d) Common Shares, options or convertible securities issued to in connection with the provision of goods pursuant to transactions approved by a majority of the disinterested directors of the Issuer, and (e) Common Shares, options or convertible securities issued in connection with sponsored research, collaboration, technology license, development, marketing or other similar agreements or strategic partnerships approved a majority of the disinterested directors of the Issuer.

 

- 5 -

 

Person” means and includes an individual, a partnership, a corporation (including a business trust), a joint stock company, a limited liability company, an unincorporated association, a joint venture or other entity or a governmental authority.

 

Preferred Shares” means preferred shares of the Issuer.

 

Pro Rata Obligations” means, with respect to a Purchaser, as of any date of determination, the percentage obtained by dividing (i) the outstanding principal amount owed on the Note(s) held by such Purchaser by (ii) the outstanding principal amount owed on the Notes held by all Purchasers.

 

Required Purchasers” means, at any time, Purchasers whose aggregate Pro Rata Obligations exceed 50%; provided, that at any time that Silac is a Purchaser, Required Purchasers shall include Silac.

 

Security Agreement” means that certain Security Agreement, dated of even date herewith, by and among the Issuer, the Guarantors and the Agent, for the benefit of the Agent and the Purchasers, as the same may be further amended, restated, supplemented or otherwise modified from time to time.

 

Securities” means the Notes and the Conversion Shares.

 

Securities Act” means the Securities Act of 1933, as amended.

 

Seller Notes” means, collectively, (i) that certain 6 % Amortizing Promissory Note by 1847 Asien Inc. to Joerg Christian Wilhelmsen and Susan Kay Wilhelmsen, as Trustees of the Wilhelmsen Family Trust, U/D/T dated May 1, 1992; (ii) that certain Vesting Promissory Note by 1847 Cabinet Inc. to Stephen Mallatt, Jr. and Rita Mallatt; (iii) that certain 6% Subordinated Convertible Promissory Note by 1847 Cabinet Inc. to Steven J. Parkey; and (iv) that certain 6% Subordinated Convertible Promissory Note by 1847 Cabinet Inc. to Jose D. Garcia.

 

Seller Note Subordination Agreements” means, collectively, those certain seller note subordination agreements, dated as of even date herewith, among each applicable Obligor, Agent, and each holder of a Seller Note.

 

Silac” means Silac Insurance Company.

 

Subordinated Debt” means, collectively, the debt owed by Obligors under the Seller Notes and any other debt incurred by any Obligor that is contractually subordinated to the debt owing by the Obligors to Purchasers on terms acceptable to Purchasers in their sole discretion (and identified as being such by the Issuer and Purchasers) and shall include the obligations of the Obligors arising under the Seller Notes.

 

Subordination Agreement” means, collectively, (i) the Seller Note Subordination Agreements, (ii) the Management Fee Subordination Agreements, and (iii) any other subordination agreement in form and substance acceptable to the Agent and the Required Purchasers in their sole discretion entered into by and among the Agent, one or more Obligors, and the holder of any Subordinated Debt.

 

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Subsidiary” means, as to any Person, any corporation, partnership, limited liability company or other entity of which more than fifty percent (50%) of the outstanding capital stock or other ownership interests having ordinary voting power to elect a majority of the board of directors or other managers of such corporation, partnership, limited liability company or other entity is at the time, directly or indirectly, owned by such Person (irrespective of whether, at the time, capital stock or other ownership interests of any other class or classes of such corporation or other entity shall have or might have voting power by reason of the happening of any contingency).

 

Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any governmental authority, including any interest, additions to tax or penalties applicable thereto.

 

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

 

Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, the NYSE American, the OTCQB, the OTCQX, or the OTC Pink Marketplace (or any successors to any of the foregoing).

 

Transaction Documents” means this Agreement, the Notes, the Security Agreement, the Guaranty, the Intellectual Property Security Agreement, the Management Fee Subordination Agreements, the Seller Note Subordination Agreements, and each related agreement, document and instrument executed in connection herewith or therewith from time to time.

 

Transfer Agent” means VStock Transfer, LLC, and any successor transfer agent of the Issuer.

 

Transfer Agent Instruction Letter” means the letter from the Issuer to the Transfer Agent which instructs the Transfer Agent to issue Common Shares upon conversion of any Note.

 

Capitalized terms not otherwise defined herein shall have the meaning set forth in the form of Note (as defined below) attached hereto as Exhibit A or in the applicable Notes.

 

2. The Notes.

 

(a) Issuance of the Notes. At the Closing (as defined below) the Issuer agrees to issue and sell to Purchasers, and, subject to all of the terms and conditions hereof, Purchasers agree to purchase, the Notes. The sale and purchase of the Notes shall take place at a closing (the “Closing”) to be held at such place and time as the Issuer and Agent may determine (the “Closing Date”). At the Closing, the Issuer will deliver the Notes to the Purchasers, and the Purchasers will advance the purchase price as set forth in the Notes. Each Note will be registered in the applicable Purchaser’s name in the Issuer’s records.

 

(b) Use of Proceeds. The proceeds of the sale and issuance of the Notes will be used (i) to repay the Existing Debt, (ii) to fund the Closing Date Redemption, and (iii) to fund a portion of the purchase price of the Closing Date Acquisitions.

 

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(c) Payments. The Issuer will make all cash payments due under each Note in immediately available funds by 2:00 P.M. (prevailing Eastern Time) on the date such payment is due in such manner as the Agent or the applicable Purchaser may direct in writing from time to time.

 

(d) Pro Rata Treatment. Except to the extent otherwise provided herein or in the Notes, (i) each payment or prepayment of principal of the Notes by the Issuer or any other Obligor shall be made for account of the Purchasers pro rata in accordance with their respective Pro Rata Obligations; and (ii) each payment of interest on the Notes by the Issuer or any other Obligor shall be made for account of the Purchasers pro rata in accordance with the their respective share of the interest outstanding on the Notes.

 

(e) Pro Rata Sharing. If any Purchaser shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of (x) Obligations due and payable to such Purchaser hereunder and under the other Transaction Documents at such time in excess of its ratable share (according to the proportion of (i) the amount of such Obligations due and payable to such Purchaser at such time to (ii) the aggregate amount of the Obligations due and payable to all Purchasers hereunder and under the other Transaction Documents at such time) of payments on account of the Obligations due and payable to all Purchasers hereunder and under the other Transaction Documents at such time obtained by all the Purchasers at such time, or (y) Obligations owing (but not due and payable) to such Purchaser hereunder and under the other Transaction Documents at such time in excess of its ratable share (according to the proportion of (i) the amount of such Obligations owing (but not due and payable) to such Purchaser at such time to (ii) the aggregate amount of the Obligations owing (but not due and payable) to all Purchasers hereunder and under the other Transaction Documents at such time) of payments on account of the Obligations owing (but not due and payable) to all Purchasers hereunder and under the other Transaction Documents at such time obtained by all of the Purchasers at such time, then, in each case under clauses (x) and (y) above, the Purchaser receiving such greater proportion shall (A) notify the Agent of such fact, and (B) purchase (for cash at face value) participations in the Notes of the other Purchasers, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Purchasers ratably in accordance with the aggregate amount of Obligations then due and payable to the Purchasers or owing (but not due and payable) to the Purchasers, as the case may be; provided, that: (1) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and (2) the provisions of this Section 2(e) shall not be construed to apply to any payment obtained by a Purchaser as consideration for the assignment of or sale of a participation in any of its Notes to any assignee or participant. The Obligors consent to the foregoing and agree, to the extent they may effectively do so under legal requirements, that any Purchaser acquiring a participation pursuant to the foregoing arrangements may exercise against the Obligors rights of setoff and counterclaim with respect to such participation as fully as if such Purchaser were a direct creditor of the Obligors in the amount of such participation.

 

3. Representations and Warranties of the Obligors. The Obligors, jointly and severally, represent and warrant to Agent and each Purchaser, that:

 

(a) Due Organization, Qualification, etc. Each Obligor is a corporation or limited liability company, duly organized, validly existing and in good standing under the laws of under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Each Obligor (i) has the power and authority to own, lease and operate its properties and carry on its business as now conducted and to execute, deliver and perform its obligations under this Agreement and each of the other Transaction Documents to which it is a party; and (ii) is duly qualified, licensed to do business and in good standing in each jurisdiction in which the failure to be so qualified, licensed or in good standing could reasonably be expected to have a Material Adverse Effect. Each Obligor has caused to be delivered to Agent correct and complete copies of its Organizational Documents (as defined below), which documents reflect all amendments made thereto at any time prior to the Closing Date. No Obligor is in default under or in violation of any provision of its Organizational Documents.

 

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(b) Authority. The execution, delivery and performance by each Obligor of each Transaction Document to which it is a party, and the consummation of the transactions contemplated thereby (i) are within the power of such Obligor and (ii) have been duly authorized by all necessary company action on the part of such Obligor.

 

(c) Enforceability. Each Transaction Document executed, or to be executed, by each Obligor has been, or will be, duly executed and delivered by such Obligor and constitutes a legal, valid and binding obligation of such Obligor, enforceable against such Obligor in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors’ rights generally and general principles of equity.

 

(d) Non-Contravention. The execution and delivery by each Obligor of the Transaction Documents to which it is a party and the performance and consummation of the transactions contemplated thereby do not and will not: (i) violate such Obligor’s certificate of incorporation or formation, bylaws or operating agreement (collectively, the “Organizational Documents”), as applicable, or any judgment, order, writ, decree, statute, rule or regulation applicable to such Obligor; (ii) violate any provision of, or result in the breach or the acceleration of, or entitle any other Person to accelerate (whether after the giving of notice or lapse of time or both), any mortgage, indenture, agreement, instrument or contract to which such Obligor is a party or by which it is bound; or (iii) result in the creation or imposition of any lien upon any property, asset or revenue of such Obligor or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization or approval applicable to such Obligor, its business or operations, or any of its assets or properties.

 

(e) Approvals. Except (i) the notice and/or application(s) to the Transfer Agent for the issuance and sale of the Securities and the listing of the Conversion Shares for trading on each applicable Trading Market in the time and manner required thereby, (ii) the filing of a Form D with the Commission and such filings as are required to be made under applicable state securities laws and (iii) as set forth in the Organizational Documents, no consent, approval, order or authorization of, or registration, declaration or filing with, any governmental authority or other Person (including, without limitation, the stockholders or other equity holders of any Person) is required in connection with the execution, delivery and performance of the Transaction Documents executed by each Obligor and the performance and consummation of the transactions contemplated thereby.

 

(f) Compliance with Laws. Each Obligor and each of its directors and officers have complied with and are in compliance, in all material respects, with all laws, statutes, rules, regulations, judgments, or orders which are applicable to it and its business, and within the two (2) years prior to the Closing Date and any subsequent Closing Date, no claims have been filed against any such Persons alleging any such violations and no such Person has received any written notice of any such violations.

 

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(g) Capitalization and Subsidiaries. The authorized, issued and outstanding Equity Interests of each Obligor and their Subsidiaries consist solely of the Equity Interests described on Schedule 3(g) hereto. All of such issued and outstanding Equity Interests have been duly authorized and are validly issued, fully paid and nonassessable. Except as set forth in this Agreement (including the Notes), or on Schedule 3(g), there are no options, warrants, conversion privileges, preemptive rights or other rights presently outstanding to purchase or otherwise acquire any authorized but unissued Equity Interests or other securities of any Obligor, or any other written agreements of the Issuer to issue any such securities or rights. Other than any Subsidiaries listed on Schedule 3(g) hereto, no Obligor has any Subsidiaries.

 

(h) Absence of Undisclosed Liabilities and Obligations. No Obligor has any liability or obligation, either accrued, absolute, direct, or to such Obligor’s knowledge, contingent or indirect, or otherwise, whether as principal, agent, partner, co-venturer, guarantor or in any capacity whatsoever other than (i) as set forth on the Latest Balance Sheet (as defined below), and (ii) obligations and liabilities since the date of the Latest Balance Sheet that are not individually or in the aggregate material.

 

(i) Litigation. There is no pending or, to the best knowledge of any Obligor, threatened action, suit, proceeding or investigation before any court, governmental agency or body, or arbitrator having jurisdiction over any Obligor, or any of their Affiliates, that could have a Material Adverse Effect. Neither the Issuer nor any Guarantor, nor any director or officer thereof, is or has been the subject of any action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. Except as set forth on Schedule 3(i) hereto, there is no pending, or to the best knowledge of any Obligor, basis for a threatened action, suit, proceeding or investigation before any court, governmental agency or body, or arbitrator having jurisdiction over any Obligor or any of their respective Affiliates.

 

(j) Financial Statements.

 

(i) The Obligors have delivered to the Agent copies of: (A) the unaudited balance sheet of the Obligors as of the end of August 2021 (the “Latest Balance Sheet”) and the related unaudited statement of income for the most recent 12-month period then ended for the Obligors, and (B) balance sheets and statements of income, cash flows and retained earnings of each Obligor for the two most recent fiscal years for which the same are available (collectively, the “Financial Statements”).

 

(ii) Each of the Financial Statements (A) is consistent with such Obligor’s books and records and presents fairly in all material respects the financial condition and results of operations for such Obligor as of the times and for the periods referred to therein, and (B) has been prepared in accordance with GAAP, subject to the absence of footnote disclosure.

 

(k) Stop Transfer. The Securities, when issued, will be restricted securities. The Issuer will not issue any stop transfer order or other order impeding the sale, resale or delivery of any of the Securities, except as may be required by any applicable federal or state securities laws and unless contemporaneous notice of such instruction is given to Agent.

 

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(l) No Integrated Offering. Neither the Issuer nor any of its Affiliates, nor any Person acting on their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would cause the offer of the Securities pursuant to this Agreement to be integrated with prior offerings by the Issuer for purposes of the Securities Act or any applicable stockholder approval provisions. The Issuer will not take any action or steps that would cause the offer or issuance of the Securities to be integrated with other offerings. The Issuer will not conduct any offering other than the transactions contemplated hereby that will be integrated with the offer or issuance of the Securities.

 

(m) No General Solicitation; Private Placement. Neither the Issuer, the Guarantors nor, to the Obligors’ knowledge, any Person acting on behalf of an Obligor has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of the Securities. Assuming the accuracy of the Agent’s and Purchasers’ representations and warranties set forth in Section 4(b), no registration under the Securities Act is required for the offer and sale of the Securities by the Issuer to the Purchasers under the Transaction Documents.

 

(n) Acknowledgement Regarding Purchasers’ Purchase of the Securities. Each Obligor acknowledges and agrees that each Purchaser is acting solely in the capacity of an arm’s length purchaser with respect to this Agreement, the other Transaction Documents and the transactions contemplated hereby and thereby. Each Obligor further acknowledges that each Purchaser is not acting as a financial advisor or fiduciary of any Obligor (or in any similar capacity) with respect to the Agreement, the other Transaction Documents and the transactions contemplated hereby and thereby and any advice given by each Purchaser or any of their respective representatives or agents in connection with this Agreement, the other Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to each Purchaser’s purchase of the Securities. Each Obligor further represents to each Purchaser that each Obligor’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation by such Obligor and its representatives.

 

(o) Investment Company. No Obligor is an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

 

(p) Solvency. Based on the financial condition of the Issuer as of the Closing Date (and assuming that such Closing shall have occurred), (i) the Issuer’s saleable value of its assets exceeds the amount that will be required to be paid on or in respect of the Issuer’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Issuer’s assets do not constitute unreasonably small capital to carry on its business for the current fiscal year as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Issuer, and projected capital requirements and capital availability thereof, and (iii) the current cash flow of the Issuer, together with the proceeds the Issuer would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt when such amounts are required to be paid. The Issuer will not incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt).

 

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(q) Regulatory Permits. Each Obligor possesses all material certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct its business, and no Obligor has received any notice of proceedings relating to the revocation or material modification of any such certificate, authorization or permit.

 

(r) Taxes. Each Obligor has made and filed through the date hereof (and has valid extensions for applicable period thereafter) all federal and state income and all other Tax returns, reports, and declarations required by any jurisdiction to which it is subject and (unless and only to the extent that such Obligor has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) has paid all Taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provision reasonably adequate for the payment of all Taxes for periods subsequent to the periods to which such returns, reports or declarations apply. To the knowledge of each Obligor, there are no unpaid Taxes claimed to be due by the taxing authority of any jurisdiction, and the managers and officers of each Obligor know of no basis for any such claim.

 

(s) Assets.

 

(i) Each Obligor has good and marketable title to, or a valid leasehold interest in, the properties and assets used by it or located on its premises that is material to the business of the Obligors, free and clear of all liens and encumbrances except for (i) such liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Obligor and (ii) liens for the payment of federal, state or other taxes, as to which appropriate reserves have been made therefor in accordance with GAAP and the payment of which is neither delinquent nor subject to penalties.. Each Obligor’s leased premises, material equipment and other material tangible assets are in good operating condition (normal wear and tear excepted) and are fit for use in the ordinary course of business. No Obligor owns, or has ever owned, any real property, and no Obligor is a party to any agreement or option to purchase any real property or interest therein.

 

(ii) Schedule 3(s)(ii) attached hereto (as the same may be updated from time to time) sets forth a list of all of the leases, subleases, licenses, concessions and other agreements (written or oral, and including all amendments, extensions, renewals, guaranties and other agreements with respect thereto) (collectively, the “Leases”) pursuant to which any Obligor holds a leasehold or subleasehold estate in, or is granted the right to use or occupy, any land, buildings, improvements, fixtures or other interest in real property. With respect to each Lease: (A) the Lease is legal, valid, binding, enforceable and in full force and effect; (B) none of the Obligors is, and to the knowledge of any Obligor, no other party to such Lease is, in breach or default in any material respect, and to the knowledge of each Obligor, no event has occurred which, with notice or lapse of time or both, would constitute such a material breach or default or permit termination, modification or acceleration under the Lease; (C) none of the Obligors or, to the knowledge of any Obligor, any other party, has initiated any disputes or forbearance programs with respect to the Lease; and (D) no Obligor has assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in the Lease.

 

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(t) Contracts.

 

(i) For purposes of this Section 3(t), “Company Contract” shall mean each of the following contracts, agreements or commitments to which any Obligor is a party or by which it or its assets or its business is bound or affected, whether written or oral: (A) any bonus, pension, revenue sharing, profit sharing, retirement plan or deferred compensation plan; (B) any contract relating to employment, confidentiality, non-competition and/or proprietary rights, and any agreement providing for severance or change of control benefits; (C) any agreement, indenture or other arrangement relating to Indebtedness or to mortgaging, pledging or otherwise placing a lien or encumbrance on any of its assets; (D) any contract under which such entity has advanced or loaned any other Person amounts in the aggregate exceeding $50,000; (E) any contract relating to lending or investing of funds; (F) any license or royalty agreement; (G) any guaranty of any obligation, other than endorsements made for collection; (H) any material management, consulting, advertising, marketing, promotion, technical services, advisory or other similar contract or arrangement; (I) any material agreement with any material customer or material supplier; (J) any contract or group of related contracts with the same party continuing over a period of more than six (6) months from the date or dates thereof, not terminable by Obligor on thirty (30) days or less notice without penalties, or involving more than $50,000; (K) any contract which prohibits any Obligor or any of their respective officers or employees from freely engaging in business anywhere in the world; (L) any joint venture agreement or agreement relating to the acquisition or sale of any company, business, division or other enterprise, whether in the form of stock purchase, asset acquisition or otherwise; or (M) any agreement, contract or commitment for the purchase or sale of any goods or services at rates or terms which are materially different from generally available rates or terms, including purchase or sale commitments entered into in settlement of claims or prior obligations.

 

(ii) All Company Contracts of the Obligors are listed on Schedule 3(t) hereto.

 

(iii) Each Company Contract was entered into in the ordinary course of business consistent with past practices, is in full force and effect, is valid and enforceable in accordance with its terms, and constitutes a legal and binding obligation of the applicable Obligor(s) and to the knowledge of each Obligor, each other party thereto. No Obligor has given or received, and, to the knowledge of each Obligor, no fact or circumstance exists which could reasonably be expected to give rise to, with the passage of time or the giving of notice or both, any material breach, notice of material default, termination or partial termination under any Company Contract, and there is no existing or continuing default by any Obligor or, to its knowledge, any other party in the performance or payment of any obligation under any such contract, agreement or commitment, and each Obligor is in compliance in all material respects with the provisions of each such Company Contract. No Obligor has any knowledge of any anticipated breach or expectation or intention on the part of any party to not fully perform any obligation under any such Company Contract.

 

(u) Intellectual Property.

 

(i) Schedule 3(u) hereto (as the same may be updated from time to time) contains a true, complete and accurate list of all (A) patented or registered intellectual property owned or used by any Obligor, (B) pending patent applications and applications for registrations of other intellectual property filed by any Obligor, (C) material unregistered trade names, internet domain names and company names owned or used by any Obligor, and (D) material unregistered trademarks, service marks, and computer software owned or used by any Obligor. Schedule 3(u) also contains a true, complete and accurate list of all licenses and other rights granted by any Obligor to any third party with respect to any intellectual property and all licenses and other rights granted by any third party to any Obligor with respect to any intellectual property (other than off-the-shelf software packages), in each case identifying the subject intellectual property.

 

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(ii) No Obligor is using, or reasonably anticipates it will need to use in the future, any intellectual property that is owned by any Affiliate of any Obligor, any member of any Obligor or any Affiliate of any member of an Obligor.

 

(iii) No Obligor has any proprietary or confidential information that is owned or claimed by third parties and that is not rightfully in the possession of an Obligor, and each Obligor has complied in all material respects with all contracts governing the disclosure and use of proprietary or confidential information.

 

(iv) No Obligor has received a notice (written or otherwise) that any right in any intellectual property has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2) years from the date of this Agreement.

 

(v) Affiliate Transactions. Except as set forth in Schedule 3(v) attached hereto, there is no Indebtedness owed to any Obligor by any Affiliate of an Obligor, or by any Obligor to any Affiliate. Except as set forth in Schedule 3(v) and except for employment arrangements made in the ordinary course of business, no member of any Obligor, nor any Affiliate of any member of an Obligor, is a party to any agreement, contract, commitment, arrangement or transaction with Issuer or the Guarantors or any of their Affiliates which (i) pertains to the business or has any interest in any property, real or personal or mixed, tangible or intangible, used in or pertaining to the business or (ii) benefits, directly or indirectly, any such member or its Affiliates.

 

(w) Closing Date Acquisitions. The Closing Date Acquisition Documents delivered to Agent are true, complete, and correct copies of such agreements, and the Obligors have delivered to Agent true, complete, and correct copies of all material amendments, supplements, and modifications thereto. As of the Closing Date, the Closing Date Acquisitions have been consummated in accordance with the terms of the Closing Date Acquisition Documents.

  

(x) Seller Notes. The Seller Notes delivered to Agent are true, complete, and correct copies of such Seller Notes.

 

(y) Disclosure. All information furnished to the Agent, Purchasers or the foregoing’s counsel by or on behalf of the Obligors in connection with the transactions contemplated hereby or thereby, when taken as a whole, does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements herein or therein not misleading. There is no fact of which any Obligor is aware that has not been disclosed to the Agent or the Purchasers and that is or could reasonably be expected to have a Material Adverse Effect.

 

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4. Representations and Warranties of Purchasers. The Agent and Purchasers, as applicable, represent and warrant to each Obligor upon the acquisition of each Note as follows:

 

(a) Binding Obligation. The Agent and each Purchaser has full legal capacity, power and authority to execute and deliver this Agreement and to perform the Agent’s and Purchasers’ obligations hereunder. Each of this Agreement and each other Transaction Document to which the Agent or each Purchaser is a party is a valid and binding obligation of the Agent or Purchaser, as applicable, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors’ rights generally and general principles of equity.

 

(b) Securities Law Compliance. The Purchasers have been advised that the Securities have not been registered under the Securities Act, or any state securities laws and, therefore, cannot be resold unless they are registered under the Securities Act and applicable state securities laws or unless an exemption from such registration requirements is available. The Purchasers are aware that the Issuer is under no obligation to effect any such registration with respect to the Securities. The Purchasers are purchasing the Securities for the Purchasers’ own account for investment, not as a nominee or agent, and not with a view to, or for resale in connection with, the distribution thereof (this representation and warranty not limiting such Purchasers’ right to sell the Securities in compliance with applicable federal and state securities laws). The Purchasers have such knowledge and experience in financial and business matters that the Purchasers are capable of evaluating the merits and risks of such investment, are able to incur a complete loss of such investment and are able to bear the economic risk of such investment for an indefinite period of time. Each Purchaser is an “accredited investor” as such term is defined in Rule 501(a) of Regulation D under the Securities Act.

 

5. Covenants of the Obligors. Each Obligor, jointly and severally, hereby covenants that from and after the date of this Agreement and so long as any of the Obligations are outstanding:

 

(a) Use of Proceeds. The Issuer will use the proceeds of the sale of the Notes solely (i) to repay the Existing Debt, (ii) to fund the Closing Date Redemption, and (iii) to pay a portion of the purchase price for the Closing Date Acquisitions. No portion of the proceeds of the sale of the Notes shall be used by the Issuer to purchase or carry “margin stock”, as such term is defined in Regulation U of the Board of Governors of the Federal Reserve, or otherwise in violation of such Regulation U or other applicable law. The Obligors will supply to the Agent such additional information and documents that the Agent may reasonably request with respect to the use of proceeds and will permit the Agent to have access to any and all records and information and personnel as the Agent deems necessary to verify such use of proceeds.

 

(b) Transfers; Sale of Assets, Etc. No Obligor will, nor will it permit any Subsidiary to, without the Agent’s written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business, or wind up, liquidate or dissolve (including any declaration of bankruptcy) or sell or transfer any assets outside of the ordinary course of business to (i) any Person who is not an Obligor or (ii) is party to any New Subsidiary Debt.

 

(c) Organizational Documents. No Obligor will amend, modify or restate, or permit the amendment, modification or restatement of, its Organizational Documents.

  

(d) Indebtedness. No Obligor will, nor will it permit any of its Subsidiaries to, create, incur, assume, or suffer to exist any Indebtedness, except Permitted Indebtedness.

 

(e) Liens. No Obligor shall, without the prior written consent of Agent, incur, create, assume or suffer to exist any Lien on any of its property of assets whether now owned or hereinafter acquired except for (i) Liens in connection with the Transaction Documents, (ii) Liens for Taxes not yet due or which are being contested in good faith by appropriate proceedings; (iii) non-consensual Liens arising by operation of law, arising in the ordinary course of business, and for amounts which are not overdue for a period of more than 30 days or that are being contested in good faith by appropriate proceedings; (iv) Liens on property securing indebtedness incurred by the Obligors to provide funds for all or a portion of the cost of acquiring, constructing, altering, expanding, improving or repairing such property; (v) Liens securing purchase money Indebtedness incurred in connection with the acquisition of capital assets by the Obligors in the ordinary course of business, including, without limitation, those Liens listed on Schedule 5(e) (“Purchase Money Liens”), and (vi) Liens on property of Obligors incurred using the proceeds of New Subsidiary Debt securing such New Subsidiary Debt.

 

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(f) Investments; New Subsidiaries. In the event any Obligor forms or acquires any other Subsidiary after the date hereof, such Obligor shall promptly upon such formation or acquisition cause such newly formed or acquired Subsidiary to execute a Guaranty Agreement, Security Agreement and such Transaction Documents as the Agent may then require, and the Obligors shall also deliver to the Agent, or cause such Subsidiary to deliver to the Agent, at the Obligors’ cost and expense, such other instruments, documents, certificates, and opinions reasonably required by the Agent in connection therewith; provided, however, that with respect to any Obligors acquired using the proceeds of New Subsidiary Debt, the Agent’s Lien will be a second priority Lien and the Agent’s Lien and other rights in such Collateral will be subordinate to the Lien and rights of the lender providing the New Subsidiary Debt.

 

(g) Affiliate Transactions. No Obligor will, nor will it permit any of its Subsidiaries to lend money, give credit, make advances to or enter into any transaction with any officers, directors, employees, Subsidiaries and Affiliates of any Obligor, except (i) transactions between or among Obligors, including, without limitation, intercompany indebtedness, (ii) the Management Agreements, and (iii) transactions in the ordinary course of business on terms no less favorable to the applicable Obligor than those that could be obtained in an arm’s length transaction with an unrelated third party.

 

(h) Restricted Payments. No Obligor will, nor will it permit its Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly, any dividend or distribution (including a distribution of cash or other property) on any class of its membership units or other equity interests, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, retirement, defeasance or other acquisition of, any class of its membership units or other equity interests or Indebtedness subordinated to the Obligations or any guarantee thereof or any options, warrants, or other rights to purchase such membership units or other equity interests or such Indebtedness (specifically including any payment or reimbursement obligation in connection with any purchase or buy-in right with respect thereto), whether now or hereafter outstanding (each, a “Restricted Payment”); provided, that the Issuer may (i) make the Closing Date Redemption and (ii) other Restricted Payments so long as (A) the Issuer shall have funded the Minimum Interest Reserve in unrestricted cash to the Interest Reserve Account and (B) the Obligors are in pro forma compliance with Section 5(l)(ii) hereof measured as of the most recent month end after giving effect to the Restricted Payment.

 

(i) Interest Reserve Account. Issuer shall establish and maintain the Interest Reserve Account and shall not make payments out of such Interest Reserve Account, other than payments of Interest under the Notes.

 

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(j) Notice of Events of Default. Each Obligor shall immediately provide written notice to the Agent of the occurrence of any Event of Default, or any event or condition which, with the passage of time or giving of notice or both, would constitute an Event of Default.

 

(k) Reporting. The Obligors shall cause to be prepared and delivered the following to the Agent:

 

(i) As soon as available, but in any event within one hundred eighty (180) days after the end of Issuer’s fiscal year, audited financial statements of each Obligor prepared in accordance with GAAP, together with an unqualified opinion on such financial statements of a nationally recognized or other independent public accounting firm reasonably acceptable to Agent.

 

(ii) As soon as available and in any event no later than thirty (30) days after the end of each fiscal quarter of the Obligors, unaudited financial statements for each Obligor (which shall be prepared in accordance with GAAP), including a balance sheet and statements of income and cash flows showing the cash distributed in such fiscal quarter.

 

In addition, each Obligor shall, promptly following the Agent’s request, provide the Agent with such records, reports and other information that the Agent may reasonably request from time to time.

 

It is acknowledged and agreed that: (i) the filing of Issuer’s Form 10-K with the Securities and Exchange Commission within the time required under the rules and regulations of the Securities and Exchange Commission after the end of each fiscal year of Issuer; and (ii) the filing of Issuer’s Form 10-Q with the Securities and Exchange Commission within the time required under the rules and regulations of the Securities and Exchange Commission after the end of each of the first three fiscal quarters of Issuer, shall be deemed to satisfy the requirements of clauses (i) and (ii) above.

 

(l) Insurance. Each Obligor shall keep its business and the Collateral insured for risks and in amounts standard for companies in such Obligor’s industry and location, and as Agent may reasonably request. Insurance policies shall be in a form, with companies, and in amounts that are reasonably satisfactory to Agent. All property policies shall have a lender’s loss payable endorsement showing Agent, in its capacity as agent of the Purchasers, as an additional loss payee and all liability policies shall show Agent, in its capacity as agent of the Purchasers, as an additional insured and all policies shall provide that the insurer must give Agent at least thirty (30) days’ notice (or ten (10) days in the case of non-payment of premiums) before canceling its policy. At Agent’s request, each Obligor shall deliver certified copies of policies and evidence of all premium payments. If any Obligor fails to obtain insurance as required hereunder or to pay any amount or furnish any required proof of payment to third persons, Agent may make all or part of such payment or obtain such insurance policies required hereunder, and take any action under the policies which the Agent reasonably deems prudent. On or prior to the Closing Date and prior to each policy renewal, each Obligor shall furnish to Agent certificates of insurance or other evidence satisfactory to Agent that insurance complying with all of the above requirements is in effect.

 

(m) Certain Financial Covenants.

 

(i) Maximum Debt to EBITDA. Issuer and its Subsidiaries shall not permit the Leverage Ratio for any twelve fiscal month period set forth in the table below to be less than the ratio set forth opposite thereto

 

Calendar Quarter Ending Maximum Leverage Ratio
December 31, 2021 5.00:1.00
March 31, 2022 through December 31, 2022 4.75:1.00
March 31, 2023 and thereafter 4.50:1.00

 

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(ii) Fixed Charge Coverage Ratio. Issuer and its Subsidiaries shall not permit the Fixed Charge Coverage Ratio for any twelve fiscal month period set forth in the table below to be less than the ratio set forth opposite thereto.

 

Calendar Quarter Ending Minimum Fixed Charge Coverage Ratio
December 31, 2021 1.50:1.00
March 31, 2022 through December 31, 2022 1.55:1.00
March 31, 2023 and thereafter 1.60:1.00

 

(n) Tax Returns. Obligors shall timely file all Tax returns (or any extensions related thereto) and timely pay all foreign, federal, state and local Taxes owed by such Obligors, and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation plans of each Obligor in accordance with their terms if the failure to fund any such plans could reasonably be expected to result in a Material Adverse Effect.

 

(o) Post-Closing Covenants. Not later than 30 days after the Closing Date (or such later date as Agent shall agree to in writing), the Obligors shall have delivered to the Agent:

 

(i) endorsements satisfactory to the Agent with respect to each Obligor’s liability insurance and property insurance policies, which shall name Agent as lender’s loss payable and additional insured, as applicable, and provide for notice of cancellation and/or additional insured clauses or endorsements in favor of Agent as Agent shall request;

 

(ii) landlord consents and waivers on such real property leased by the Obligors as Agent shall request, in each case in form and substance reasonably satisfactory to the Agent;

 

(iii) account control agreements with respect to each Obligor’s operating and investment accounts as Agent shall request, in form and substance reasonably satisfactory to the Agent;

 

(iv) original stock certificates and promissory notes, together with duly executed transfer powers, with respect to all stock and other Equity Interest certificates and promissory notes included in the Collateral; and

 

(v) evidence that Obligors have caused each of (x) UCC No. U200028512523, filed by Wells Fargo Commercial Distribution Finance, LLC against Asien’s Appliance, Inc. with the State of California, and (y) UCC No. U210085409433, filed by Brandsource Financial, LLC against Asien’s Appliance, Inc. with the State of California, to either be terminated or amended to limit the collateral described therein to inventory financed through the applicable floor plan program, proceeds thereof, and related assets.

 

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6. Other Agreements of the Parties.

 

(a) Transfer Restrictions.

 

(i) The Purchasers agree that the Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities other than pursuant to, and in compliance with the requirements of, the Securities Act or pursuant to an available exemption from the registration requirements of the Securities Act, and in compliance with any applicable state securities laws, to each Purchaser or to an Affiliate of such Purchaser or in connection with a pledge as contemplated in Section 6(a)(ii), the Company may require the transferor thereof to provide to the Issuer an opinion of counsel selected by the transferor and reasonably acceptable to the Issuer, the form and substance of which opinion shall be reasonably satisfactory to the Issuer, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act.

 

(ii) The Purchasers agree to the imprinting, so long as is required by this Section 6(a)(ii), of a legend on any of the Securities in the following form or a substantially similar form as may be required:

 

[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE] [NOR THE SECURITIES FOR WHICH THIS SECURITY MAY BE EXERCISED] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY [AND THE SECURITIES ISSUABLE UPON [CONVERSION/EXERCISE] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

The Issuer acknowledges and agrees that each Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) of Regulation D under the Securities Act and who agrees to be bound by the provisions of this Agreement and, if required under the terms of such arrangement, each Purchaser may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Issuer and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At each Purchaser’s expense, as applicable, the Issuer will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities, including, if the Securities are registered under a registration statement, the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of selling stockholders thereunder.

 

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(iii) Certificates evidencing the Securities shall not contain any legend (including the legend set forth in Section 6(a)(ii) hereof): (i) while a registration statement covering the resale of such Securities is effective under the Securities Act, (ii) following any sale of such Securities pursuant to Rule 144, (iii) if such Securities are eligible for sale under Rule 144, without the requirement for the Issuer to be in compliance with the current public information required under Rule 144 as to such Securities and without volume or manner-of-sale restrictions, or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Issuer shall cause its counsel to issue a legal opinion to the Transfer Agent promptly after the events described in clauses (i)-(iv) in the immediately preceding sentence if required by the Transfer Agent to effect the removal of the legend hereunder. The Issuer agrees that following such time as such legend is no longer required under this Section 6(a)(iii), it will, no later than two days following the delivery by a Purchaser to the Issuer or the Transfer Agent of a certificate representing Securities issued with a restrictive legend (such second Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate representing such Securities that is free from all restrictive and other legends. The Issuer may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 6.

 

(iv) If by the Legend Removal Date, the Issuer shall fail to cause to be issued and delivered to a Purchaser a certificate representing such Securities that is free from all restrictive and other legends, and if on or after such Legend Removal Date such Purchaser purchases (in an open market transaction or otherwise) Common Shares to deliver in satisfaction of a sale by such Purchaser of Common Shares that such Purchaser anticipated receiving from the Issuer without any restrictive legend (the “Covering Shares”), then the Issuer shall, (1) within two Trading Days after such Purchaser’s request, pay cash to such Purchaser in an amount equal to the excess (if any) of such Purchaser’s total purchase price (including brokerage commissions, if any) for the Covering Shares, over the product of (A) the number of Covering Shares, times (B) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including brokerage commissions, if any) and (2) deliver to such Purchaser the Securities that would have been issued had the Issuer timely complied with its delivery obligations hereunder.

  

(b) Acknowledgment of Dilution. The Issuer acknowledges that the issuance of the Securities may result in dilution of the outstanding Common Shares, which dilution may be substantial under certain market conditions. The Issuer further acknowledges that its obligations under the Transaction Documents, including, without limitation, its obligation to issue the Conversion Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Issuer may have against a Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Issuer.

 

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(c) Furnishing of Information; Public Information. Until the date that the Purchasers own no Securities, the Issuer agrees to timely file (or obtain extensions in respect thereof and file within the applicable grace period) after the date hereof all reports required to be filed by the Issuer on the date hereof pursuant to the Securities Act even if the Issuer is not then subject to the reporting requirements of the Securities Act.

 

(d) Integration. The Issuer shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any trading market such that it would require shareholder approval prior to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction.

 

(e) Conversion and Exercise Procedures. The form of Notice of Conversion included in each Note sets forth the totality of the procedures required of a Purchaser in order to convert such Note. Without limiting the preceding sentence, no ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required in order to convert any Note. No additional legal opinion, other information or instructions shall be required of a Purchaser to convert any Note. The Issuer shall honor conversions of the Notes and shall deliver Conversion Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents.

 

(f) Securities Laws Disclosure; Publicity. The Issuer shall (a) at or before 9:00 a.m. (New York City time) on the Trading Day immediately following the date hereof, issue a press release disclosing the material terms of the transactions contemplated hereby, and (b) file a Current Report on Form 8-K, including the Transaction Documents as exhibits thereto, with the Commission within the time required by the Exchange Act. Thereafter, the Issuer shall timely file any filings and notices required by the SEC or applicable law with respect to the transactions contemplated hereby and provide copies thereof to the Agent promptly after filing. From and after the issuance of such press release, the Issuer represents to the Agent that it shall have publicly disclosed all material, non-public information delivered to the Agent by the Issuer or any of its Subsidiaries, or any of their respective officers, directors, employees or agents in connection with the transactions contemplated by the Transaction Documents. The Issuer and Agent shall consult with each other in issuing any other press releases with respect to the transactions contemplated hereby, and neither the Issuer, Agent nor Purchasers shall issue any such press release nor otherwise make any such public statement without the prior consent of the Issuer, with respect to any press release of Agent or Purchasers, or without the prior consent of Agent, with respect to any press release of the Issuer, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Issuer shall not publicly disclose the name of Agent or Purchasers, or include the name of Agent or Purchasers in any filing with the Commission or any regulatory agency or trading market, without the prior written consent of Agent or each Purchaser, as applicable, except: (a) as required by federal securities law in connection with the filing of final Transaction Documents with the Commission and (b) to the extent such disclosure is required by law or trading market regulations, in which case the Issuer shall provide the Agent or each Purchaser, as applicable, with prior notice of such disclosure required under this clause (b). Neither the Issuer nor any Subsidiary shall, nor shall any of their respective officers, directors, employees and agents, provide the Agent or Purchasers with any material nonpublic information regarding the Issuer or any Subsidiary from and after the issuance of the above referenced press release without the express written consent of the Agent or Purchasers, as applicable.

 

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(g) Additional Secured Debt Facilities. The Issuer agrees that, as long as any Note is outstanding, the terms of any additional secured indebtedness entered into by any Obligor with any third party, shall be not materially more favorable (taken as a whole) to the lenders providing such Indebtedness than such terms in this Agreement (except for any materially more favorable terms that are added for the benefit of the Purchasers under this Agreement).

 

7. Conditions to the Effectiveness of this Agreement and Closing. This Agreement, and the Purchasers’ obligations at the Closing are subject to the fulfillment of all of the following conditions, any of which may be waived in whole or in part by the Agent in its sole discretion:

 

(a) Representations and Warranties. The representations and warranties made by the Obligors in Section 3 hereof shall be true and correct on the Closing Date.

 

(b) Certain Transaction Documents. The Agent shall have received executed copies of this Agreement, the Notes, and the other Transaction Documents, including without limitation the following:

 

(i) the Guaranty Agreement;

 

(ii) the Security Agreement;

 

(iii) each Subordination Agreement; and

 

(iv) such other documents, instruments, and agreements as the Agent or Purchasers may reasonably request.

 

(c) Collateral Matters. The Agent shall have received (1) such UCC financing statements and other applicable documents under the laws of all necessary or appropriate jurisdictions with respect to the perfection of the Liens granted under the Transaction Documents, together with (2) copies of favorable UCC, Tax, judgment and fixture lien search reports in all necessary or appropriate jurisdictions and under all legal and trade names of the Obligors, as requested by Agent, indicating that there are no Liens on any of the Collateral other than Permitted Liens or Liens which, in connection with the funding hereunder, will be terminated or released, as applicable, (3) the Information Certificate, duly completed and executed by the Obligors, and (4) an intellectual property security agreement with respect to all intellectual property assets of the Obligors registered with the U.S. Patent and Trademark Office or U.S. Copyright office.

 

(d) Secretary’s Certificates. The Agent shall have received a certificate of the Secretary, Assistant Secretary or other officer of each Obligor, attaching and certifying copies of its Organizational Documents, certificates of good standing or existence, as may be available from the Secretary of State of the jurisdiction of organization of such Obligor and each other jurisdiction specified therein, and of the resolutions of its board of directors, managers, members and/or other equivalent governing body, as applicable, or comparable organizational documents and authorizations, authorizing the execution, delivery and performance of the Transaction Documents to which it is a party and certifying the name, title and true signature of each officer of such Obligor executing the Transaction Documents to which it is a party.

 

(e) Payoff Letters. The Agent shall have received such payoff letters, UCC termination statements, intellectual property releases, and such other collateral release documents as may be necessary to evidence the release of any Liens in favor of the holders of the Existing Debt on any property of any Obligor.

 

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(f) Opinion. The Agent shall have received an opinion letter, in form and substance acceptable to Agent, from counsel to the Issuer to the effect that (i) the Issuer’s offer, sale and issuance of the Securities, in the manner contemplated by this Agreement, is exempt from the registration requirements of the Securities Act and (ii) as to the due authorization and enforceability of this Agreement and the other Transaction Documents.

 

(g) Insurance. Certificates of insurance and endorsements naming Agent, in its capacity as agent to the Purchasers, as loss payee and additional insured on each Obligor’s property and liability policies as may be requested by Agent.

 

(h) Governmental Approvals and Filings. Except for any notices required or permitted to be filed after the Closing Date with certain federal and state securities commissions, the Obligors shall have obtained all governmental approvals required in connection with the Securities.

 

(i) Legal Requirements. At the Closing, the sale and issuance by the Issuer, and the purchase by the Purchasers, of the Securities shall be legally permitted by all laws and regulations to which the Purchasers or any of the Obligors are subject.

 

(j) Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents and instruments incident to such transactions shall be reasonably satisfactory in form and substance to the Agent and Purchasers.

 

(k) Closing Date Acquisitions. The Agent shall be satisfied with the terms of the Closing Date Acquisitions and that the Closing Date Acquisitions shall be consummated on the Closing Date, concurrent with the funding hereunder.

 

(l) Purchasers’ Expenses. Payment of the expenses to the Agent, for the benefit of the Purchasers, in connection with the Transaction Documents, subject to a cap of $200,000, for the expenses incurred prior to the Closing Date.

 

(m) Additional Conditions. The Agent shall have received lien searches, evidence of perfection of its security interest, evidence of the Obligors’ respective existence and authorization of the transactions contemplated hereby, and such other agreements, documents and instruments as it may reasonably require.

 

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8. Conditions to Obligations of the Issuer. The Issuer’s obligation to issue and sell the Notes at Closing is subject to the fulfillment, on or prior to the Closing Date, of the following conditions, any of which may be waived in whole or in part by the Issuer:

 

(a) Representations and Warranties. The representations and warranties made by the Agent and Purchasers, as applicable, in Section 4 hereof shall be true and correct.

 

(b) Governmental Approvals and Filings. Except for any notices required or permitted to be filed after the Closing Date with certain federal and state securities commissions, the Issuer shall have obtained all governmental approvals required in connection with the lawful sale and issuance of the Securities.

 

(c) Legal Requirements. At each Closing, the sale and issuance by the Issuer, and the purchase by the Purchasers, of the Securities, shall be legally permitted by all laws and regulations to which the Purchasers or the Issuer are subject.

 

(d) Purchase Price. The Purchasers shall have delivered to Issuer the Purchase Price in respect of the Notes being purchased.

  

(e) Transaction Documents. The Issuer shall have received executed copies of this Agreement and the other Transaction Documents.

 

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9. Agent

 

(a) Each Purchaser hereby designates and appoints Leonite Capital as its agent under this Agreement and the other Transaction Documents and each Purchaser hereby irrevocably authorizes the Agent to execute and deliver each of the other Transaction Documents on its behalf and to take such other action on its behalf under the provisions of this Agreement and each other Transaction Document and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Agreement or any other Transaction Document, together with such powers as are reasonably incidental thereto. The Agent agrees to act as agent for and on behalf of the Purchasers on the conditions contained in this Section 9. Any provision to the contrary contained elsewhere in this Agreement or in any other Transaction Document notwithstanding, the Agent shall not have any duties or responsibilities, except those expressly set forth herein or in the other Transaction Documents, nor shall the Agent have or be deemed to have any fiduciary relationship with any Purchaser, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Transaction Document or otherwise exist against the Agent. Without limiting the generality of the foregoing, the use of the term “agent” in this Agreement or the other Transaction Documents with reference to the Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom and is intended to create or reflect only a representative relationship between independent contracting parties. Each Purchaser hereby further authorizes the Agent to act as the secured party under each of the Transaction Documents that create a Lien on any item of Collateral. Except as expressly otherwise provided in this Agreement, the Agent shall have and may use its sole discretion with respect to exercising or refraining from exercising any discretionary rights or taking or refraining from taking any actions that the Agent expressly is entitled to take or assert under or pursuant to this Agreement and the other Transaction Documents. Without limiting the generality of the foregoing, or of any other provision of the Transaction Documents that provides rights or powers to the Agent, Purchasers agree that the Agent shall have the right to exercise the following powers as long as this Agreement remains in effect: (a) maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Obligations, the Collateral, the collections of the Obligors and their Subsidiaries, and related matters, (b) execute or file any and all financing or similar statements or notices, amendments, renewals, supplements, documents, instruments, proofs of claim, notices and other written agreements with respect to the Transaction Documents, (c) exclusively receive, apply, and distribute the collections of the Obligors and their Subsidiaries as provided in the Transaction Documents, (d) open and maintain such bank accounts and cash management arrangements as the Agent deems necessary and appropriate in accordance with the Transaction Documents for the foregoing purposes with respect to the Collateral and the collections of the Obligors and their Subsidiaries, (e) perform, exercise, and enforce any and all other rights and remedies of the Purchasers with respect to the Obligors, Guarantors, the Obligations, the Collateral, the collections of the Obligors and their Subsidiaries, or otherwise related to any of same as provided in the Transaction Documents, and (f) incur and pay such expenses and other amounts as the Agent may deem necessary or appropriate for the performance and fulfillment of its functions and powers pursuant to the Transaction Documents.

 

(b) The Agent may execute any of its duties under this Agreement or any other Transaction Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects as long as such selection was made without gross negligence or willful misconduct.

 

(c) None of the Agent-Related Persons shall (a) be liable to the Purchasers for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Transaction Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct as determined by a final non-appealable judgment of a court of competent jurisdiction), or (b) be responsible in any manner to any of the Purchasers for any recital, statement, representation or warranty made by any Obligor, any Subsidiary or Affiliate thereof, any other Person party to a Transaction Document, or any officer or director thereof, contained in this Agreement or in any other Transaction Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Transaction Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Transaction Document, or for any failure of any Obligor or Subsidiary thereof or any other party to any Transaction Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Purchasers to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Transaction Document, or to inspect the books and records or properties of the Obligors and their respective Subsidiaries.

 

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(d) The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, telefacsimile or other electronic method of transmission, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent, or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to any Obligor or counsel to any Purchaser), independent accountants and other experts selected by the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Transaction Document unless the Agent shall first receive such advice or concurrence of the Purchasers as it deems appropriate and until such instructions are received, the Agent shall act, or refrain from acting, as it deems advisable. If the Agent so requests, it shall first be indemnified to its reasonable satisfaction by the Purchasers against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Transaction Document in accordance with a request or consent of the Required Purchasers and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Purchasers.

 

(e) The Agent shall not be deemed to have knowledge or notice of the occurrence of any default or Event of Default, unless the Agent shall have received written notice from a Purchaser or an Obligor referring to this Agreement, describing such default or Event of Default, and stating that such notice is a “notice of default” (in which case the Agent shall promptly give notice of such receipt to all Purchasers). Subject to Section 9(d), the Agent shall take such action with respect to such default or Event of Default as may be requested by the Required Purchasers in accordance with Section 10(m); provided, however, that unless and until the Agent has received any such request, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such default or Event of Default as it shall deem advisable.

 

(f) Each Purchaser acknowledges that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by the Agent hereinafter taken, including any review of the affairs of any Obligor or any Subsidiary or Affiliate thereof, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Purchaser. Each Purchaser represents to the Agent that it has, independently and without reliance upon any Agent-Related Person and based on such due diligence, documents and information as it has deemed appropriate, made its own appraisal of, and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Obligors or any other Person party to a Transaction Document, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Obligors. Each Purchaser also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Transaction Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Obligors or any other Person party to a Transaction Document. Except for notices, reports, and other documents expressly herein required to be furnished to the Purchasers by the Agent, the Agent shall not have any duty or responsibility to provide any Purchaser with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of the Obligors or any other Person party to a Transaction Document that may come into the possession of any of the Agent-Related Persons. Each Purchaser acknowledges that the Agent does not have any duty or responsibility, either initially or on a continuing basis (except to the extent, if any, that is expressly specified herein) to provide such Purchaser with any credit or other information with respect to any Obligor, their respective Affiliates or any of their respective business, legal, financial or other affairs, and irrespective of whether such information came in to the Agent’s or its Affiliates’ or representatives’ possession before or after the date on which such Purchaser became a party to this Agreement.

 

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(g) The Agent may incur and pay expenses and other amounts to the extent the Agent reasonably deems necessary or appropriate for the performance and fulfillment of its functions, powers, and obligations pursuant to the Transaction Documents, including court costs, attorneys’ fees and expenses, fees and expenses of financial accountants, advisors, consultants, and appraisers, costs of collection by outside collection agencies, auctioneer fees and expenses, and costs of security guards or insurance premiums paid to maintain the Collateral, whether or not the Obligors or other Obligor is obligated to reimburse the Agent or Purchasers for such expenses pursuant to this Agreement or otherwise. The Agent is authorized and directed to deduct and retain sufficient amounts from the collections of the Obligors and its Subsidiaries received by the Agent to reimburse the Agent for such out-of-pocket costs and expenses prior to the distribution of any amounts to Purchasers. In the event the Agent is not reimbursed for such costs and expenses by the Obligors, each Purchaser hereby agrees that it is and shall be obligated to pay to the Agent such Purchaser’s ratable share thereof. Whether or not the transactions contemplated hereby are consummated, each of the Purchasers, on a ratable basis, shall indemnify and defend the Agent-Related Persons (to the extent not reimbursed by or on behalf of the Obligors and without limiting the obligation of Obligors to do so), from and against any and all claims and liabilities. Without limitation of the foregoing, each Purchaser shall reimburse the Agent upon demand for such Purchaser’s ratable share of any costs or out of pocket expenses (including attorneys, accountants, advisors, and consultants fees and expenses) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment, or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement or any other Transaction Document, to the extent that the Agent is not reimbursed for such expenses by or on behalf of the Obligors. The undertaking in this Section 9(g) shall survive the payment of all Obligations hereunder and the resignation or replacement of the Agent.

 

(h) Leonite Capital and its Affiliates may make loans to, acquire Equity Interests in, and generally engage in any kind of banking, trust, financial advisory, underwriting, or other business with Obligors and their Subsidiaries and Affiliates and any other Person party to any Transaction Document as though Leonite Capital were not the Agent hereunder, and, in each case, without notice to or consent of the other members of the Purchasers. The other Purchasers acknowledge that, pursuant to such activities, Leonite Capital or its Affiliates may receive information regarding Obligors or their Affiliates or any other Person party to any Transaction Documents that is subject to confidentiality obligations in favor of Obligors or such other Person and that prohibit the disclosure of such information to the Purchasers, and the Purchasers acknowledge that, in such circumstances (and in the absence of a waiver of such confidentiality obligations, which waiver the Agent will use its reasonable best efforts to obtain), the Agent shall not be under any obligation to provide such information to them. The terms “Purchaser” and “Purchasers” include Leonite Capital in its individual capacity.

 

(i) The Agent may resign as the Agent upon 30 days prior written notice to the Purchasers (unless such notice is waived by the Required Purchasers) and Obligors (unless such notice is waived by Obligors). If the Agent resigns under this Agreement, the Required Purchasers shall be entitled (without the consent of Obligors or any other Person) to appoint a successor Agent for the Purchasers. If no successor Agent is appointed prior to the effective date of the resignation of the Agent, the Agent may appoint, after consulting with the Purchasers, a successor Agent. Upon the acceptance of its appointment as successor Agent hereunder, such successor Agent shall succeed to all the rights, powers, and duties of the retiring Agent and the term “Agent” shall mean such successor Agent and the retiring Agent’s appointment, powers, and duties as the Agent shall be terminated. After any retiring Agent’s resignation hereunder as the Agent, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement. If no successor Agent has accepted appointment as the Agent by the date which is 30 days following a retiring Agent’s notice of resignation, the retiring Agent’s resignation shall nevertheless thereupon become effective and the Purchasers shall perform all of the duties of the Agent hereunder until such time, if any, as the Purchasers appoint a successor Agent as provided for above.

 

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(j) Any Purchaser and its respective Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire Equity Interests in and generally engage in any kind of banking, trust, financial advisory, underwriting, or other business with Obligors and their Subsidiaries and Affiliates and any other Person party to any Transaction Documents as though such Purchaser were not a Purchaser hereunder without notice to or consent of the other Purchasers. The other members of the Purchasers acknowledge that, pursuant to such activities, such Purchaser and its respective Affiliates may receive information regarding Obligors or their Affiliates or any other Person party to any Transaction Documents that is subject to confidentiality obligations in favor of Obligors or such other Person and that prohibit the disclosure of such information to the Purchasers, and the Purchasers acknowledge that, in such circumstances (and in the absence of a waiver of such confidentiality obligations, which waiver such Purchaser will use its reasonable best efforts to obtain), such Purchaser shall not be under any obligation to provide such information to them.

 

(k) The Purchasers hereby irrevocably authorize the Agent to release any Lien on any Collateral (i) upon the payment and satisfaction in full by the Obligors of all of the Obligations, (ii) constituting property being sold or disposed of if a release is required or desirable in connection therewith and if the Obligors certify to the Agent that the sale or disposition is permitted under the Transaction Documents (and the Agent may rely conclusively on any such certificate, without further inquiry), (iii) constituting property in which no Obligor owned any interest at the time the Agent’s Lien was granted nor at any time thereafter, or (iv) constituting property leased to a Obligor under a lease that has expired or is terminated in a transaction permitted under this Agreement. The Obligors and the Purchasers hereby irrevocably authorize the Agent, based upon the instruction of the Required Purchasers, to credit bid and purchase (either directly or through one or more acquisition vehicles) all or any portion of the Collateral at any sale thereof conducted by the Agent under the provisions of the UCC, including pursuant to Sections 9-610 or 9-620 of the UCC, at any sale thereof conducted under the provisions of the Bankruptcy Code, including Section 363 of the Bankruptcy Code, or at any sale or foreclosure conducted by Agent (whether judicial action or otherwise) in accordance with legal requirements. Except as provided above, the Agent will not execute and deliver a release of any Lien on any Collateral without the prior written authorization of (y) if the release is of all or substantially all of the Collateral, all of the Purchasers, or (z) otherwise, the Required Purchasers. Upon request by the Agent or Obligors at any time, the Purchasers will confirm in writing the Agent’s authority to release any such Liens on particular types or items of Collateral pursuant to this Section 9(k); provided, however, that (1) the Agent shall not be required to execute any document necessary to evidence such release on terms that, in the Agent’s opinion, would expose the Agent to liability or create any obligation or entail any consequence other than the release of such Lien without recourse, representation, or warranty, and (2) such release shall not in any manner discharge, affect, or impair the Obligations or any Liens (other than those expressly being released) upon (or obligations of any Obligor in respect of) all interests retained by such Obligor, including, the proceeds of any sale, all of which shall continue to constitute part of the Collateral.

 

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(l) The Agent shall have no obligation whatsoever to any of the Purchasers to assure that the Collateral exists or is owned by any Obligor or Subsidiary thereof or is cared for, protected, or insured or has been encumbered, or that the Agent’s Liens have been properly or sufficiently or lawfully created, perfected, protected, or enforced or are entitled to any particular priority, or that any particular items of Collateral meet the eligibility criteria applicable in respect thereof or whether to impose, maintain, reduce, or eliminate any particular reserve hereunder or whether the amount of any such reserve is appropriate or not, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to the Agent pursuant to any of the Transaction Documents, it being understood and agreed that in respect of the Collateral, or any act, omission, or event related thereto, subject to the terms and conditions contained herein, the Agent may act in any manner it may deem appropriate, in the Agent’s sole discretion given the Agent’s own interest in the Collateral in its capacity as one of the Purchasers and that the Agent shall have no other duty or liability whatsoever to any Purchaser as to any of the foregoing, except as otherwise provided herein.

 

(m) Each of the Purchasers agrees that it shall not, unless specifically requested to do so in writing by the Agent, take or cause to be taken any action, including, the commencement of any legal or equitable proceedings to enforce any Transaction Document against any Obligor or Subsidiary thereof or to foreclose any Lien on, or otherwise enforce any security interest in, any of the Collateral.

 

(n) The Agent hereby appoints each other Purchaser as its agent (and each Purchaser hereby accepts such appointment) for the purpose of perfecting the Agent’s Liens in assets which, in accordance with Article 8 or Article 9, as applicable, of the UCC can be perfected by possession or control. Should any Purchaser obtain possession or control of any such Collateral, such Purchaser shall notify the Agent thereof, and, promptly upon the Agent’s request therefor shall deliver possession or control of such Collateral to the Agent or in accordance with the Agent’s instructions.

 

(o) Each Purchaser authorizes and directs the Agent to enter into this Agreement and the other Transaction Documents. Each Purchaser agrees that any action taken by the Agent in accordance with the terms of this Agreement or the other Transaction Documents relating to the Collateral and the exercise by the Agent of its powers set forth therein or herein, together with such other powers that are reasonably incidental thereto, shall be binding upon all of the Purchasers.

 

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10. Miscellaneous.

 

(a) Waivers and Amendments.

 

(i) No amendment, consent, or waiver of any provision of this Agreement or any other Transaction Document, or consent to any departure by the Obligors therefrom, shall in any event be effective unless the same shall be approved in writing and signed by the Required Purchasers (or by the Agent with the consent of the Required Purchasers) and the applicable Obligor, as the case may be, and acknowledged by the Agent, and then such amendment, consent or waiver shall be effective only in the specific instance and the specific purpose for which given; provided, however, that no such amendment, consent or waiver shall, unless signed by the Agent, all of the Purchasers directly and adversely affected thereby and the applicable Obligor, do any of the following:

 

(1) increase the amount of or extend the expiration date of any Obligations of any Obligor,

 

(2) postpone or delay any date fixed by this Agreement or any other Transaction Document for any payment of principal, interest, fees, or other amounts due hereunder or under any other Transaction Document,

 

(3) reduce the principal of, or the rate of interest on, any Note or other extension of credit hereunder, or reduce any fees or other amounts payable hereunder or under any other Transaction Document,

 

(4) amend, modify or eliminate this Section or any provision of this Agreement providing for consent or other action by all Purchasers,

 

(5) other than as permitted by Section 9(k), release or subordinate the Agent’s lien in and to any of the Collateral, or

 

(6) amend, modify or eliminate the definition of Required Purchasers, Pro Rata Share; or

 

(7) change Section 2(d) or 2(e) in a manner that would alter the pro rata application required thereby;

 

provided, further, that, notwithstanding anything herein to the contrary, no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Purchasers required above, affect the rights or duties of the Agent under this Agreement or any other Transaction Document.

 

(ii) For the avoidance of doubt, no consent of Obligors or of any Purchasers shall be required in connection with provisions that may be modified with Agent’s consent in its sole or reasonable discretion.

  

(b) Application of Payments. The Agent and Purchasers may apply any payments collected pursuant to this Agreement or the Notes, whether by exercise of remedies or otherwise, to such of the Obligations as may then be due and payable as set forth in the Transaction Documents or as the Agent and Required Purchasers shall determine.

 

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(c) Most Favored Lender. If at any time the Issuer enters into a subsequent secured debt financing arrangement with any Person and the documentation includes (a) covenants or events of default (including related definitions) in favor of such third-party that are not provided for in this Agreement or the Notes, (b) covenants or events of default (including related definitions) in favor of such third-party, that are more restrictive than the same or similar provisions provided for in this Agreement or the Notes and/or (c) requirements for such subsequent financing, to be secured by collateral or guaranteed by Subsidiaries of the Issuer that are not already Guarantors hereunder (any or all of the foregoing, collectively, the “Most Favored Lender Provisions”), then (i) such Most Favored Lender Provisions shall immediately and automatically be deemed incorporated into this Agreement as if set forth fully herein and therein, mutatis mutandis, and no such incorporated provision may thereafter be waived, amended or modified except pursuant to the provisions of Section 10(a), and (ii) the Issuer and the Guarantors shall promptly so advise the Agent in writing. Thereafter, upon the request of the Agent, the Issuer and the Guarantors shall enter into an amendment to this Agreement and the Notes (at the expense of the Issuer) evidencing the incorporation of such Most Favored Lender Provisions, it being agreed that any failure to make such request or to enter into any such amendment shall in no way qualify or limit the incorporation described in clause (i) of the immediately preceding sentence.

 

(d) Governing Law; Jurisdiction.

 

(i) This Agreement and all actions arising out of or in connection with this Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflicts of law provisions of the State of New York or of any other state.

 

(ii) Each Obligor hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the state and federal courts sitting in the Borough of Manhattan, City of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any other Transaction Document or the transactions contemplated hereby or thereby, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York state court or, to the extent permitted by applicable law, such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Transaction Document shall affect any right that Agent or each Purchaser may otherwise have to bring any action or proceeding relating to this Agreement or any other Transaction Document against any Obligor or any other Person or its properties in the courts of any jurisdiction.

 

(iii) Each Obligor irrevocably and unconditionally waives any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding described in paragraph (ii) of this Section 10(d) and brought in any court referred to in paragraph (ii) of this Section 10(d). Each of the parties hereto irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

 

(iv) Each party to this Agreement irrevocably consents to the service of process in the manner provided for notices in Section 10(j). Nothing in this Agreement or in any other Transaction Document will affect the right of any party hereto to serve process in any other manner permitted by law.

 

(e) Survival. The representations, warranties, covenants and agreements made herein shall survive the execution and delivery of this Agreement.

 

(f) Successors and Assigns. Subject to the restrictions on transfer described in Sections 10(g) and 10(h) below, the rights and obligations of the Obligors, Agent and each Purchaser shall be binding upon and benefit the respective successors, assigns, heirs, administrators and transferees of such parties.

 

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(g) Registration, Transfer and Replacement of the Notes. The Issuer will keep, at its Principal Office, books for the registration and registration of transfer of the Notes. Prior to presentation of the Notes for registration of transfer, the Issuer shall treat the Person in whose name each Note is registered as the owner and holder of such Note for all purposes whatsoever, whether or not such Note shall be overdue, and the Issuer shall not be affected by notice to the contrary. Subject to any restrictions on or conditions to transfer set forth in any Note, the holder of such Note, at his/her/its option, may in person or by duly authorized attorney surrender the same for exchange at the Principal Office, and promptly thereafter and at the Issuer’s expense, except as provided below, receive in exchange therefor one or more new Note(s), which shall be for the same principal amount as the then unpaid principal amount of the Note(s) so surrendered and shall be dated the date to which interest shall have been paid on the Note(s) so surrendered or, if no interest shall have yet been so paid, dated the date of the Note(s) so surrendered, and registered in the name of such Person or Persons as shall have been designated in writing by such holder or its attorney. Upon receipt by the Issuer of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any such Note and (i) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it; or (ii) in the case of mutilation, upon surrender thereof, the Issuer, at its expense, will execute and deliver in lieu thereof a new Note executed in the same manner as the Note being replaced, and in the case of a lost, stolen or destroyed Note, in the same principal amount as the unpaid principal amount of such Note and dated the date to which interest shall have been paid on such Note or, if no interest shall have yet been so paid, dated the date of such Note.

 

(h) Assignment. The rights, interests and obligations hereunder may not be assigned, by operation of law or otherwise, in whole or in part, by any Obligor without the prior written consent of the Agent and the Purchasers. Each Purchaser may assign its interests and obligations hereunder or any participation interests in the Notes and the Obligations thereunder, in whole or in part (i) at any time without consent of any Obligor or any other person, to any of such Purchaser’s Affiliates, (ii) with Issuer’s prior written consent, such consent not to be unreasonably delayed or withheld, and shall be deemed to be given and Issuer has not objected within 10 Business Days at any time with consent to any non-Affiliate of such Purchaser or (iii) at any time without consent of any Obligor or any other person if any Event of Default has occurred and is continuing, without consent.

 

(i) Entire Agreement. This Agreement, together with the other Transaction Documents, constitutes and contains the entire agreement among the Obligors, Agent and the Purchasers and supersedes any and all prior agreements, negotiations, correspondence, understandings and communications between the parties, whether written or oral, respecting the subject matter hereof.

 

(j) Notices. All communications provided for herein and, unless explicitly provided otherwise therein, in any of the other Transaction Documents shall be in writing. Any such communication must be sent (i) if to Issuer or any Guarantor, to it at:

 

c/o 1847 Holdings LLC.
590 Madison Avenue, 21st Floor
New York, NY 10022
Attn: Ellery W. Roberts
Email:

 

or at such other address (or telecopy number) as may be furnished in writing by Issuer or the Guarantors to Purchaser;

 

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

 

Bevilacqua PLLC.
1050 Connecticut Avenue, NW, Suite 500
Washington, DC 20036
Attn: Louis Bevilacqua
Email:

 

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(ii) if to Agent or Leonite, to it at:

 

Leonite Capital LLC

1 Hillcrest Center Drive

Suite 232

Spring Valley, New York 10977

Attention: Avi Geller

 

(iii) if to Silac, to it at the below applicable address:

 

Leonite Capital LLC

1 Hillcrest Center Drive

Suite 232

Spring Valley, New York 10977

Attention: Avi Geller

 

 

SILAC Insurance Company
c/o Antarctica Investment Advisors, LLC
630 Fifth Avenue, 20th Floor
New York, NY 10111

 

Attn: Andrew Bonita
Email:

 

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

 

Troutman Pepper Hamilton Sanders LLP.
875 3rd Ave
New York, NY 10022
Attn: Patrick Costello
Email:

 

All such notices and communications will be deemed effectively given the earlier of (i) when received, (ii) when delivered personally, (iii) one Business Day after being deposited with an overnight courier service of recognized standing, or (iv) four days after being deposited in the U.S. mail, first class with postage prepaid.

 

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(k) Expenses; Indemnification. Each party shall pay the fees and expenses of its respective counsel with respect to the negotiation, execution, delivery, and performance of this Agreement and the Transaction Documents; provided, that Issuer shall reimburse the expenses of Agent and Purchasers incurred in connection with the execution and delivery of this Agreement in an aggregate amount of up to $200,000. In the event of the occurrence of an Event of Default hereunder or under any other Transaction Document, Obligors shall pay, jointly and severally, all fees, costs and expenses (including, without limitation, legal fees and expenses) incurred by Agent or any Purchaser in connection with the enforcement or collection of the Notes and the other Transaction Documents. Each Obligor agrees, jointly and severally, to defend (with counsel reasonably satisfactory to the Agent and the Required Purchasers), protect, indemnify and hold harmless Agent, each Purchaser, each Affiliate or subsidiary of Agent or any Purchaser, and each of their respective shareholders, members, officers, directors, managers, employees, attorneys and agents (each an “Indemnified Party”) from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature (including, without limitation, the disbursements and the reasonable and documented fees of counsel for each Indemnified Party in connection with any investigative, administrative or judicial proceeding, whether or not the Indemnified Party shall be designated a party thereto), which may be imposed on, incurred by, or asserted against, any Indemnified Party (whether direct, indirect or consequential and whether based on any federal, state or local laws or regulations, including, without limitation, securities laws and regulations and commercial laws and regulations, under common law or in equity, or based on contract or otherwise) in any manner relating to or arising out of the Notes or any other Transaction Document, or any act, event or transaction related or attendant thereto, the making or issuance and the management of the investment evidenced by the Notes or the use or intended use of the proceeds of such Notes; provided, however, that Obligors shall not have any obligation hereunder to any Indemnified Party with respect to matters caused by or resulting from the willful misconduct or gross negligence of such Indemnified Party, as finally determined by a court of competent jurisdiction. To the extent that the undertaking to indemnify set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, Obligors shall satisfy such undertaking to the maximum extent permitted by applicable law. Any liability, obligation, loss, damage, penalty, cost or expense covered by this indemnity shall be paid to each Indemnified Party on demand, and, failing prompt payment, shall, together with interest thereon at the rate provided herein from the date incurred by each Indemnified Party until paid by Obligors, and shall constitute obligations evidenced by the Notes. The provisions of this paragraph shall survive the satisfaction and payment of the obligations evidenced by the Notes.

 

(l) Further Assurances. Upon the reasonable request of the Agent, a Purchaser or any Obligor, the Agent, Purchasers or the Obligor, as the case may be, agrees to take any and all actions, including, without limitation, the execution of certificates, documents or instruments, necessary or appropriate to give effect to the transactions contemplated by this Agreement.

 

(m) Remedies. In addition to the remedies set forth in the Notes, upon the occurrence or existence of any Event of Default, the Agent may, and at the instruction of the Required Purchasers, shall exercise any other right, power or remedy granted to the Agent or the Purchasers by any Transaction Document or otherwise permitted to them by law, either by suit in equity or by action at law, or both. Each Obligor acknowledges that violation of any one or more of the terms of this Agreement or any other Transaction Document would immeasurably and irreparably damage the Purchasers, and, accordingly, each Obligor agrees that for any violation or threatened violation of any of such terms, the Purchasers shall (and the Agent has the right to enforce on the Purchasers’ behalf), in addition to any other rights and remedies available to them, at law or otherwise (including, without limitation, the recovery of damages from the Obligors), be entitled to specific performance and an injunction to be issued by any court of competent jurisdiction enjoining and restraining the Obligors, or any of them, from committing any violation or threatened violation of the terms hereof.

 

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(n) Waivers and Consents. No waiver, termination or discharge of this Agreement, or any of the terms or provisions hereof, or any consent hereunder shall be binding upon any party hereto unless set forth in writing and signed by the party to be bound thereby. Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or a waiver of any term or condition of this Agreement. No failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. For the avoidance of doubt, the approval of any action by the board of directors or manager, as applicable, of any Obligor shall not be deemed to be the consent of the Purchasers, regardless of whether any member of the board of directors or manager was appointed by a Purchaser.

 

(o) Subordination of Intercompany Obligations. Any Indebtedness of any Obligor (the “Debtor-Obligor”) now or hereafter owing to any other Obligor (the “Creditor-Obligor”) is here-by subordinated to the Obligations of such Debtor-Obligor owing to the Agent and Purchasers; and if the Agent so requests at a time when an Event of Default exists, all such Indebtedness of such Debtor-Obligor to such Creditor-Obligor shall be collected, enforced and received by such Creditor-Obligor for the benefit of the Agent and Purchasers and be paid over to the Agent on behalf of the Purchasers on account of the Obligations, but without affecting or impairing in any manner the liability of any Obligor under the other provisions of this Agreement and the Transaction Documents. Without limiting the generality of the foregoing, any Liens granted by any Debtor-Obligor in favor of any Creditor-Obligor is hereby made subordinate and junior to the Liens granted by such Debtor-Obligor to the Agent, for the benefit of the Purchasers.

 

(p) Severability of this Agreement. If any provision of this Agreement shall be judicially determined to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

 

(q) Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

 

(r) Counterparts. This Agreement may be executed in any number of counterparts (including by way of electronic transmission), each of which shall be an original, but all of which together shall be deemed to constitute one instrument.

 

(s) Time Is of the Essence. Time is of the essence of this Agreement, and of each provision hereof.

 

(t) WAIVER OF JURY TRIAL. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

[Signature page follows]

 

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IN WITNESS WHEREOF, the parties have caused this Note Purchase Agreement to be duly executed and delivered by their proper and duly authorized officers as of the date and year first written above.

 

  ISSUER:
     
  1847 HOLDINGS LLC
     
  By: /s/ Ellery W. Roberts   
  Name:  Ellery W. Roberts      
  Title:   Chief Executive Officer

 

  GUARANTORS:
     
  1847 WOLO INC.
     
  By: /s/ Ellery W. Roberts
  Name: Ellery W. Roberts
  Title: Executive Chairman

 

  1847 CABINET INC.
     
  By: /s/ Ellery W. Roberts
  Name: Ellery W. Roberts
  Title: Executive Chairman

 

  1847 ASIEN INC.
     
  By: /s/ Ellery W. Roberts
  Name: Ellery W. Roberts
  Title: Executive Chairman

 

  ASIEN’S APPLIANCES, INC
     
  By: /s/ Ellery W. Roberts
  Name: Ellery W. Roberts
  Title: Executive Chairman

 

 

 

  KYLE’S CUSTOM WOOD SHOP, INC.
     
  By: /s/ Ellery W. Roberts
  Name: Ellery W. Roberts
  Title: Executive Chairman

 

  HIGH MOUNTAIN DOOR & TRIM INC.
     
  By: /s/ Ellery W. Roberts
  Name: Ellery W. Roberts
  Title: Executive Chairman

 

  SIERRA HOMES LLC
     
  By: /s/ Ellery W. Roberts
  Name: Ellery W. Roberts
  Title: Executive Chairman

 

  WOLO INDUSTRIAL HORN & SIGNAL, INC.
     
  By: /s/ Ellery W. Roberts
  Name: Ellery W. Roberts
  Title: Executive Chairman
     

 

  WOLO MFG. CORP.
     
  By: /s/ Ellery W. Roberts
  Name: Ellery W. Roberts
  Title: Executive Chairman

 

  AGENT:
   
  LEONITE CAPITAL LLC
   
  By: /s/ Avi Geller
  Name: Avi Geller
  Title: Chief Investment Officer

 

 

 

  PURCHASERS:
     
  LEONITE CAPITAL LLC
     
  By: /s/ Avi Geller
  Name: Avi Geller
  Title: Chief Investment Officer

 

  SILAC INSURANCE COMPANY
   
  By: /s/Andrew Bonita
  Name: Andrew Bonita
  Title: Authorized Signatory for Antarctica Investment
Advisors, LLC, as Attorney-in-Fact for SILAC
Insurance Company

 

 

 

 

 

Exhibit 10.12

 

Execution Version

 

THIS NOTE HAS BEEN ISSUED WITH “ORIGINAL ISSUE DISCOUNT” FOR U.S. FEDERAL INCOME TAX PURPOSES. THE ISSUER OF THIS NOTE WILL MAKE AVAILABLE TO ANY HOLDER OF THIS NOTE: (1) THE ISSUE PRICE AND ISSUE DATE OF THIS NOTE, (2) THE AMOUNT OF ORIGINAL ISSUE DISCOUNT ON THIS NOTE, (3) THE YIELD TO MATURITY OF THIS NOTE, AND (4) ANY OTHER INFORMATION REQUIRED TO BE MADE AVAILABLE BY U.S. TREASURY REGULATIONS UPON RECEIVING A WRITTEN REQUEST FOR SUCH INFORMATION TO CHIEF FINANCIAL OFFICER AT THE FOLLOWING ADDRESS: 1847 HOLDINGS LLC, 590 MADISON AVENUE, 21ST FLOOR, NEW YORK, NY 10022.

 

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

 

1847 HOLDINGS, LLC

 

SECURED CONVERTIBLE PROMISSORY NOTE

 

Dated as of: October 8, 2021 Purchase Price: $16,562,000.00
Maturity Date: October 8, 2026 Original Issue Discount: $338,000.00
    Original Principal Amount: $16,900,000.00

 

October 8, 2021

 

FOR VALUE RECEIVED, 1847 HOLDINGS LLC, a Delaware limited liability company (the “Issuer”), with its principal executive office located at 1847 Holdings LLC, 590 Madison Avenue, 21st Floor, New York, NY 10022 (the “Principal Office”), promises to pay SILAC INSURANCE COMPANY (internal account no. SLO9) or its successors, assigns or designees (the “Purchaser”), in lawful money of the United States of America the principal sum of Sixteen Million Nine Hundred Thousand Dollars ($16,900,000), or such lesser amount as shall equal the outstanding principal amount hereof, together with interest from the date of this Note on the unpaid principal balance at a rate equal to the Applicable Rate (the “Interest”). All unpaid principal, together with any then unpaid and accrued Interest and other amounts payable hereunder, shall be due and payable on the earlier of: (i) the close of business on October 8, 2026, or (ii) when, upon or after the occurrence of an Event of Default (as defined below), such amounts become due and payable to the Purchaser in accordance with the terms hereof (the earliest of such dates being hereinafter referred to as the “Maturity Date”). This Secured Convertible Promissory Note (this “Note”) is a “Note” issued pursuant to the Note Purchase Agreement, dated of even date herewith, by and among the Issuer, the Guarantors party thereto, the Purchaser, the other Purchasers party thereto, and Leonite Capital LLC, as administrative agent for the Purchasers (“Agent”) (as may be further amended, restated, modified, or supplemented from time to time, the “Note Purchase Agreement”).

 

 

 

 

The following is a statement of the rights of the Purchaser and the conditions to which this Note is subject, and to which the Purchaser, by the acceptance of this Note, agrees:

 

1. Definitions. As used in this Note, the following capitalized terms have the following meanings: 

(a) “Applicable Rate” means, at any date the same is to be determined, the greater of (i) a rate per annum equal to 4.75% plus the Benchmark or (ii) 8%, which shall be calculated on the basis of a 360-day year and actual days elapsed.

 

(b) “Benchmark” means the U.S. Prime Rate that appears in The Wall Street Journal from time to time as determined by Agent.

 

(c) “Default Interest Rate” means the lesser of (i) 24% or (ii) the maximum legal rate.

 

(d) “Event of Default” has the meaning given in Section 4 hereof.

 

(e) “Interest” has the meaning given in the introductory paragraph hereof.

 

(f) “Maturity Date” has the meaning given in the introductory paragraph hereof.

 

(g) “Subsequent Financing” shall mean any offering by any Obligor of Equity Interests, equity linked securities, or unsecured Indebtedness for cash. Subsequent Financing shall not include any offering of secured Indebtedness for which the Most Favored Lender Provisions apply or offerings of Equity Interests or Indebtedness for consideration other than cash, including Seller Notes.

 

Additional capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in the Note Purchase Agreement.

 

2. Payments and Prepayments

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(a) Payments. Payments of Interest only, computed at the Applicable Rate on the outstanding principal amount hereunder, shall be due and payable quarterly in arrears commencing on January 1, 2022, and continuing on the first day of each calendar quarter thereafter through and including the Maturity Date. All unpaid principal and any accrued and unpaid interest on this Note shall be due and payable on the Maturity Date. Each payment or prepayment hereunder shall be subject to Section 2(d) of the Note Purchase Agreement.

 

(b) Default Interest. Upon the occurrence and during the continuance of an Event of Default, interest shall accrue at the Default Interest Rate.

 

(c) Voluntary Prepayments. Subject to payment of any applicable Prepayment Fee, Issuer may prepay the Loan in whole or in part at any time, without penalty.

 

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(d) Mandatory Prepayments.

 

(i) Proceeds of Issuances of Indebtedness. Immediately upon receipt by any Obligor of any proceeds from any issuance of Indebtedness (other than Permitted Indebtedness) by any Obligor, Issuer shall prepay the Obligations in an amount equal to all such proceeds (whether or not such proceeds are received by Issuer), net of reasonable and customary transaction costs, fees and expenses properly attributable to such transaction and payable by the Obligors in connection therewith (in each case, paid to non-Affiliates). Any such prepayment shall be applied in accordance with Section 2(d)(iii).

 

(ii) Asset Dispositions and Extraordinary Receipts. Immediately upon receipt by any Obligor of any proceeds of any sale or disposition by any Obligor of any of the Collateral or any of its respective assets (other than asset sales or dispositions in the ordinary course of business which are permitted by the Note Purchase Agreement), or any proceeds from any casualty insurance policies or eminent domain, condemnation or similar proceedings, Issuer shall prepay the Obligations in an amount equal to all such proceeds (whether or not such proceeds are actually received by Issuer), net of commissions and other reasonable and customary transaction costs, fees and expenses properly attributable to such transaction and payable by Issuer in connection therewith (in each case, paid to non-Affiliates). Any such prepayment shall be applied in accordance with Section 2(d)(iii).

 

(iii) Application of Prepayments. Any prepayments made pursuant to Section 2(d)(i) or (ii) shall be applied as follows: first, to Agent’s and each Purchaser’s fees and reimbursable expenses then due and payable pursuant to any of the Transaction Documents (including, without limitation, any applicable Prepayment Fee); second, to Interest then due and payable hereunder and under the other Notes on a pro rata basis; and third, to the principal balance due on this Note and each of the other Notes on a pro rata basis until the same shall have been paid in full.

 

(e) Prepayment Fee. In the event that any prepayment of the obligations evidenced by this Note occurs for any reason prior to the Maturity Date (including, without limitation, following acceleration by the Agent or Purchasers upon the occurrence of an Event of Default), in view of the impracticality and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of Purchaser’s lost profits as a result thereof, the Issuer shall pay to the Purchaser a prepayment fee in an amount equal to 10% of the principal and interest paid in connection with such prepayment (or then due and payable upon an acceleration by the Agent or Purchasers) (the “Prepayment Fee”). For the avoidance of doubt, any Prepayment Fee owed by Issuer to Purchaser in accordance with this clause (e) shall be in addition to any accrued and unpaid interest.

 

3. Credit Support. The Obligations and all other amounts owing hereunder are (i) guaranteed pursuant to the Guaranty, and (ii) secured by the Collateral pursuant to the terms of the Security Agreement and the other Transaction Documents.

 

4. Events of Default. The occurrence of any of the following shall constitute an “Event of Default” under this Note and the other Transaction Documents:

 

(a) Failure to Pay. The Issuer shall fail to pay, within two (2) Business Days following the due date thereof, any principal payment or any interest or other payment required under the terms of this Note; or

 

(b) Representations and Warranties. Any representation or warranty made by any Obligor in the Note Purchase Agreement or any of the other Transaction Documents shall prove to have been false or misleading when made (or, if applicable, when reaffirmed) in any material respect; or

 

 

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(c) Covenants. Any Obligor fails to timely and properly observe, keep or perform, any term, covenant, agreement or condition under (i) Section 5 in the Note Purchase Agreement or (ii) under any other provision of the Note Purchase Agreement not specified in this Section 4 or any other Transaction Document and such failure shall not have been remedied or waived within thirty (30) days after the earlier of (x) an officer of such Obligor becoming aware of such failure or (y) receipt by the Issuer of notice from the Agent or Purchaser of such failure; or

 

(d) Cross Default. Any Obligor is in breach or default under any Indebtedness or other obligations (other than those evidenced by this Note), which default is not cured within any applicable cure period set forth in the agreement with respect to the Indebtedness or other obligations and which would cause or permit the holder of such Indebtedness or other obligations to accelerate the maturity thereof; or

 

(e) Validity of Transaction Documents. Any Obligor or any other Person shall challenge the validity and binding effect of any provision of any of the Transaction Documents or shall state its intention to make such a challenge of any of the Transaction Documents or any of the Transaction Documents shall for any reason (except to the extent permitted by its express terms) cease to be effective or to create a valid and perfected security interest in any of the collateral purported to be covered thereby; or

 

(f) Inability to Pay Debts. Any Obligor admits in writing its present inability generally to pay its debts as they mature or shall make any assignment for the benefit of any of its creditors; or

 

(g) Judgments. The entry of a final judgment for the payment of money involving more than $250,000 against any Obligor, and the failure by any Obligor to discharge the same, or cause it to be discharged, within thirty (30) days from the date of the order, decree or process under which or pursuant to which such judgment was entered; or

 

(h) Suspension of Business. Any Obligor suspends its business operations for more than ten (10) Business Days or terminates its business operations, or liquidates, dissolves or terminates its existence; or

 

(i) Voluntary Bankruptcy or Insolvency Proceedings. Any Obligor shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit in writing its present inability, to pay its debts generally as they mature, (iii) make a general assignment for the benefit of its or any of its creditors, (iv) be dissolved or liquidated, (v) become insolvent (as such term may be defined or interpreted under any applicable statute) as determined by a court of competent jurisdiction, (vi) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it, or (vii) take any action for the purpose of effecting any of the foregoing; or

 

(j) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a receiver, trustee, liquidator or custodian of any Obligor or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to any Obligor or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered or such proceeding shall not be dismissed or discharged within 30 days of commencement; or

 

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(k) Change of Control. The occurrence of a Change of Control; or

 

(l) Material Adverse Effect. The occurrence of a Material Adverse Effect; or

 

(m) SEC Reports. The Issuer fails to timely file any document or report that it is required to file with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of the Exchange Act, as applicable (after giving effect to all applicable grace periods thereunder); or

 

(n) Restatement of Financial Statements. The Issuer restates any of its previously issued financial statements contained in any Quarterly Report on Form 10-Q or Annual Report on Form 10-K filed with the Securities and Exchange Commission; or

 

(o) Delisting of Common Shares. The delisting of the Issuer’s Common Shares from any principal market (presently the OTCQB); or

 

(p) Continued Listing Requirements. The Issuer’s failure to comply with the requirements for continued listing on a principal market for a period of ten (10) consecutive trading days, or notification from the principal market that the Company is not in compliance with the conditions for such continued listing on such principal market; or

 

(q) Trading Suspension. The Issuer is subject to a trading suspension on the principal market that lasts for five or more consecutive trading days; or

  

(r) DWAC/FAST. The Issuer loses its ability to deliver shares via “DWAC/FAST” electronic transfer; or

 

(s) DTC Eligibility. The Issuer loses its status as “DTC Eligible”; or

 

(t) Reservation of Common Shares. The Issuer shall fail to reserve and keep available out of its authorized Common Shares 125% of the maximum number of Common Shares issuable upon conversion of this Note pursuant to Section 7 hereof.

 

5. Rights of Agent and Purchasers upon Default. Upon the occurrence or existence of any Event of Default (other than an Event of Default described in Sections 4(i) or 4(j)) and at any time thereafter during the continuance of such Event of Default, the Agent may (or shall, at the direction of the Required Purchasers), by written notice to the Issuer, declare all outstanding Obligations payable by the Issuer hereunder to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived. Upon the occurrence or existence of any Event of Default described in Sections 4(i) and 4(j), immediately and without notice, all outstanding Obligations payable by the Issuer hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived. In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default, (i) the Agent may (or shall, at the direction of the Required Purchasers) exercise any other right, power or remedy granted to it by the Transaction Documents or otherwise permitted to it by law, either by suit in equity or by action at law, or both, and (ii) the Issuer shall pay to the Agent, for the benefit of the Purchasers, a fee in the amount of $10,000 each month until such time as the Agent confirms in writing that such Event of Default has been waived.

 

6. Exchange Rights. The Purchaser shall have the right (but not the obligation) to exchange this Note into securities sold in a Subsequent Financing. At the time of the Subsequent Financing, Purchaser shall have the right to either: (i) retain the Note or the securities purchased in a previous Subsequent Financing; or (ii) exchange the Note or such securities into the Subsequent Financing. The amount invested or exchanged into the Subsequent Financing will be equal to the amount of this Note or investment in a previous Subsequent Financing.

 

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7. Conversion Right. The Purchaser shall have the right to convert this Note and accrued and unpaid Interest due under this Note into Common Shares, as set forth in this Section 7.

 

(a) Conversion into Issuer’s Common Shares. The Purchaser shall have the right, from and after the date of the issuance of this Note and then at any time until the Maturity Date, to convert any outstanding and unpaid principal portion of this Note, and any accrued but unpaid Interest on such portion, at the election of the Purchaser (the date of such conversion being a “Conversion Date”) into Common Shares at the Conversion Price (as hereinafter defined). Upon delivery to the Issuer of a completed Notice of Conversion, a form of which is attached hereto as Exhibit A, the Issuer shall issue and deliver to the Purchaser within five (5) business days after the Conversion Date (such day being the “Delivery Date”) that number of Common Shares for the portion of the Note and any accrued but unpaid Interest on such portion converted in accordance with the following sentence. The number of Common Shares to be issued upon each conversion of this Note shall be determined by dividing that portion of the principal of the Note to be converted and any accrued but unpaid Interest on such portion, by the Conversion Price. The “Conversion Price” shall initially be $2.50 per Common Share, and shall be subject to adjustment as provided hereafter in this Section 7.

 

(b) Manner of Conversion. This Note may be converted by the Purchaser by presentment of this Note, accompanied by written notice stating that Purchaser elects to convert all or a portion of the principal amount hereof, and any accrued but unpaid Interest on such portion, and stating the name or names, together with addresses, in which the Common Shares are to be issued. Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which this Note shall have been so surrendered to Issuer; and at such time the rights of the Purchaser as to that portion of this Note so converted shall cease, and the person in whose name or names the Common Shares shall be issuable upon such conversion shall be deemed to have become the holder or holders of record thereof. If this Note is converted in part only, upon conversion of such part hereof, the Issuer shall execute and deliver to the Purchaser upon surrender of this Note a new Note in the aggregate principal amount equal to the then unconverted portion of the principal amount of this Note plus any accrued but unpaid and unconverted Interest and in all other respects identical to this Note.

 

(c) Distributions, Splits, Combinations, Reclassifications. In the event the Issuer shall hereafter (i) pay a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Shares on the Common Shares, (ii) subdivide the outstanding Common Shares into a larger number of shares, (iii) combine (including by way of a reverse stock split) outstanding Common Shares into a smaller number of shares or (iv) issue, in the event of a reclassification of Common Shares, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number Common Shares (excluding any treasury shares of the Issuer) outstanding immediately before such event, and of which the denominator shall be the number of Common Shares outstanding immediately after such event. All adjustments made pursuant to this Section 7(c) shall become effective immediately after the earlier of the record date or the payment date in the case of a distribution and shall become effective immediately after the effective date in the case of a subdivision or combination.

 

(d) Sale of Common Shares Below Conversion Price.

 

(i) Reduction of the Conversion Price. If at any time or from time to time after the date this Note is issued, the Issuer issues or sells, or is deemed by the provisions of this Section 7(d) to have issued or sold, Additional Common Shares (as hereinafter defined), other than as provided in Section 7(c) above, for an Effective Price (as hereinafter defined) less than the Conversion Price then in effect, then the Conversion Price shall be reduced, as of the opening of business on the date of such issue or sale, to a price equal to the Effective Price.

 

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(ii) Determination of Consideration. For the purpose of making any adjustment required under this Section 7(d), the consideration received by the Issuer for any issue or sale of securities shall (A) to the extent it consists of cash, be the amount of cash received by the Issuer therefor before deducting any discounts, commissions or other expenses allowed, paid or incurred by the Issuer for any underwriting or otherwise in connection thereof, (B) to the extent it consists of property other than cash, be computed at the fair market value of that property (1) as determined in good faith by the Manager, and (2) such determination is agreed upon by Purchaser, and (C) if Additional Common Shares, Convertible Securities (as hereinafter defined) or rights or options to purchase either Additional Common Shares or Convertible Securities are issued or sold together with other securities or other assets of the Issuer for a consideration which covers both, be computed as the portion of the consideration so received that (1) may be reasonably determined in good faith by the Issuer’s Board of Directors, and (2) such determination is agreed upon by Purchaser, to be allocable to such Additional Common Shares, Convertible Securities or rights or options. Should Purchaser not agree with the determination of the Issuer’s Board of Directors as provided in this Section 7(d)(ii) (or such determination of the Board of Directors as set forth in Section 7(f) below or any dispute pursuant to Section 7(i) below) and such differences are not resolved by mutual agreement of the Issuer and Purchaser within thirty (30) days thereafter, then Issuer and Required Purchaser shall jointly engage an independent investment banking firm or valuation firm (the “Appraiser”) to resolve all such differences, with the costs and expenses of such Appraiser to be shared equally between the Issuer, on the one hand, and Purchasers, on the other hand. The Appraiser shall, acting as an expert and not as an arbitrator, determine in accordance with the terms of this Note the remaining differences so submitted by the parties. The parties shall direct the Appraiser to use all reasonable efforts to render its determination within thirty (30) days after such submission. The Appraiser’s determination shall be set forth in a written statement and shall be final, binding, conclusive and non-appealable for all purposes.

 

(iii) Treatment of Convertible Securities. For the purpose of the adjustment required under this Section 7(d), if the Issuer issues or sells any options, rights or other securities convertible into, exchangeable for or entitling the holder thereof to receive Common Shares (such options, rights or other securities being herein referred to as “Convertible Securities”), in each case the Issuer shall be deemed to have issued at the time of the issuance of such Convertible Securities the maximum number of Common Shares issuable upon conversion, exchange or exercise thereof and to have received as consideration for such issuance an amount equal to the total amount of the consideration, if any, received by the Issuer for the issuance of such Convertible Securities, and allocable to the Convertible Securities as provided in subsection (ii)(C) hereof, plus, the amount of consideration, if any, payable to the Issuer upon the conversion, exchange or exercise of such Convertible Securities (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities); provided that if the amounts of such consideration cannot be ascertained but are a function of anti-dilution or similar protective clauses, the Issuer shall be deemed to have received the amounts of consideration without reference to such clauses; and provided further that if the amount of consideration payable to the Issuer upon the conversion, exchange or exercise of Convertible Securities is reduced (or increased) over time or on the occurrence or non-occurrence of specified events other than by reason of anti-dilution adjustments, the Effective Price shall be recalculated using the figure to which such amount of consideration is reduced or increased, as the case may be. No further adjustment of the Conversion Price, as adjusted upon the issuance of such Convertible Securities, shall be made as a result of the actual issuance of Common Shares on the conversion, exchange or exercise of any such Convertible Securities.

 

(iv) Excluded Issuances. For purposes of this Note, the term “Additional Common Shares” shall mean all Common Shares issued or sold by the Issuer or deemed to be issued or sold pursuant to this Section 7(d), whether or not subsequently reacquired or retired by the Issuer, other than Permitted Issuances.

 

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(v) Effective Price. For purposes of this Note, the term “Effective Price” of Additional Common Shares shall mean the quotient determined by dividing the total number of Additional Common Shares issued or sold, or deemed to have been issued or sold by the Issuer under this Section 7(d), into the aggregate consideration received, or deemed to have been received by the Issuer for such issue under this Section 7(d), for such Additional Common Shares. The issuance or deemed issuance of Additional Common Shares for no consideration shall be deemed to be an issuance at a per unit consideration of $.001.

 

(e) Purchaser’s Conversion Limitations. The Issuer shall not effect any conversion of this Note, to the extent that after giving effect to the conversion as set forth on the applicable Notice of Conversion, the Purchaser (together with the Purchaser’s Affiliates, and any other Persons acting as a group together with the Purchaser or any of the Purchaser’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of Common Shares beneficially owned by the Purchaser and its Affiliates and Attribution Parties shall include the number of Common Shares issuable upon conversion of this Note with respect to which such determination is being made, but shall exclude the number of Common Shares which would be issuable upon (i) conversion of the remaining, nonconverted principal amount of this Note beneficially owned by the Purchaser or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Issuer (including, without limitation, any other Common Share Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Purchaser or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 7(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Purchaser that the Issuer is not representing to the Purchaser that such calculation is in compliance with Section 13(d) of the Exchange Act and the Purchaser is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 7(e) applies, the determination of whether this Note is convertible (in relation to other securities owned by the Purchaser together with any Affiliates and Attribution Parties) and of which principal amount of this Note is convertible shall be in the sole discretion of the Purchaser, and the submission of a Notice of Conversion shall be deemed to be the Purchaser’s determination of whether this Note is convertible (in relation to other securities owned by the Purchaser together with any Affiliates and Attribution Parties) and of which principal amount of this Note is convertible, in each case subject to the Beneficial Ownership Limitation, and the Issuer shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 7(e), in determining the number of outstanding Common Shares, a Purchaser may rely on the number of outstanding Common Shares as reflected in (A) the Issuer’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Issuer, or (C) a more recent written notice by the Issuer or the Transfer Agent setting forth the number of Common Shares outstanding.  Upon the written or oral request of a Purchaser, the Issuer shall within two (2) Trading Days confirm orally and in writing to the Purchaser the number of Common Shares then outstanding.  In any case, the number of outstanding Common Shares shall be determined after giving effect to the conversion or exercise of securities of the Issuer, including this Note, by the Purchaser or its Affiliates or Attribution Parties since the date as of which such number of outstanding Common Shares was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Shares outstanding immediately after giving effect to the issuance of Common Shares issuable upon conversion of this Note. The Purchaser, upon notice to the Issuer, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 7(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Shares outstanding immediately after giving effect to the issuance of Common Shares upon conversion of this Note held by the Purchaser and the provisions of this Section 7(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Issuer. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 7(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor Purchaser of this Note.

 

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(f) Recapitalizations, Reorganizations, etc. In the event of any recapitalization, reorganization, consolidation or merger of the Issuer with or into another Person or the sale, transfer or other disposition of all or substantially all of the assets of the Issuer and its Subsidiaries (taken as a whole) to another Person, this Note shall thereafter be convertible into the kind and amount of Equity Interests or other securities or property that a holder of the number of Common Shares deliverable upon conversion of this Note would have been entitled upon such recapitalization, reorganization, consolidation, merger or sale; and, in such case, appropriate adjustment (as determined in good faith by the Issuer’s Board of Directors and such determination is agreed upon by the Purchaser) shall be made in the application of the provisions set forth in this Section 7 with respect to the rights and interests thereafter of the Purchaser, to the end that the provisions set forth in this Section 7 shall thereafter be applicable, as nearly as reasonably may be, in relation to any Equity Interests or other securities or property thereafter deliverable upon conversion of this Note.

 

(g) De Minimis Adjustments. No adjustment to the Conversion Price shall be made if such adjustment would result in a change in the Conversion Price of less than $.01. Any adjustment of less than $.01 that is not made shall be carried forward and shall be made at the time of and together with any subsequent adjustment that, on a cumulative basis, amounts to an adjustment of $.01 or more in the Conversion Price.

 

(h) No Impairment. Neither the Issuer nor any Guarantor shall, by amendment of its governing documents or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Issuer and the Guarantors, but shall at all times in good faith assist in the carrying out of all the provisions of this Section 7 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the Purchaser against impairment.

 

(i) Certificate as to Adjustments; Dispute. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 7, the Issuer at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to the Purchaser a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Issuer shall, upon the written request at any time of the Purchaser, furnish or cause to be furnished to the Purchaser a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price at that time in effect, and (iii) the number of Common Shares and the amount, if any, of other property that at that time would be received upon the conversion of this Note. In the event Purchaser at any time objects to the calculation of any adjustment or readjustment of the Conversion Price, the parties shall engage the Appraiser pursuant to and in accordance with the methodology and terms set forth in Section 7(d)(ii) above.

 

(j) Notices of Record Date. In the event of any taking by the Issuer or Guarantor of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any distribution, any Convertible Securities or any right to subscribe for, purchase or otherwise acquire any Equity Interests or any other securities or property, or to receive any other right, the Issuer shall mail to the Purchaser, at least twenty (20) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such distribution or rights, and the amount and character of such distribution or rights.

 

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8. Right of Participation in Securities Offerings. Until the date that is eighteen (18) months after the Closing Date, the Purchaser shall have the right, but not the obligation, to participate in any securities offering of the Issuer other than a Permitted Issuance in an amount of up to the original principal amount of this Note. Issuer shall give Purchaser at least thirty (30) days prior written notice of the launch of such next securities offering, which notice shall (1) identify each other proposed purchaser expected to be participating in such securities offering and contain the expected terms and pricing thereof as of the date of such notice, and (2) be delivered to Purchaser’s address set forth in the Note Purchase Agreement. Purchaser may decline to participate in any such securities offering in its sole discretion.

 

9. Right of First Refusal. The Purchaser shall have the right of first refusal to participate in any issuance of Indebtedness by the Issuer until this Note has been terminated; provided, however, that this right of first refusal shall not apply to Permitted Issuances.

 

10. Successors and Assigns. Subject to the restrictions on transfer described in Sections 11 and 12 below, the rights and obligations of the Issuer and the Purchaser shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties.

 

11. Waiver and Amendment. No waiver, termination or discharge of this Note, or any of the terms or provisions hereof, shall be binding upon either party hereto unless set forth in writing and signed by the party to be bound thereby. Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or a waiver of any term or condition of this Note. No failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this Note shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

 

12. Transfer of this Note or Securities Issuable on Conversion Hereof. Purchaser may assign this Note and its interests and obligations hereunder, as well as any securities into which this Note may be converted, in whole or in part or sell participations in this Note and its interests in the Obligations hereunder, in each case in accordance with Section 10(h) of the Note Purchase Agreement. Each Note thus transferred and each certificate representing the securities thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Issuer such legend is not required in order to ensure compliance with the Securities Act. The Issuer may issue stop transfer instructions to its transfer agent in connection with such restrictions. Subject to the foregoing, transfers of this Note shall be registered upon registration books maintained for such purpose by or on behalf of the Issuer. Prior to presentation of this Note for registration of transfer, the Issuer shall treat the registered holder hereof as the owner and holder of this Note for the purpose of receiving all payments of principal and interest hereon and for all other purposes whatsoever.

 

13. Assignment by the Issuer. Neither this Note nor any of the rights, interests or obligations hereunder may be assigned, by operation of law or otherwise, in whole or in part, by the Issuer without the prior written consent of the Purchaser.

 

14. Notices. All notices, requests, demands, consents, instructions or other communications required or permitted hereunder shall in writing and faxed, mailed or delivered to each party at the respective addresses of the parties set forth in the Note Purchase Agreement, or at such other address, e-mail address or facsimile number as each party shall have furnished to the other party in writing. All such notices and communications will be deemed effectively given the earlier of (i) when received, (ii) when delivered personally, (iii) one Business Day after being deposited with an overnight courier service of recognized standing or (iv) four days after being deposited in the U.S. mail, first class with postage prepaid.

 

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15. Usury. In the event any interest is paid on this Note which is deemed to be in excess of the then legal maximum rate, then that portion of the interest payment representing an amount in excess of the then legal maximum rate shall be deemed a payment of principal and applied against the principal of this Note.

 

16. Waivers. The Issuer hereby waives notice of acceptance, default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this instrument.

 

17. Governing Law. This Note and all actions arising out of or in connection with this Note shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflicts of law provisions of the State of New York or of any other state.

 

18. WAIVER OF JURY TRIAL. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF THIS NOTE OR ANY OTHER TRANSACTION DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS NOTE AND THE OTHER TRANSACTION DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

19. Time Is of the Essence. Time is of the essence of this Note, and of each provision hereof.

 

20. Characterization as Indebtedness. It is the express intent of the Issuer, the Guarantors and the Purchaser that, prior to conversion of this Note as contemplated in Section 7 above, the obligations of the Issuer hereunder shall constitute indebtedness for borrowed money, and not equity. In furtherance of the foregoing, each of the Issuer, the Guarantors and the Purchaser shall reflect their rights and obligations hereunder in their books and records as indebtedness for borrowed money, and not as equity.

 

[Signature Page Follows]

 

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The Issuer has caused this Secured Convertible Promissory Note to be issued as of the date first written above.

 

  1847 HOLDINGS LLC
   
  By: /s/ Ellery W. Roberts
  Name: Ellery W. Roberts
  Title: Chief Executive Officer

  

[SIGNATURE PAGE TO SECURED CONVERTIBLE PROMISSORY NOTE]

 

 

 

Execution Version

  

EXHIBIT A

 

FORM OF

 

NOTICE OF CONVERSION

 

(To be executed by the Purchaser in order to convert the Note)

 

The undersigned hereby elects to convert $___________ of the Principal and accrued but unpaid Interest with respect to the Secured Convertible Promissory Note issued by 1847 HOLDINGS LLC on October 8, 2021 into Common Shares of 1847 HOLDINGS LLC according to the conditions set forth in such Secured Convertible Promissory Note, as of the date written below.

 

Date of Conversion:
   
Conversion Price:
   
Common Shares To Be Delivered:
   
Signature
   
Print Name:
   
Address:
   
 
 

 

 

 

 

Exhibit 10.13

 

Executed Version

 

THIS NOTE HAS BEEN ISSUED WITH “ORIGINAL ISSUE DISCOUNT” FOR U.S. FEDERAL INCOME TAX PURPOSES. THE ISSUER OF THIS NOTE WILL MAKE AVAILABLE TO ANY HOLDER OF THIS NOTE: (1) THE ISSUE PRICE AND ISSUE DATE OF THIS NOTE, (2) THE AMOUNT OF ORIGINAL ISSUE DISCOUNT ON THIS NOTE, (3) THE YIELD TO MATURITY OF THIS NOTE, AND (4) ANY OTHER INFORMATION REQUIRED TO BE MADE AVAILABLE BY U.S. TREASURY REGULATIONS UPON RECEIVING A WRITTEN REQUEST FOR SUCH INFORMATION TO CHIEF FINANCIAL OFFICER AT THE FOLLOWING ADDRESS: 1847 HOLDINGS LLC, 590 MADISON AVENUE, 21ST FLOOR, NEW YORK, NY 10022.

 

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

 

1847 HOLDINGS, LLC

 

SECURED CONVERTIBLE PROMISSORY NOTE

 

Dated as of: October 8, 2021 Purchase Price: $7,702,800.00
Maturity Date: October 8, 2026 Original Issue Discount: $157,200.00
    Original Principal Amount: $7,860,000.00
       
      October 8, 2021

 

FOR VALUE RECEIVED, 1847 HOLDINGS LLC, a Delaware limited liability company (the “Issuer”), with its principal executive office located at 1847 Holdings LLC, 590 Madison Avenue, 21st Floor, New York, NY 10022 (the “Principal Office”), promises to pay SILAC INSURANCE COMPANY (internal account no. SLO3) or its successors, assigns or designees (the “Purchaser”), in lawful money of the United States of America the principal sum of Seven Million Eight Hundred Sixty Thousand Dollars ($7,860,000), or such lesser amount as shall equal the outstanding principal amount hereof, together with interest from the date of this Note on the unpaid principal balance at a rate equal to the Applicable Rate (the “Interest”). All unpaid principal, together with any then unpaid and accrued Interest and other amounts payable hereunder, shall be due and payable on the earlier of: (i) the close of business on October 8, 2026, or (ii) when, upon or after the occurrence of an Event of Default (as defined below), such amounts become due and payable to the Purchaser in accordance with the terms hereof (the earliest of such dates being hereinafter referred to as the “Maturity Date”). This Secured Convertible Promissory Note (this “Note”) is a “Note” issued pursuant to the Note Purchase Agreement, dated of even date herewith, by and among the Issuer, the Guarantors party thereto, the Purchaser and Leonite Capital LLC, as adminsitrative agent for the Purchaser (“Agent”) (as may be further amended, restated, modified, or supplemented from time to time, the “Note Purchase Agreement”).

 

 

 

The following is a statement of the rights of the Purchaser and the conditions to which this Note is subject, and to which the Purchaser, by the acceptance of this Note, agrees:

 

1. Definitions. As used in this Note, the following capitalized terms have the following meanings:

 

(a) “Applicable Rate” means, at any date the same is to be determined, the greater of (i) a rate per annum equal to 4.75% plus the Benchmark or (ii) 8%, which shall be calculated on the basis of a 360-day year and actual days elapsed.

 

(b) “Benchmark” means the U.S. Prime Rate that appears in The Wall Street Journal from time to time as determined by Agent.

 

(c) “Default Interest Rate” means the lesser of (i) 24% or (ii) the maximum legal rate.

 

(d) “Event of Default” has the meaning given in Section 4 hereof.

 

(e) “Interest” has the meaning given in the introductory paragraph hereof.

 

(f) “Maturity Date” has the meaning given in the introductory paragraph hereof.

 

(g) “Subsequent Financing” shall mean any offering by any Obligor of Equity Interests, equity linked securities, or unsecured Indebtedness for cash. Subsequent Financing shall not include any offering of secured Indebtedness for which the Most Favored Lender Provisions apply or offerings of Equity Interests or Indebtedness for consideration other than cash, including Seller Notes.

 

Additional capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in the Note Purchase Agreement.

 

2. Payments and Prepayments.

 

(a) Payments. Payments of Interest only, computed at the Applicable Rate on the outstanding principal amount hereunder, shall be due and payable quarterly in arrears commencing on January 1, 2022, and continuing on the first day of each calendar quarter thereafter through and including the Maturity Date. All unpaid principal and any accrued and unpaid interest on this Note shall be due and payable on the Maturity Date. Each payment or prepayment hereunder shall be subject to Section 2(d) of the Note Purchase Agreement.

 

(b) Default Interest. Upon the occurrence and during the continuance of an Event of Default, interest shall accrue at the Default Interest Rate.

 

(c) Voluntary Prepayments. Subject to payment of any applicable Prepayment Fee, Issuer may prepay the Loan in whole or in part at any time, without penalty.

 

(d) Mandatory Prepayments.

 

(i) Proceeds of Issuances of Indebtedness. Immediately upon receipt by any Obligor of any proceeds from any issuance of Indebtedness (other than Permitted Indebtedness) by any Obligor, Issuer shall prepay the Obligations in an amount equal to all such proceeds (whether or not such proceeds are received by Issuer), net of reasonable and customary transaction costs, fees and expenses properly attributable to such transaction and payable by the Obligors in connection therewith (in each case, paid to non-Affiliates). Any such prepayment shall be applied in accordance with Section 2(d)(iii).

 

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(ii) Asset Dispositions and Extraordinary Receipts. Immediately upon receipt by any Obligor of any proceeds of any sale or disposition by any Obligor of any of the Collateral or any of its respective assets (other than asset sales or dispositions in the ordinary course of business which are permitted by the Note Purchase Agreement), or any proceeds from any casualty insurance policies or eminent domain, condemnation or similar proceedings, Issuer shall prepay the Obligations in an amount equal to all such proceeds (whether or not such proceeds are actually received by Issuer), net of commissions and other reasonable and customary transaction costs, fees and expenses properly attributable to such transaction and payable by Issuer in connection therewith (in each case, paid to non-Affiliates). Any such prepayment shall be applied in accordance with Section 2(d)(iii).

 

(iii) Application of Prepayments. Any prepayments made pursuant to Section 2(d)(i) or (ii) shall be applied as follows: first, to Agent’s and each Purchaser’s fees and reimbursable expenses then due and payable pursuant to any of the Transaction Documents (including, without limitation, any applicable Prepayment Fee); second, to Interest then due and payable hereunder and under the other Notes on a pro rata basis; and third, to the principal balance due on this Note and each of the other Notes on a pro rata basis until the same shall have been paid in full.

 

(e) Prepayment Fee. In the event that any prepayment of the obligations evidenced by this Note occurs for any reason prior to the Maturity Date (including, without limitation, following acceleration by the Agent or Purchasers upon the occurrence of an Event of Default), in view of the impracticality and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of Purchaser’s lost profits as a result thereof, the Issuer shall pay to the Purchaser a prepayment fee in an amount equal to 10% of the principal and interest paid in connection with such prepayment (or then due and payable upon an acceleration by the Agent or Purchasers) (the “Prepayment Fee”). For the avoidance of doubt, any Prepayment Fee owed by Issuer to Purchaser in accordance with this clause (e) shall be in addition to any accrued and unpaid interest.

 

3. Credit Support. The Obligations and all other amounts owing hereunder are (i) guaranteed pursuant to the Guaranty, and (ii) secured by the Collateral pursuant to the terms of the Security Agreement and the other Transaction Documents.

 

4. Events of Default. The occurrence of any of the following shall constitute an “Event of Default” under this Note and the other Transaction Documents:

 

(a) Failure to Pay. The Issuer shall fail to pay, within two (2) Business Days following the due date thereof, any principal payment or any interest or other payment required under the terms of this Note; or

 

(b) Representations and Warranties. Any representation or warranty made by any Obligor in the Note Purchase Agreement or any of the other Transaction Documents shall prove to have been false or misleading when made (or, if applicable, when reaffirmed) in any material respect; or

 

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(c) Covenants. Any Obligor fails to timely and properly observe, keep or perform, any term, covenant, agreement or condition under (i) Section 5 in the Note Purchase Agreement or (ii) under any other provision of the Note Purchase Agreement not specified in this Section 4 or any other Transaction Document and such failure shall not have been remedied or waived within thirty (30) days after the earlier of (x) an officer of such Obligor becoming aware of such failure or (y) receipt by the Issuer of notice from the Agent or Purchaser of such failure; or

 

(d) Cross Default. Any Obligor is in breach or default under any Indebtedness or other obligations (other than those evidenced by this Note), which default is not cured within any applicable cure period set forth in the agreement with respect to the Indebtedness or other obligations and which would cause or permit the holder of such Indebtedness or other obligations to accelerate the maturity thereof; or

 

(e) Validity of Transaction Documents. Any Obligor or any other Person shall challenge the validity and binding effect of any provision of any of the Transaction Documents or shall state its intention to make such a challenge of any of the Transaction Documents or any of the Transaction Documents shall for any reason (except to the extent permitted by its express terms) cease to be effective or to create a valid and perfected security interest in any of the collateral purported to be covered thereby; or

 

(f) Inability to Pay Debts. Any Obligor admits in writing its present inability generally to pay its debts as they mature or shall make any assignment for the benefit of any of its creditors; or

 

(g) Judgments. The entry of a final judgment for the payment of money involving more than $250,000 against any Obligor, and the failure by any Obligor to discharge the same, or cause it to be discharged, within thirty (30) days from the date of the order, decree or process under which or pursuant to which such judgment was entered; or

 

(h) Suspension of Business. Any Obligor suspends its business operations for more than ten (10) Business Days or terminates its business operations, or liquidates, dissolves or terminates its existence; or

 

(i) Voluntary Bankruptcy or Insolvency Proceedings. Any Obligor shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit in writing its present inability, to pay its debts generally as they mature, (iii) make a general assignment for the benefit of its or any of its creditors, (iv) be dissolved or liquidated, (v) become insolvent (as such term may be defined or interpreted under any applicable statute) as determined by a court of competent jurisdiction, (vi) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it, or (vii) take any action for the purpose of effecting any of the foregoing; or

 

(j) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a receiver, trustee, liquidator or custodian of any Obligor or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to any Obligor or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered or such proceeding shall not be dismissed or discharged within 30 days of commencement; or

 

(k) Change of Control. The occurrence of a Change of Control; or

 

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(l) Material Adverse Effect. The occurrence of a Material Adverse Effect; or

 

(m) SEC Reports. The Issuer fails to timely file any document or report that it is required to file with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of the Exchange Act, as applicable (after giving effect to all applicable grace periods thereunder); or

 

(n) Restatement of Financial Statements. The Issuer restates any of its previously issued financial statements contained in any Quarterly Report on Form 10-Q or Annual Report on Form 10-K filed with the Securities and Exchange Commission; or

 

(o) Delisting of Common Shares. The delisting of the Issuer’s Common Shares from any principal market (presently the OTCQB); or

 

(p) Continued Listing Requirements. The Issuer’s failure to comply with the requirements for continued listing on a principal market for a period of ten (10) consecutive trading days, or notification from the principal market that the Company is not in compliance with the conditions for such continued listing on such principal market; or

 

(q) Trading Suspension. The Issuer is subject to a trading suspension on the principal market that lasts for five or more consecutive trading days; or

 

(r) DWAC/FAST. The Issuer loses its ability to deliver shares via “DWAC/FAST” electronic transfer; or

 

(s) DTC Eligibility. The Issuer loses its status as “DTC Eligible”; or

 

(t) Reservation of Common Shares. The Issuer shall fail to reserve and keep available out of its authorized Common Shares 125% of the maximum number of Common Shares issuable upon conversion of this Note pursuant to Section 7 hereof.

 

5. Rights of Agent and Purchasers upon Default. Upon the occurrence or existence of any Event of Default (other than an Event of Default described in Sections 4(i) or 4(j)) and at any time thereafter during the continuance of such Event of Default, the Agent may (or shall, at the direction of the Required Purchasers), by written notice to the Issuer, declare all outstanding Obligations payable by the Issuer hereunder to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived. Upon the occurrence or existence of any Event of Default described in Sections 4(i) and 4(j), immediately and without notice, all outstanding Obligations payable by the Issuer hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived. In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default, (i) the Agent may (or shall, at the direction of the Required Purchasers) exercise any other right, power or remedy granted to it by the Transaction Documents or otherwise permitted to it by law, either by suit in equity or by action at law, or both, and (ii) the Issuer shall pay to the Agent, for the benefit of the Purchasers, a fee in the amount of $10,000 each month until such time as the Agent confirms in writing that such Event of Default has been waived.

 

6. Exchange Rights. The Purchaser shall have the right (but not the obligation) to exchange this Note into securities sold in a Subsequent Financing. At the time of the Subsequent Financing, Purchaser shall have the right to either: (i) retain the Note or the securities purchased in a previous Subsequent Financing; or (ii) exchange the Note or such securities into the Subsequent Financing. The amount invested or exchanged into the Subsequent Financing will be equal to the amount of this Note or investment in a previous Subsequent Financing.

 

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7. Conversion Right. The Purchaser shall have the right to convert this Note and accrued and unpaid Interest due under this Note into Common Shares, as set forth in this Section 7.

 

(a) Conversion into Issuer’s Common Shares. The Purchaser shall have the right, from and after the date of the issuance of this Note and then at any time until the Maturity Date, to convert any outstanding and unpaid principal portion of this Note, and any accrued but unpaid Interest on such portion, at the election of the Purchaser (the date of such conversion being a “Conversion Date”) into Common Shares at the Conversion Price (as hereinafter defined). Upon delivery to the Issuer of a completed Notice of Conversion, a form of which is attached hereto as Exhibit A, the Issuer shall issue and deliver to the Purchaser within five (5) business days after the Conversion Date (such day being the “Delivery Date”) that number of Common Shares for the portion of the Note and any accrued but unpaid Interest on such portion converted in accordance with the following sentence. The number of Common Shares to be issued upon each conversion of this Note shall be determined by dividing that portion of the principal of the Note to be converted and any accrued but unpaid Interest on such portion, by the Conversion Price. The “Conversion Price” shall initially be $2.50 per Common Share, and shall be subject to adjustment as provided hereafter in this Section 7.

 

(b) Manner of Conversion. This Note may be converted by the Purchaser by presentment of this Note, accompanied by written notice stating that Purchaser elects to convert all or a portion of the principal amount hereof, and any accrued but unpaid Interest on such portion, and stating the name or names, together with addresses, in which the Common Shares are to be issued. Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which this Note shall have been so surrendered to Issuer; and at such time the rights of the Purchaser as to that portion of this Note so converted shall cease, and the person in whose name or names the Common Shares shall be issuable upon such conversion shall be deemed to have become the holder or holders of record thereof. If this Note is converted in part only, upon conversion of such part hereof, the Issuer shall execute and deliver to the Purchaser upon surrender of this Note a new Note in the aggregate principal amount equal to the then unconverted portion of the principal amount of this Note plus any accrued but unpaid and unconverted Interest and in all other respects identical to this Note.

 

(c) Distributions, Splits, Combinations, Reclassifications. In the event the Issuer shall hereafter (i) pay a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Shares on the Common Shares, (ii) subdivide the outstanding Common Shares into a larger number of shares, (iii) combine (including by way of a reverse stock split) outstanding Common Shares into a smaller number of shares or (iv) issue, in the event of a reclassification of Common Shares, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number Common Shares (excluding any treasury shares of the Issuer) outstanding immediately before such event, and of which the denominator shall be the number of Common Shares outstanding immediately after such event. All adjustments made pursuant to this Section 7(c) shall become effective immediately after the earlier of the record date or the payment date in the case of a distribution and shall become effective immediately after the effective date in the case of a subdivision or combination.

 

(d) Sale of Common Shares Below Conversion Price.

 

(i) Reduction of the Conversion Price. If at any time or from time to time after the date this Note is issued, the Issuer issues or sells, or is deemed by the provisions of this Section 7(d) to have issued or sold, Additional Common Shares (as hereinafter defined), other than as provided in Section 7(c) above, for an Effective Price (as hereinafter defined) less than the Conversion Price then in effect, then the Conversion Price shall be reduced, as of the opening of business on the date of such issue or sale, to a price equal to the Effective Price.

 

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(ii) Determination of Consideration. For the purpose of making any adjustment required under this Section 7(d), the consideration received by the Issuer for any issue or sale of securities shall (A) to the extent it consists of cash, be the amount of cash received by the Issuer therefor before deducting any discounts, commissions or other expenses allowed, paid or incurred by the Issuer for any underwriting or otherwise in connection thereof, (B) to the extent it consists of property other than cash, be computed at the fair market value of that property (1) as determined in good faith by the Manager, and (2) such determination is agreed upon by Purchaser, and (C) if Additional Common Shares, Convertible Securities (as hereinafter defined) or rights or options to purchase either Additional Common Shares or Convertible Securities are issued or sold together with other securities or other assets of the Issuer for a consideration which covers both, be computed as the portion of the consideration so received that (1) may be reasonably determined in good faith by the Issuer’s Board of Directors, and (2) such determination is agreed upon by Purchaser, to be allocable to such Additional Common Shares, Convertible Securities or rights or options. Should Purchaser not agree with the determination of the Issuer’s Board of Directors as provided in this Section 7(d)(ii) (or such determination of the Board of Directors as set forth in Section 7(f) below or any dispute pursuant to Section 7(i) below) and such differences are not resolved by mutual agreement of the Issuer and Purchaser within thirty (30) days thereafter, then Issuer and Required Purchaser shall jointly engage an independent investment banking firm or valuation firm (the “Appraiser”) to resolve all such differences, with the costs and expenses of such Appraiser to be shared equally between the Issuer, on the one hand, and Purchasers, on the other hand. The Appraiser shall, acting as an expert and not as an arbitrator, determine in accordance with the terms of this Note the remaining differences so submitted by the parties. The parties shall direct the Appraiser to use all reasonable efforts to render its determination within thirty (30) days after such submission. The Appraiser’s determination shall be set forth in a written statement and shall be final, binding, conclusive and non-appealable for all purposes.

 

(iii) Treatment of Convertible Securities. For the purpose of the adjustment required under this Section 7(d), if the Issuer issues or sells any options, rights or other securities convertible into, exchangeable for or entitling the holder thereof to receive Common Shares (such options, rights or other securities being herein referred to as “Convertible Securities”), in each case the Issuer shall be deemed to have issued at the time of the issuance of such Convertible Securities the maximum number of Common Shares issuable upon conversion, exchange or exercise thereof and to have received as consideration for such issuance an amount equal to the total amount of the consideration, if any, received by the Issuer for the issuance of such Convertible Securities, and allocable to the Convertible Securities as provided in subsection (ii)(C) hereof, plus, the amount of consideration, if any, payable to the Issuer upon the conversion, exchange or exercise of such Convertible Securities (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities); provided that if the amounts of such consideration cannot be ascertained but are a function of anti-dilution or similar protective clauses, the Issuer shall be deemed to have received the amounts of consideration without reference to such clauses; and provided further that if the amount of consideration payable to the Issuer upon the conversion, exchange or exercise of Convertible Securities is reduced (or increased) over time or on the occurrence or non-occurrence of specified events other than by reason of anti-dilution adjustments, the Effective Price shall be recalculated using the figure to which such amount of consideration is reduced or increased, as the case may be. No further adjustment of the Conversion Price, as adjusted upon the issuance of such Convertible Securities, shall be made as a result of the actual issuance of Common Shares on the conversion, exchange or exercise of any such Convertible Securities.

 

(iv) Excluded Issuances. For purposes of this Note, the term “Additional Common Shares” shall mean all Common Shares issued or sold by the Issuer or deemed to be issued or sold pursuant to this Section 7(d), whether or not subsequently reacquired or retired by the Issuer, other than Permitted Issuances.

 

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(v) Effective Price. For purposes of this Note, the term “Effective Price” of Additional Common Shares shall mean the quotient determined by dividing the total number of Additional Common Shares issued or sold, or deemed to have been issued or sold by the Issuer under this Section 7(d), into the aggregate consideration received, or deemed to have been received by the Issuer for such issue under this Section 7(d), for such Additional Common Shares. The issuance or deemed issuance of Additional Common Shares for no consideration shall be deemed to be an issuance at a per unit consideration of $.001.

 

(e) Purchaser’s Conversion Limitations. The Issuer shall not effect any conversion of this Note, to the extent that after giving effect to the conversion as set forth on the applicable Notice of Conversion, the Purchaser (together with the Purchaser’s Affiliates, and any other Persons acting as a group together with the Purchaser or any of the Purchaser’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of Common Shares beneficially owned by the Purchaser and its Affiliates and Attribution Parties shall include the number of Common Shares issuable upon conversion of this Note with respect to which such determination is being made, but shall exclude the number of Common Shares which would be issuable upon (i) conversion of the remaining, nonconverted principal amount of this Note beneficially owned by the Purchaser or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Issuer (including, without limitation, any other Common Share Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Purchaser or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 7(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Purchaser that the Issuer is not representing to the Purchaser that such calculation is in compliance with Section 13(d) of the Exchange Act and the Purchaser is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 7(e) applies, the determination of whether this Note is convertible (in relation to other securities owned by the Purchaser together with any Affiliates and Attribution Parties) and of which principal amount of this Note is convertible shall be in the sole discretion of the Purchaser, and the submission of a Notice of Conversion shall be deemed to be the Purchaser’s determination of whether this Note is convertible (in relation to other securities owned by the Purchaser together with any Affiliates and Attribution Parties) and of which principal amount of this Note is convertible, in each case subject to the Beneficial Ownership Limitation, and the Issuer shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 7(e), in determining the number of outstanding Common Shares, a Purchaser may rely on the number of outstanding Common Shares as reflected in (A) the Issuer’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Issuer, or (C) a more recent written notice by the Issuer or the Transfer Agent setting forth the number of Common Shares outstanding.  Upon the written or oral request of a Purchaser, the Issuer shall within two (2) Trading Days confirm orally and in writing to the Purchaser the number of Common Shares then outstanding.  In any case, the number of outstanding Common Shares shall be determined after giving effect to the conversion or exercise of securities of the Issuer, including this Note, by the Purchaser or its Affiliates or Attribution Parties since the date as of which such number of outstanding Common Shares was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Shares outstanding immediately after giving effect to the issuance of Common Shares issuable upon conversion of this Note. The Purchaser, upon notice to the Issuer, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 7(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Shares outstanding immediately after giving effect to the issuance of Common Shares upon conversion of this Note held by the Purchaser and the provisions of this Section 7(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Issuer. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 7(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor Purchaser of this Note.

 

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(f) Recapitalizations, Reorganizations, etc. In the event of any recapitalization, reorganization, consolidation or merger of the Issuer with or into another Person or the sale, transfer or other disposition of all or substantially all of the assets of the Issuer and its Subsidiaries (taken as a whole) to another Person, this Note shall thereafter be convertible into the kind and amount of Equity Interests or other securities or property that a holder of the number of Common Shares deliverable upon conversion of this Note would have been entitled upon such recapitalization, reorganization, consolidation, merger or sale; and, in such case, appropriate adjustment (as determined in good faith by the Issuer’s Board of Directors and such determination is agreed upon by the Purchaser) shall be made in the application of the provisions set forth in this Section 7 with respect to the rights and interests thereafter of the Purchaser, to the end that the provisions set forth in this Section 7 shall thereafter be applicable, as nearly as reasonably may be, in relation to any Equity Interests or other securities or property thereafter deliverable upon conversion of this Note.

 

(g) De Minimis Adjustments. No adjustment to the Conversion Price shall be made if such adjustment would result in a change in the Conversion Price of less than $.01. Any adjustment of less than $.01 that is not made shall be carried forward and shall be made at the time of and together with any subsequent adjustment that, on a cumulative basis, amounts to an adjustment of $.01 or more in the Conversion Price.

 

(h) No Impairment. Neither the Issuer nor any Guarantor shall, by amendment of its governing documents or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Issuer and the Guarantors, but shall at all times in good faith assist in the carrying out of all the provisions of this Section 7 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the Purchaser against impairment.

 

(i) Certificate as to Adjustments; Dispute. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 7, the Issuer at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to the Purchaser a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Issuer shall, upon the written request at any time of the Purchaser, furnish or cause to be furnished to the Purchaser a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price at that time in effect, and (iii) the number of Common Shares and the amount, if any, of other property that at that time would be received upon the conversion of this Note. In the event Purchaser at any time objects to the calculation of any adjustment or readjustment of the Conversion Price, the parties shall engage the Appraiser pursuant to and in accordance with the methodology and terms set forth in Section 7(d)(ii) above.

 

(j) Notices of Record Date. In the event of any taking by the Issuer or Guarantor of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any distribution, any Convertible Securities or any right to subscribe for, purchase or otherwise acquire any Equity Interests or any other securities or property, or to receive any other right, the Issuer shall mail to the Purchaser, at least twenty (20) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such distribution or rights, and the amount and character of such distribution or rights.

 

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8. Right of Participation in Securities Offerings. Until the date that is eighteen (18) months after the Closing Date, the Purchaser shall have the right, but not the obligation, to participate in any securities offering of the Issuer other than a Permitted Issuance in an amount of up to the original principal amount of this Note. Issuer shall give Purchaser at least thirty (30) days prior written notice of the launch of such next securities offering, which notice shall (1) identify each other proposed purchaser expected to be participating in such securities offering and contain the expected terms and pricing thereof as of the date of such notice, and (2) be delivered to Purchaser’s address set forth in the Note Purchase Agreement. Purchaser may decline to participate in any such securities offering in its sole discretion.

 

9. Right of First Refusal. The Purchaser shall have the right of first refusal to participate in any issuance of Indebtedness by the Issuer until this Note has been terminated; provided, however, that this right of first refusal shall not apply to Permitted Issuances.

 

10. Successors and Assigns. Subject to the restrictions on transfer described in Sections 11 and 12 below, the rights and obligations of the Issuer and the Purchaser shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties.

 

11. Waiver and Amendment. No waiver, termination or discharge of this Note, or any of the terms or provisions hereof, shall be binding upon either party hereto unless set forth in writing and signed by the party to be bound thereby. Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or a waiver of any term or condition of this Note. No failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this Note shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

 

12. Transfer of this Note or Securities Issuable on Conversion Hereof. Purchaser may assign this Note and its interests and obligations hereunder, as well as any securities into which this Note may be converted, in whole or in part or sell participations in this Note and its interests in the Obligations hereunder, in each case in accordance with Section 10(h) of the Note Purchase Agreement. Each Note thus transferred and each certificate representing the securities thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Issuer such legend is not required in order to ensure compliance with the Securities Act. The Issuer may issue stop transfer instructions to its transfer agent in connection with such restrictions. Subject to the foregoing, transfers of this Note shall be registered upon registration books maintained for such purpose by or on behalf of the Issuer. Prior to presentation of this Note for registration of transfer, the Issuer shall treat the registered holder hereof as the owner and holder of this Note for the purpose of receiving all payments of principal and interest hereon and for all other purposes whatsoever.

 

13. Assignment by the Issuer. Neither this Note nor any of the rights, interests or obligations hereunder may be assigned, by operation of law or otherwise, in whole or in part, by the Issuer without the prior written consent of the Purchaser.

 

14. Notices. All notices, requests, demands, consents, instructions or other communications required or permitted hereunder shall in writing and faxed, mailed or delivered to each party at the respective addresses of the parties set forth in the Note Purchase Agreement, or at such other address, e-mail address or facsimile number as each party shall have furnished to the other party in writing. All such notices and communications will be deemed effectively given the earlier of (i) when received, (ii) when delivered personally, (iii) one Business Day after being deposited with an overnight courier service of recognized standing or (iv) four days after being deposited in the U.S. mail, first class with postage prepaid.

 

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15. Usury. In the event any interest is paid on this Note which is deemed to be in excess of the then legal maximum rate, then that portion of the interest payment representing an amount in excess of the then legal maximum rate shall be deemed a payment of principal and applied against the principal of this Note.

 

16. Waivers. The Issuer hereby waives notice of acceptance, default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this instrument.

 

17. Governing Law. This Note and all actions arising out of or in connection with this Note shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflicts of law provisions of the State of New York or of any other state.

 

18. WAIVER OF JURY TRIAL. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF THIS NOTE OR ANY OTHER TRANSACTION DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS NOTE AND THE OTHER TRANSACTION DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

19. Time Is of the Essence. Time is of the essence of this Note, and of each provision hereof.

 

20. Characterization as Indebtedness. It is the express intent of the Issuer, the Guarantors and the Purchaser that, prior to conversion of this Note as contemplated in Section 7 above, the obligations of the Issuer hereunder shall constitute indebtedness for borrowed money, and not equity. In furtherance of the foregoing, each of the Issuer, the Guarantors and the Purchaser shall reflect their rights and obligations hereunder in their books and records as indebtedness for borrowed money, and not as equity.

 

[Signature Page Follows]

 

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The Issuer has caused this Secured Convertible Promissory Note to be issued as of the date first written above.

 

 

  1847 HOLDINGS LLC
     
  By: /s/ Ellery W. Roberts
  Name: Ellery W. Roberts
  Title: Chief Executive Officer

 

[SIGNATURE PAGE TO SECURED CONVERTIBLE PROMISSORY NOTE]

 

 

 

EXHIBIT A

 

FORM OF

 

NOTICE OF CONVERSION

 

(To be executed by the Purchaser in order to convert the Note)

 

The undersigned hereby elects to convert $___________ of the Principal and accrued but unpaid Interest with respect to the Secured Convertible Promissory Note issued by 1847 HOLDINGS LLC on October 8, 2021 into Common Shares of 1847 HOLDINGS LLC according to the conditions set forth in such Secured Convertible Promissory Note, as of the date written below.

 

  Date of Conversion: _____________________________
     
  Conversion Price: _____________________________
     
  Common Shares To Be Delivered: _____________________________
     
  Signature: _____________________________
     
  Print Name: _____________________________
     
  Address: _____________________________
    _____________________________
    _____________________________

 

 

 

 

 

Exhibit 10.14

 

Execution Version

 

THIS NOTE HAS BEEN ISSUED WITH “ORIGINAL ISSUE DISCOUNT” FOR U.S. FEDERAL INCOME TAX PURPOSES. THE ISSUER OF THIS NOTE WILL MAKE AVAILABLE TO ANY HOLDER OF THIS NOTE: (1) THE ISSUE PRICE AND ISSUE DATE OF THIS NOTE, (2) THE AMOUNT OF ORIGINAL ISSUE DISCOUNT ON THIS NOTE, (3) THE YIELD TO MATURITY OF THIS NOTE, AND (4) ANY OTHER INFORMATION REQUIRED TO BE MADE AVAILABLE BY U.S. TREASURY REGULATIONS UPON RECEIVING A WRITTEN REQUEST FOR SUCH INFORMATION TO CHIEF FINANCIAL OFFICER AT THE FOLLOWING ADDRESS: 1847 HOLDINGS LLC, 590 MADISON AVENUE, 21ST FLOOR, NEW YORK, NY 10022.

 

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

 

1847 HOLDINGS, LLC

 

SECURED CONVERTIBLE PROMISSORY NOTE

 

Dated as of: October 8, 2021 Purchase Price: $98,000.00
Maturity Date: October 8, 2026 Original Issue Discount: $2,000.00
  Original Principal Amount: $100,000.00

 

October 8, 2021

 

FOR VALUE RECEIVED, 1847 HOLDINGS LLC, a Delaware limited liability company (the “Issuer”), with its principal executive office located at 1847 Holdings LLC, 590 Madison Avenue, 21st Floor, New York, NY 10022 (the “Principal Office”), promises to pay LEONITE CAPITAL LLC or its successors, assigns or designees (the “Purchaser”), in lawful money of the United States of America the principal sum of One Hundred Thousand Dollars ($100,000), or such lesser amount as shall equal the outstanding principal amount hereof, together with interest from the date of this Note on the unpaid principal balance at a rate equal to the Applicable Rate (the “Interest”). All unpaid principal, together with any then unpaid and accrued Interest and other amounts payable hereunder, shall be due and payable on the earlier of: (i) the close of business on October 8, 2026, or (ii) when, upon or after the occurrence of an Event of Default (as defined below), such amounts become due and payable to the Purchaser in accordance with the terms hereof (the earliest of such dates being hereinafter referred to as the “Maturity Date”). This Secured Convertible Promissory Note (this “Note”) is a “Note” issued pursuant to the Note Purchase Agreement, dated of even date herewith, by and among the Issuer, the Guarantors party thereto, the Purchaser, the other persons party thereto and Leonite Capital LLC, in its capacity as administrative agent for the Purchaser (“Agent”) (as may be further amended, restated, modified, or supplemented from time to time, the “Note Purchase Agreement”).

 

 

 

 

The following is a statement of the rights of the Purchaser and the conditions to which this Note is subject, and to which the Purchaser, by the acceptance of this Note, agrees:

 

1. Definitions. As used in this Note, the following capitalized terms have the following meanings:

 

(a) “Applicable Rate” means, at any date the same is to be determined, the greater of (i) a rate per annum equal to 4.75% plus the Benchmark or (ii) 8%, which shall be calculated on the basis of a 360-day year and actual days elapsed.

 

(b) “Benchmark” means the U.S. Prime Rate that appears in The Wall Street Journal from time to time as determined by Agent.

 

(c) “Default Interest Rate” means the lesser of (i) 24% or (ii) the maximum legal rate.

 

(d) “Event of Default” has the meaning given in Section 4 hereof.

 

(e) “Interest” has the meaning given in the introductory paragraph hereof.

 

(f) “Maturity Date” has the meaning given in the introductory paragraph hereof.

 

(g) “Subsequent Financing” shall mean any offering by any Obligor of Equity Interests, equity linked securities, or unsecured Indebtedness for cash. Subsequent Financing shall not include any offering of secured Indebtedness for which the Most Favored Lender Provisions apply or offerings of Equity Interests or Indebtedness for consideration other than cash, including Seller Notes.

 

Additional capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in the Note Purchase Agreement.

 

2. Payments and Prepayments.

 

(a) Payments. Payments of Interest only, computed at the Applicable Rate on the outstanding principal amount hereunder, shall be due and payable quarterly in arrears commencing on January 1, 2022, and continuing on the first day of each calendar quarter thereafter through and including the Maturity Date. All unpaid principal and any accrued and unpaid interest on this Note shall be due and payable on the Maturity Date. Each payment or prepayment hereunder shall be subject to Section 2(d) of the Note Purchase Agreement.

 

(b) Default Interest. Upon the occurrence and during the continuance of an Event of Default, interest shall accrue at the Default Interest Rate.

 

(c) Voluntary Prepayments. Subject to payment of any applicable Prepayment Fee, Issuer may prepay the Loan in whole or in part at any time, without penalty.

 

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(d) Mandatory Prepayments.

 

(i) Proceeds of Issuances of Indebtedness. Immediately upon receipt by any Obligor of any proceeds from any issuance of Indebtedness (other than Permitted Indebtedness) by any Obligor, Issuer shall prepay the Obligations in an amount equal to all such proceeds (whether or not such proceeds are received by Issuer), net of reasonable and customary transaction costs, fees and expenses properly attributable to such transaction and payable by the Obligors in connection therewith (in each case, paid to non-Affiliates). Any such prepayment shall be applied in accordance with Section 2(d)(iii).

 

(ii) Asset Dispositions and Extraordinary Receipts. Immediately upon receipt by any Obligor of any proceeds of any sale or disposition by any Obligor of any of the Collateral or any of its respective assets (other than asset sales or dispositions in the ordinary course of business which are permitted by the Note Purchase Agreement), or any proceeds from any casualty insurance policies or eminent domain, condemnation or similar proceedings, Issuer shall prepay the Obligations in an amount equal to all such proceeds (whether or not such proceeds are actually received by Issuer), net of commissions and other reasonable and customary transaction costs, fees and expenses properly attributable to such transaction and payable by Issuer in connection therewith (in each case, paid to non-Affiliates). Any such prepayment shall be applied in accordance with Section 2(d)(iii).

 

(iii) Application of Prepayments. Any prepayments made pursuant to Section 2(d)(i) or (ii) shall be applied as follows: first, to Agent’s and each Purchaser’s fees and reimbursable expenses then due and payable pursuant to any of the Transaction Documents (including, without limitation, any applicable Prepayment Fee); second, to Interest then due and payable hereunder and under the other Notes on a pro rata basis; and third, to the principal balance due on this Note and each of the other Notes on a pro rata basis until the same shall have been paid in full.

 

(e) Prepayment Fee. In the event that any prepayment of the obligations evidenced by this Note occurs for any reason prior to the Maturity Date (including, without limitation, following acceleration by the Agent or Purchasers upon the occurrence of an Event of Default), in view of the impracticality and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of Purchaser’s lost profits as a result thereof, the Issuer shall pay to the Purchaser a prepayment fee in an amount equal to 10% of the principal and interest paid in connection with such prepayment (or then due and payable upon an acceleration by the Agent or Purchasers) (the “Prepayment Fee”). For the avoidance of doubt, any Prepayment Fee owed by Issuer to Purchaser in accordance with this clause (e) shall be in addition to any accrued and unpaid interest.

 

3. Credit Support. The Obligations and all other amounts owing hereunder are (i) guaranteed pursuant to the Guaranty, and (ii) secured by the Collateral pursuant to the terms of the Security Agreement and the other Transaction Documents.

 

4. Events of Default. The occurrence of any of the following shall constitute an “Event of Default” under this Note and the other Transaction Documents:

 

(a) Failure to Pay. The Issuer shall fail to pay, within two (2) Business Days following the due date thereof, any principal payment or any interest or other payment required under the terms of this Note; or

 

(b) Representations and Warranties. Any representation or warranty made by any Obligor in the Note Purchase Agreement or any of the other Transaction Documents shall prove to have been false or misleading when made (or, if applicable, when reaffirmed) in any material respect; or

 

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(c) Covenants. Any Obligor fails to timely and properly observe, keep or perform, any term, covenant, agreement or condition under (i) Section 5 in the Note Purchase Agreement or (ii) under any other provision of the Note Purchase Agreement not specified in this Section 4 or any other Transaction Document and such failure shall not have been remedied or waived within thirty (30) days after the earlier of (x) an officer of such Obligor becoming aware of such failure or (y) receipt by the Issuer of notice from the Agent or Purchaser of such failure; or

 

(d) Cross Default. Any Obligor is in breach or default under any Indebtedness or other obligations (other than those evidenced by this Note), which default is not cured within any applicable cure period set forth in the agreement with respect to the Indebtedness or other obligations and which would cause or permit the holder of such Indebtedness or other obligations to accelerate the maturity thereof; or

 

(e) Validity of Transaction Documents. Any Obligor or any other Person shall challenge the validity and binding effect of any provision of any of the Transaction Documents or shall state its intention to make such a challenge of any of the Transaction Documents or any of the Transaction Documents shall for any reason (except to the extent permitted by its express terms) cease to be effective or to create a valid and perfected security interest in any of the collateral purported to be covered thereby; or

 

(f) Inability to Pay Debts. Any Obligor admits in writing its present inability generally to pay its debts as they mature or shall make any assignment for the benefit of any of its creditors; or

 

(g) Judgments. The entry of a final judgment for the payment of money involving more than $250,000 against any Obligor, and the failure by any Obligor to discharge the same, or cause it to be discharged, within thirty (30) days from the date of the order, decree or process under which or pursuant to which such judgment was entered; or

 

(h) Suspension of Business. Any Obligor suspends its business operations for more than ten (10) Business Days or terminates its business operations, or liquidates, dissolves or terminates its existence; or

 

(i) Voluntary Bankruptcy or Insolvency Proceedings. Any Obligor shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit in writing its present inability, to pay its debts generally as they mature, (iii) make a general assignment for the benefit of its or any of its creditors, (iv) be dissolved or liquidated, (v) become insolvent (as such term may be defined or interpreted under any applicable statute) as determined by a court of competent jurisdiction, (vi) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it, or (vii) take any action for the purpose of effecting any of the foregoing; or

 

(j) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a receiver, trustee, liquidator or custodian of any Obligor or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to any Obligor or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered or such proceeding shall not be dismissed or discharged within 30 days of commencement; or

 

(k) Change of Control. The occurrence of a Change of Control; or

 

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(l) Material Adverse Effect. The occurrence of a Material Adverse Effect; or

 

(m) SEC Reports. The Issuer fails to timely file any document or report that it is required to file with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of the Exchange Act, as applicable (after giving effect to all applicable grace periods thereunder); or

 

(n) Restatement of Financial Statements. The Issuer restates any of its previously issued financial statements contained in any Quarterly Report on Form 10-Q or Annual Report on Form 10-K filed with the Securities and Exchange Commission; or

 

(o) Delisting of Common Shares. The delisting of the Issuer’s Common Shares from any principal market (presently the OTCQB); or

 

(p) Continued Listing Requirements. The Issuer’s failure to comply with the requirements for continued listing on a principal market for a period of ten (10) consecutive trading days, or notification from the principal market that the Company is not in compliance with the conditions for such continued listing on such principal market; or

 

(q) Trading Suspension. The Issuer is subject to a trading suspension on the principal market that lasts for five or more consecutive trading days; or

 

(r) DWAC/FAST. The Issuer loses its ability to deliver shares via “DWAC/FAST” electronic transfer; or

 

(s) DTC Eligibility. The Issuer loses its status as “DTC Eligible”; or

 

(t) Reservation of Common Shares. The Issuer shall fail to reserve and keep available out of its authorized Common Shares 125% of the maximum number of Common Shares issuable upon conversion of this Note pursuant to Section 7 hereof.

5. Rights of Agent and Purchasers upon Default. Upon the occurrence or existence of any Event of Default (other than an Event of Default described in Sections 4(i) or 4(j)) and at any time thereafter during the continuance of such Event of Default, the Agent may (or shall, at the direction of the Required Purchasers), by written notice to the Issuer, declare all outstanding Obligations payable by the Issuer hereunder to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived. Upon the occurrence or existence of any Event of Default described in Sections 4(i) and 4(j), immediately and without notice, all outstanding Obligations payable by the Issuer hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived. In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default, (i) the Agent may (or shall, at the direction of the Required Purchasers) exercise any other right, power or remedy granted to it by the Transaction Documents or otherwise permitted to it by law, either by suit in equity or by action at law, or both, and (ii) the Issuer shall pay to the Agent, for the benefit of the Purchasers, a fee in the amount of $10,000 each month until such time as the Agent confirms in writing that such Event of Default has been waived.

 

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6. Exchange Rights. The Purchaser shall have the right (but not the obligation) to exchange this Note into securities sold in a Subsequent Financing. At the time of the Subsequent Financing, Purchaser shall have the right to either: (i) retain the Note or the securities purchased in a previous Subsequent Financing; or (ii) exchange the Note or such securities into the Subsequent Financing. The amount invested or exchanged into the Subsequent Financing will be equal to the amount of this Note or investment in a previous Subsequent Financing.

 

7. Conversion Right. The Purchaser shall have the right to convert this Note and accrued and unpaid Interest due under this Note into Common Shares, as set forth in this Section 7.

 

(a) Conversion into Issuer’s Common Shares. The Purchaser shall have the right, from and after the date of the issuance of this Note and then at any time until the Maturity Date, to convert any outstanding and unpaid principal portion of this Note, and any accrued but unpaid Interest on such portion, at the election of the Purchaser (the date of such conversion being a “Conversion Date”) into Common Shares at the Conversion Price (as hereinafter defined). Upon delivery to the Issuer of a completed Notice of Conversion, a form of which is attached hereto as Exhibit A, the Issuer shall issue and deliver to the Purchaser within five (5) business days after the Conversion Date (such day being the “Delivery Date”) that number of Common Shares for the portion of the Note and any accrued but unpaid Interest on such portion converted in accordance with the following sentence. The number of Common Shares to be issued upon each conversion of this Note shall be determined by dividing that portion of the principal of the Note to be converted and any accrued but unpaid Interest on such portion, by the Conversion Price. The “Conversion Price” shall initially be $2.50 per Common Share, and shall be subject to adjustment as provided hereafter in this Section 7.

 

(b) Manner of Conversion. This Note may be converted by the Purchaser by presentment of this Note, accompanied by written notice stating that Purchaser elects to convert all or a portion of the principal amount hereof, and any accrued but unpaid Interest on such portion, and stating the name or names, together with addresses, in which the Common Shares are to be issued. Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which this Note shall have been so surrendered to Issuer; and at such time the rights of the Purchaser as to that portion of this Note so converted shall cease, and the person in whose name or names the Common Shares shall be issuable upon such conversion shall be deemed to have become the holder or holders of record thereof. If this Note is converted in part only, upon conversion of such part hereof, the Issuer shall execute and deliver to the Purchaser upon surrender of this Note a new Note in the aggregate principal amount equal to the then unconverted portion of the principal amount of this Note plus any accrued but unpaid and unconverted Interest and in all other respects identical to this Note.

 

(c) Distributions, Splits, Combinations, Reclassifications. In the event the Issuer shall hereafter (i) pay a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Shares on the Common Shares, (ii) subdivide the outstanding Common Shares into a larger number of shares, (iii) combine (including by way of a reverse stock split) outstanding Common Shares into a smaller number of shares or (iv) issue, in the event of a reclassification of Common Shares, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number Common Shares (excluding any treasury shares of the Issuer) outstanding immediately before such event, and of which the denominator shall be the number of Common Shares outstanding immediately after such event. All adjustments made pursuant to this Section 7(c) shall become effective immediately after the earlier of the record date or the payment date in the case of a distribution and shall become effective immediately after the effective date in the case of a subdivision or combination.

 

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(d) Sale of Common Shares Below Conversion Price.

 

(i) Reduction of the Conversion Price. If at any time or from time to time after the date this Note is issued, the Issuer issues or sells, or is deemed by the provisions of this Section 7(d) to have issued or sold, Additional Common Shares (as hereinafter defined), other than as provided in Section 7(c) above, for an Effective Price (as hereinafter defined) less than the Conversion Price then in effect, then the Conversion Price shall be reduced, as of the opening of business on the date of such issue or sale, to a price equal to the Effective Price.

 

(ii) Determination of Consideration. For the purpose of making any adjustment required under this Section 7(d), the consideration received by the Issuer for any issue or sale of securities shall (A) to the extent it consists of cash, be the amount of cash received by the Issuer therefor before deducting any discounts, commissions or other expenses allowed, paid or incurred by the Issuer for any underwriting or otherwise in connection thereof, (B) to the extent it consists of property other than cash, be computed at the fair market value of that property (1) as determined in good faith by the Manager, and (2) such determination is agreed upon by Purchaser, and (C) if Additional Common Shares, Convertible Securities (as hereinafter defined) or rights or options to purchase either Additional Common Shares or Convertible Securities are issued or sold together with other securities or other assets of the Issuer for a consideration which covers both, be computed as the portion of the consideration so received that (1) may be reasonably determined in good faith by the Issuer’s Board of Directors, and (2) such determination is agreed upon by Purchaser, to be allocable to such Additional Common Shares, Convertible Securities or rights or options. Should Purchaser not agree with the determination of the Issuer’s Board of Directors as provided in this Section 7(d)(ii) (or such determination of the Board of Directors as set forth in Section 7(f) below or any dispute pursuant to Section 7(i) below) and such differences are not resolved by mutual agreement of the Issuer and Purchaser within thirty (30) days thereafter, then Issuer and Required Purchaser shall jointly engage an independent investment banking firm or valuation firm (the “Appraiser”) to resolve all such differences, with the costs and expenses of such Appraiser to be shared equally between the Issuer, on the one hand, and Purchasers, on the other hand. The Appraiser shall, acting as an expert and not as an arbitrator, determine in accordance with the terms of this Note the remaining differences so submitted by the parties. The parties shall direct the Appraiser to use all reasonable efforts to render its determination within thirty (30) days after such submission. The Appraiser’s determination shall be set forth in a written statement and shall be final, binding, conclusive and non-appealable for all purposes.

 

(iii) Treatment of Convertible Securities. For the purpose of the adjustment required under this Section 7(d), if the Issuer issues or sells any options, rights or other securities convertible into, exchangeable for or entitling the holder thereof to receive Common Shares (such options, rights or other securities being herein referred to as “Convertible Securities”), in each case the Issuer shall be deemed to have issued at the time of the issuance of such Convertible Securities the maximum number of Common Shares issuable upon conversion, exchange or exercise thereof and to have received as consideration for such issuance an amount equal to the total amount of the consideration, if any, received by the Issuer for the issuance of such Convertible Securities, and allocable to the Convertible Securities as provided in subsection (ii)(C) hereof, plus, the amount of consideration, if any, payable to the Issuer upon the conversion, exchange or exercise of such Convertible Securities (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities); provided that if the amounts of such consideration cannot be ascertained but are a function of anti-dilution or similar protective clauses, the Issuer shall be deemed to have received the amounts of consideration without reference to such clauses; and provided further that if the amount of consideration payable to the Issuer upon the conversion, exchange or exercise of Convertible Securities is reduced (or increased) over time or on the occurrence or non-occurrence of specified events other than by reason of anti-dilution adjustments, the Effective Price shall be recalculated using the figure to which such amount of consideration is reduced or increased, as the case may be. No further adjustment of the Conversion Price, as adjusted upon the issuance of such Convertible Securities, shall be made as a result of the actual issuance of Common Shares on the conversion, exchange or exercise of any such Convertible Securities.

 

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(iv) Excluded Issuances. For purposes of this Note, the term “Additional Common Shares” shall mean all Common Shares issued or sold by the Issuer or deemed to be issued or sold pursuant to this Section 7(d), whether or not subsequently reacquired or retired by the Issuer, other than Permitted Issuances.

 

(v) Effective Price. For purposes of this Note, the term “Effective Price” of Additional Common Shares shall mean the quotient determined by dividing the total number of Additional Common Shares issued or sold, or deemed to have been issued or sold by the Issuer under this Section 7(d), into the aggregate consideration received, or deemed to have been received by the Issuer for such issue under this Section 7(d), for such Additional Common Shares. The issuance or deemed issuance of Additional Common Shares for no consideration shall be deemed to be an issuance at a per unit consideration of $.001.

 

(e) Purchaser’s Conversion Limitations. The Issuer shall not effect any conversion of this Note, to the extent that after giving effect to the conversion as set forth on the applicable Notice of Conversion, the Purchaser (together with the Purchaser’s Affiliates, and any other Persons acting as a group together with the Purchaser or any of the Purchaser’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of Common Shares beneficially owned by the Purchaser and its Affiliates and Attribution Parties shall include the number of Common Shares issuable upon conversion of this Note with respect to which such determination is being made, but shall exclude the number of Common Shares which would be issuable upon (i) conversion of the remaining, nonconverted principal amount of this Note beneficially owned by the Purchaser or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Issuer (including, without limitation, any other Common Share Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Purchaser or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 7(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Purchaser that the Issuer is not representing to the Purchaser that such calculation is in compliance with Section 13(d) of the Exchange Act and the Purchaser is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 7(e) applies, the determination of whether this Note is convertible (in relation to other securities owned by the Purchaser together with any Affiliates and Attribution Parties) and of which principal amount of this Note is convertible shall be in the sole discretion of the Purchaser, and the submission of a Notice of Conversion shall be deemed to be the Purchaser’s determination of whether this Note is convertible (in relation to other securities owned by the Purchaser together with any Affiliates and Attribution Parties) and of which principal amount of this Note is convertible, in each case subject to the Beneficial Ownership Limitation, and the Issuer shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 7(e), in determining the number of outstanding Common Shares, a Purchaser may rely on the number of outstanding Common Shares as reflected in (A) the Issuer’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Issuer, or (C) a more recent written notice by the Issuer or the Transfer Agent setting forth the number of Common Shares outstanding.  Upon the written or oral request of a Purchaser, the Issuer shall within two (2) Trading Days confirm orally and in writing to the Purchaser the number of Common Shares then outstanding.  In any case, the number of outstanding Common Shares shall be determined after giving effect to the conversion or exercise of securities of the Issuer, including this Note, by the Purchaser or its Affiliates or Attribution Parties since the date as of which such number of outstanding Common Shares was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Shares outstanding immediately after giving effect to the issuance of Common Shares issuable upon conversion of this Note. The Purchaser, upon notice to the Issuer, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 7(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Shares outstanding immediately after giving effect to the issuance of Common Shares upon conversion of this Note held by the Purchaser and the provisions of this Section 7(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Issuer. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 7(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor Purchaser of this Note.

 

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(f) Recapitalizations, Reorganizations, etc. In the event of any recapitalization, reorganization, consolidation or merger of the Issuer with or into another Person or the sale, transfer or other disposition of all or substantially all of the assets of the Issuer and its Subsidiaries (taken as a whole) to another Person, this Note shall thereafter be convertible into the kind and amount of Equity Interests or other securities or property that a holder of the number of Common Shares deliverable upon conversion of this Note would have been entitled upon such recapitalization, reorganization, consolidation, merger or sale; and, in such case, appropriate adjustment (as determined in good faith by the Issuer’s Board of Directors and such determination is agreed upon by the Purchaser) shall be made in the application of the provisions set forth in this Section 7 with respect to the rights and interests thereafter of the Purchaser, to the end that the provisions set forth in this Section 7 shall thereafter be applicable, as nearly as reasonably may be, in relation to any Equity Interests or other securities or property thereafter deliverable upon conversion of this Note.

 

(g) De Minimis Adjustments. No adjustment to the Conversion Price shall be made if such adjustment would result in a change in the Conversion Price of less than $.01. Any adjustment of less than $.01 that is not made shall be carried forward and shall be made at the time of and together with any subsequent adjustment that, on a cumulative basis, amounts to an adjustment of $.01 or more in the Conversion Price.

 

(h) No Impairment. Neither the Issuer nor any Guarantor shall, by amendment of its governing documents or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Issuer and the Guarantors, but shall at all times in good faith assist in the carrying out of all the provisions of this Section 7 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the Purchaser against impairment.

 

(i) Certificate as to Adjustments; Dispute. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 7, the Issuer at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to the Purchaser a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Issuer shall, upon the written request at any time of the Purchaser, furnish or cause to be furnished to the Purchaser a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price at that time in effect, and (iii) the number of Common Shares and the amount, if any, of other property that at that time would be received upon the conversion of this Note. In the event Purchaser at any time objects to the calculation of any adjustment or readjustment of the Conversion Price, the parties shall engage the Appraiser pursuant to and in accordance with the methodology and terms set forth in Section 7(d)(ii) above.

 

(j) Notices of Record Date. In the event of any taking by the Issuer or Guarantor of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any distribution, any Convertible Securities or any right to subscribe for, purchase or otherwise acquire any Equity Interests or any other securities or property, or to receive any other right, the Issuer shall mail to the Purchaser, at least twenty (20) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such distribution or rights, and the amount and character of such distribution or rights.

 

8. Right of Participation in Securities Offerings. Until the date that is eighteen (18) months after the Closing Date, the Purchaser shall have the right, but not the obligation, to participate in any securities offering of the Issuer other than a Permitted Issuance in an amount of up to the original principal amount of this Note. Issuer shall give Purchaser at least thirty (30) days prior written notice of the launch of such next securities offering, which notice shall (1) identify each other proposed purchaser expected to be participating in such securities offering and contain the expected terms and pricing thereof as of the date of such notice, and (2) be delivered to Purchaser’s address set forth in the Note Purchase Agreement. Purchaser may decline to participate in any such securities offering in its sole discretion.

 

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9. Right of First Refusal. The Purchaser shall have the right of first refusal to participate in any issuance of Indebtedness by the Issuer until this Note has been terminated; provided, however, that this right of first refusal shall not apply to Permitted Issuances.

 

10. Successors and Assigns. Subject to the restrictions on transfer described in Sections 11 and 12 below, the rights and obligations of the Issuer and the Purchaser shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties.

 

11. Waiver and Amendment. No waiver, termination or discharge of this Note, or any of the terms or provisions hereof, shall be binding upon either party hereto unless set forth in writing and signed by the party to be bound thereby. Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or a waiver of any term or condition of this Note. No failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this Note shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

 

12. Transfer of this Note or Securities Issuable on Conversion Hereof. Purchaser may assign this Note and its interests and obligations hereunder, as well as any securities into which this Note may be converted, in whole or in part or sell participations in this Note and its interests in the Obligations hereunder, in each case in accordance with Section 10(h) of the Note Purchase Agreement. Each Note thus transferred and each certificate representing the securities thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Issuer such legend is not required in order to ensure compliance with the Securities Act. The Issuer may issue stop transfer instructions to its transfer agent in connection with such restrictions. Subject to the foregoing, transfers of this Note shall be registered upon registration books maintained for such purpose by or on behalf of the Issuer. Prior to presentation of this Note for registration of transfer, the Issuer shall treat the registered holder hereof as the owner and holder of this Note for the purpose of receiving all payments of principal and interest hereon and for all other purposes whatsoever.

 

13. Assignment by the Issuer. Neither this Note nor any of the rights, interests or obligations hereunder may be assigned, by operation of law or otherwise, in whole or in part, by the Issuer without the prior written consent of the Purchaser.

 

14. Notices. All notices, requests, demands, consents, instructions or other communications required or permitted hereunder shall in writing and faxed, mailed or delivered to each party at the respective addresses of the parties set forth in the Note Purchase Agreement, or at such other address, e-mail address or facsimile number as each party shall have furnished to the other party in writing. All such notices and communications will be deemed effectively given the earlier of (i) when received, (ii) when delivered personally, (iii) one Business Day after being deposited with an overnight courier service of recognized standing or (iv) four days after being deposited in the U.S. mail, first class with postage prepaid.

 

15. Usury. In the event any interest is paid on this Note which is deemed to be in excess of the then legal maximum rate, then that portion of the interest payment representing an amount in excess of the then legal maximum rate shall be deemed a payment of principal and applied against the principal of this Note.

 

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16. Waivers. The Issuer hereby waives notice of acceptance, default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this instrument.

 

17. Governing Law. This Note and all actions arising out of or in connection with this Note shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflicts of law provisions of the State of New York or of any other state.

 

18. WAIVER OF JURY TRIAL. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF THIS NOTE OR ANY OTHER TRANSACTION DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS NOTE AND THE OTHER TRANSACTION DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

19. Time Is of the Essence. Time is of the essence of this Note, and of each provision hereof.

 

20. Characterization as Indebtedness. It is the express intent of the Issuer, the Guarantors and the Purchaser that, prior to conversion of this Note as contemplated in Section 7 above, the obligations of the Issuer hereunder shall constitute indebtedness for borrowed money, and not equity. In furtherance of the foregoing, each of the Issuer, the Guarantors and the Purchaser shall reflect their rights and obligations hereunder in their books and records as indebtedness for borrowed money, and not as equity.

[Signature Page Follows]

 

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The Issuer has caused this Secured Convertible Promissory Note to be issued as of the date first written above.

 

  1847 HOLDINGS LLC
     
  By: /s/ Ellery W. Roberts
  Name: Ellery W. Roberts
  Title: Chief Executive Officer

 

 

 

 

EXHIBIT A

 

FORM OF

 

NOTICE OF CONVERSION

 

(To be executed by the Purchaser in order to convert the Note)

 

The undersigned hereby elects to convert $___________ of the Principal and accrued but unpaid Interest with respect to the Secured Convertible Promissory Note issued by 1847 HOLDINGS LLC on October 8, 2021 into Common Shares of 1847 HOLDINGS LLC according to the conditions set forth in such Secured Convertible Promissory Note, as of the date written below.

 

Date of Conversion:  
   
Conversion Price:  
   
Common Shares To Be Delivered:  
   
Signature:  
   
Print Name:  
   
Address:  

 

 

 

 

Exhibit 10.15

 

Execution Version

 

GUARANTY AGREEMENT

 

THIS GUARANTY AGREEMENT, dated as of October 8, 2021 (this “Guaranty”), is made by each of the parties listed on the signature page as Guarantor (each a “Guarantor” and collectively, the “Guarantors”), in favor of Leonite Capital LLC, in its capacity as administrative agent (in such capacity, the “Agent”) for the Purchasers party to the Note Purchase Agreement (as hereafter defined), for the benefit of the Agent and the Purchasers.

 

WHEREAS, pursuant to that certain Note Purchase Agreement dated of even date herewith, by and among 1847 Holdings LLC, a Delaware limited liability company (the “Issuer”), the Guarantors, the Purchasers, and the Agent (as the same may be amended, restated, modified or supplemented and in effect from time to time, the “Note Purchase Agreement”), the Purchasers purchased those certain Secured Convertible Promissory Notes, issued by the Issuer (as the same may be amended, restated, modified or supplemented and in effect from time to time, the “Notes”); and

 

WHEREAS, it is a condition precedent to the Purchasers’ purchase of the Notes pursuant to the Note Purchase Agreement that Guarantors shall guarantee all obligations of the Issuer under the Note Purchase Agreement, the Notes, and the other Transaction Documents (as defined in the Notes); and

 

WHEREAS, the obligations of the Guarantors and the Issuer under this Guaranty, the Note Purchase Agreement, the Notes and the other Transaction Documents are secured by liens on and security interests in all or substantially all of the assets of the Guarantors and the Issuer pursuant to that certain Security Agreement dated of even date herewith executed by the Issuer and the Guarantors in favor of the Agent, for the benefit of the Purchasers;

 

NOW, THEREFORE, in consideration of the foregoing, and in order to induce the Purchasers to purchase the Notes from the Issuer in accordance with the Note Purchase Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantors hereby agree with Agent, for the ratable benefit of the Purchasers, as follows:

 

Section 1. Guarantee of Payment. Each Guarantor unconditionally and irrevocably guarantees to the Agent, for the ratable benefit of the Purchasers and their respective successors, indorsees, permitted transferees and permitted assigns, the punctual payment of all sums now owing or which may in the future be owing by the Issuer under the Note Purchase Agreement, the Notes, and the other Transaction Documents, when the same are due and payable, whether on demand, at stated maturity, by acceleration or otherwise, and whether for principal, interest, fees, expenses, indemnification or otherwise, and the performance of all obligations of the Issuer under the Note Purchase Agreement, the Notes, and the other Transaction Documents (all of the foregoing sums and other obligations being the “Guaranteed Obligations”). The Guaranteed Obligations include, without limitation, interest accruing after the commencement of a proceeding under bankruptcy, insolvency or similar laws of any jurisdiction at the rate or rates provided in the Transaction Documents. Upon the failure by the Issuer to pay punctually any Guaranteed Obligation when due, each Guarantor agrees that it shall forthwith pay to the Agent the amount not so paid at the place and in the manner specified in the relevant Transaction Document. This Guaranty is a guarantee of payment and performance and not of collection only. The Agent and the Purchasers shall not be required to exhaust any right or remedy or take any action against the Issuer or any other person or entity or any collateral. Each Guarantor agrees that, as between such Guarantor and the Agent, the Guaranteed Obligations may be declared to be due and payable in accordance with and for the purposes of this Guaranty notwithstanding any stay, injunction or other prohibition which may prevent, delay or vitiate any declaration as regards to the Issuer and that in the event of a declaration or attempted declaration in accordance with the terms hereof, the Guaranteed Obligations shall immediately become due and payable by such Guarantor for the purposes of this Guaranty, notwithstanding the ineffectiveness of any such declaration as against the Issuer.

 

 

 

 

Section 2. Guarantee Absolute. Each Guarantor guarantees that the Guaranteed Obligations shall be paid strictly in accordance with the terms of the Transaction Documents. The liability of such Guarantor under this Guaranty is absolute and unconditional irrespective of: (a) any change in the time, manner or place of payment of, or in any other term of, all or any of the Transaction Documents or any of the Guaranteed Obligations, or any other amendment or waiver of or any consent to departure from any of the terms of any Transaction Document or Guaranteed Obligation, including any increase or decrease in the rate of interest thereon; (b) any release or amendment or waiver of, or consent to departure from, any other guarantee or support document, or any exchange, release or non-perfection of any collateral, for all or any of the Transaction Documents or Guaranteed Obligations; (c) any present or future law, regulation or order of any jurisdiction (whether of right or in fact) or of any agency thereof purporting to reduce, amend, restructure or otherwise affect any term of any Transaction Document or Guaranteed Obligation; (d) without being limited by the foregoing, any lack of validity or enforceability of any Transaction Document or Guaranteed Obligation; and (e) any other setoff, defense or counterclaim whatsoever (in any case, whether based on contract, tort or any other theory) with respect to the Transaction Documents or the transactions contemplated thereby which might constitute a legal or equitable defense available to, or discharge of, either the Issuer or the Guarantors.

 

Section 3. Guarantee Irrevocable. This Guaranty is a continuing guarantee of the payment and performance of all Guaranteed Obligations now or hereafter existing under the Transaction Documents and shall remain in full force and effect until payment and performance in full of all Guaranteed Obligations arising under the Note Purchase Agreement, the Notes and the other Transaction Documents and any other amounts payable under this Guaranty and until the Notes and the other Transaction Documents have been terminated.

 

Section 4. Reinstatement. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Guaranteed Obligations is rescinded or must otherwise be returned by the Agent on the insolvency, bankruptcy or reorganization of the Issuer or otherwise, all as though the payment had not been made.

 

Section 5. Subrogation. No Guarantor shall exercise any rights which it may acquire by way of subrogation, by any payment made under this Guaranty or otherwise, until all the Guaranteed Obligations have been paid in full and the Transaction Documents are no longer in effect. If any amount is paid to any Guarantor on account of subrogation rights under this Guaranty at any time when all the Guaranteed Obligations have not been paid in full, the amount shall be held in trust by such Guarantor for the benefit of the Agent and shall be promptly paid to the Agent to be credited and applied to the Guaranteed Obligations, whether matured or unmatured or absolute or contingent, in accordance with the terms hereof and of the Transaction Documents.

 

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Section 6. Subordination. Without limiting the Agent’s and Purchasers’ rights under any other agreement, any liabilities owed by the Issuer to any Guarantor in connection with any extension of credit or financial accommodation by such Guarantor to or for the account of the Issuer, including but not limited to interest accruing at the agreed contract rate after the commencement of a bankruptcy or similar proceeding, are hereby subordinated to the Guaranteed Obligations, and such liabilities of the Issuer to such Guarantor, if the Agent so requests when an Event of Default has occurred and is continuing, shall be collected, enforced and received by such Guarantor as trustee for the Agent and shall be paid over to the Agent on account of the Guaranteed Obligations but without reducing or affecting in any manner the liability of such Guarantor under the other provisions of this Guaranty.

 

Section 7. Representations and Warranties. Each Guarantor represents and warrants that in executing and delivering this Guaranty, such Guarantor has (i) without reliance on Agent or Purchasers or any information received from Agent or Purchasers and based upon such documents and information it deems appropriate, made an independent investigation of the transactions contemplated hereby and the Issuer, the Issuer’s business, assets, operations, prospects and condition, financial or otherwise, and any circumstances which may bear upon such transactions, the Issuer or the obligations and risks undertaken herein with respect to the Guaranteed Obligations; (ii) adequate means to obtain from the Issuer on a continuing basis information concerning the Issuer; (iii) has full and complete access to the Transaction Documents and any other documents executed in connection with the Transaction Documents; and (iv) not relied and will not rely upon any representations or warranties of the Agent or Purchasers not embodied herein or any acts heretofore or hereafter taken by the Agent or Purchasers (including but not limited to any review by any of the Agent or Purchasers of the affairs of the Issuer).

 

Section 8. Formalities. Each Guarantor waives presentment, notice of dishonor, protest, notice of acceptance of this Guaranty or incurrence of any Guaranteed Obligation and any other formality with respect to any of the Guaranteed Obligation or this Guaranty.

 

Section 9. Amendments and Waivers. No amendment or waiver of any provision of this Guaranty, nor consent to any departure by any Guarantor therefrom, shall be effective unless it is in writing and signed by the Agent, with the consent of or at the direction of the Required Purchasers, and then the waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of Agent to exercise, and no delay in exercising, any right under this Guaranty shall operate as a waiver or preclude any other or further exercise thereof or the exercise of any other right.

 

Section 10. Expenses. The Guarantors shall reimburse the Agent on demand for all reasonable and documented costs, expenses and charges (including without limitation reasonable and documented fees and charges of external legal counsel) incurred by Agent in connection with the enforcement of this Guaranty. The obligations of the Guarantors under this Section 10 shall survive the termination of this Guaranty.

 

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Section 11. Assignment. This Guaranty shall be binding on, and shall inure to the benefit of, the Guarantors, Agent and their respective successors and assigns; provided that the Guarantors may not assign or transfer their rights or obligations under this Guaranty. Without limiting the generality of the foregoing, Agent, on behalf of the Purchasers, may assign, sell participations in or otherwise transfer its rights under the Transaction Documents in accordance with the terms thereof to any other person or entity, and such other person or entity shall then become vested with all the rights granted to the Agent, on behalf of the Purchasers, in this Guaranty or otherwise.

 

Section 12. Captions. The headings and captions in this Guaranty are for convenience only and shall not affect the interpretation or construction of this Guaranty.

 

Section 13. Integration; Effectiveness. This Guaranty alone sets forth the entire understanding of the Guarantors and the Agent relating to the guaranty of the Guaranteed Obligations and constitutes the entire contract between the parties relating to the subject matter hereof and supersedes any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. This Guaranty shall become effective when it shall have been executed by the Guarantors. Delivery of an executed signature page of this Guaranty by electronic transmission shall be effective as delivery of a manually executed signature page of this Guaranty.

 

Section 14. Notices. All communications and notices hereunder shall be in writing and given as provided in the Note Purchase Agreement.

 

Section 15. GOVERNING LAW; SUBMISSION TO JURISDICTION.

 

THIS GUARANTY, AND ALL MATTERS RELATING HERETO OR ARISING HEREFROM (WHETHER SOUNDING IN CONTRACT LAW, TORT LAW OR OTHERWISE) SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. EACH GUARANTOR HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE Borough of Manhattan, City of New York AND IRREVOCABLY AGREES THAT, SUBJECT TO PURCHASER’S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS GUARANTY SHALL BE LITIGATED IN SUCH COURTS. EACH GUARANTOR EXPRESSLY SUBMITS AND CONSENTS TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS. EACH GUARANTOR HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON SUCH GUARANTOR BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO SUCH GUARANTOR IN ACCORDANCE WITH THE PROVISIONS OF SECTION 14 HEREOF AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED.

 

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Section 16. WAIVER OF JURY TRIAL.

 

GUARANTORS, AND BY THEIR ACCEPTANCE HEREOF, AGENT AND PURCHASERS EACH HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

 

Section 17. Rights and Remedies Cumulative. All rights and remedies of any party hereto or hereunder are cumulative of each other and of every other right or remedy such party may otherwise have at law or in equity, and the exercise of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of other rights or remedies.

 

Section 18. Further Assurances. Upon the reasonable request of Agent, each Guarantor agrees to take any and all actions, including, without limitation, the execution of certificates, documents or instruments, necessary or appropriate to give effect to the transactions described herein or contemplated by this Guaranty.

 

[signature page follows]

 

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Execution Version

 

IN WITNESS WHEREOF, each of the undersigned has caused this Guaranty Agreement to be duly executed and delivered by its authorized officer as of the date first above written.

 

  GUARANTOR:
   
  1847 WOLO INC.
   
  By: /s/ Ellery W. Roberts
  Name: Ellery W. Roberts
  Title: Executive Chairman
   
  1847 CABINETS INC.
   
  By: /s/ Ellery W. Roberts
  Name:  Ellery W. Roberts
  Title: Executive Chairman
   
  1847 ASIEN INC.
   
  By: /s/ Ellery W. Roberts
  Name: Ellery W. Roberts
  Title: Executive Chairman
   
  ASIEN’S APPLIANCES, INC
   
  By: /s/ Ellery W. Roberts
  Name: Ellery W. Roberts
  Title: Executive Chairman
   
  KYLE’S CUSTOM WOOD SHOP, INC.
   
  By: /s/ Ellery W. Roberts
  Name: Ellery W. Roberts
  Title: Executive Chairman
   
  HIGH MOUNTAIN DOOR & TRIM INC.
   
  By: /s/ Ellery W. Roberts
  Name: Ellery W. Roberts
  Title: Executive Chairman

 

[Signature Page to Guaranty Agreement]

 

 

 

   
  SIERRA HOMES LLC
   
  By: /s/ Ellery W. Roberts
  Name: Ellery W. Roberts
  Title: Executive Chairman
   
  WOLO INDUSTRIAL HORN & SIGNAL, INC.
   
  By: /s/ Ellery W. Roberts
  Name: Ellery W. Roberts
  Title: Executive Chairman
   
  WOLO MFG. CORP.
   
  By: /s/ Ellery W. Roberts
  Name: Ellery W. Roberts
  Title: Executive Chairman

 

[Signature Page to Guaranty Agreement]

 

 

Exhibit 10.16

 

Execution Version

 

SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT is dated as of October 8, 2021 by and among 1847 HOLDINGS LLC, a Delaware limited liability company (“Holdings”), each other party listed on the signature page hereto as a debtor (collectively, the “Guarantors” and together with Holdings, the “Debtors” and each, a “Debtor”), and LEONITE CAPITAL LLC, in its capacity as administrative agent (in such capacity, the “Agent”) for the Purchasers party to the Note Purchase Agreement referred to below (collectively, together with the Agent, the “Secured Parties”).

 

WHEREAS, pursuant to that certain Note Purchase Agreement dated of even date herewith, by and among Holdings, the other Debtors, the Agent and the Purchasers (as the same may be amended, restated, modified or supplemented and in effect from time to time, the “Note Purchase Agreement”), the Purchasers purchased certain Secured Convertible Promissory Notes issued by Holdings (as the same may be amended, restated, modified, replaced, or supplemented and in effect from time to time, the “Notes”);

 

WHEREAS, the Guarantors have guaranteed all obligations of Holdings under the Note Purchase Agreement, the Note, and the other Transaction Documents (as defined in the Note Purchase Agreement), pursuant to that certain Guaranty dated of even date herewith executed by the Guarantors in favor of the Agent and the Purchasers (as the same may be amended, restated, modified or supplemented and in effect from time to time, the “Guaranty”); and

 

WHEREAS, it is a condition precedent to the Purchasers’ Purchase of the Notes pursuant to the Note Purchase Amendment that each Debtor shall have granted the security interests contemplated by this Agreement in order to secure the payment and performance of the “Obligations” (as defined in the Note Purchase Agreement) and any and all other obligations of either Debtor under the Note Purchase Agreement, the Notes, the Guaranty, and the other Transaction Documents (collectively, the “Obligations”);

 

NOW, THEREFORE, in consideration of the foregoing, and in order to induce the Purchasers to purchase the Notes from Holdings in accordance with the Note Purchase Amendment, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Debtor hereby agrees with the Agent, for the benefit of the Secured Parties, as follows:

 

SECTION 1 Definitions.

 

1.1 Defined Terms. As used in this Agreement, the following capitalized terms have the corresponding meanings specified below:

 

Agreement” means this Security Agreement, as the same may be amended, restated, modified or supplemented and in effect from time to time in accordance with the terms hereof.

 

Collateral” has the meaning assigned to that term in Section 2.

 

Deposit Account Control Agreement” has the meaning assigned to that term in Section 4.11.

 

 

 

 

Excluded Account” means any deposit account used solely to fund payroll or employee benefits.

 

Excluded Property” means, collectively, (i) any permit, lease, license, contract, instrument or other agreement held by any Debtor that prohibits, or requires the consent of any Person other than a Debtor or any Affiliate thereof as a condition to the creation by such Debtor of a Lien thereon and such consent has not been obtained, or any permit, lease, license contract or other agreement held by any Debtor to the extent that any applicable law prohibits the creation of a Lien thereon, but only, in each case, to the extent, and for so long as, such prohibition is not terminated or rendered unenforceable or otherwise deemed ineffective by the UCC or any other applicable law, (ii) any “intent to use” Trademark applications for which a statement of use has not been filed (but only until such statement is filed), (iii) any Excluded Account, (iv) Equipment owned by any Debtor that is subject to a Lien securing a purchase money obligation or capital lease obligation to the extent permitted under the Note Purchase Agreement if the contract or other agreement in which such Lien is granted (or in the documentation providing for such capital lease) prohibits or requires the consent of any Person other than a Debtor or any Affiliate thereof as a condition to the creation of any other Lien on such Equipment and such consent has not been obtained and; provided, however, that Excluded Property shall not include any Proceeds, substitutions or replacements of any Excluded Property referred to above (unless such Proceeds, substitutions or replacements would constitute “Excluded Property” as defined above) provided, further, that if and when (1) the granting of such security interest is not so prohibited, or (2) upon the consent of any holder of a Lien of the type described in clause (i) or (iv) above, the Agent will be deemed to have, and at all times to have had, a Security Interest in such Excluded Property.

 

Federal Registration Collateral” means Collateral with respect to which Liens may be registered, recorded or filed under, or notice thereof given under, any federal statute or regulation.

 

Lien” means any mortgage, deed of trust, grant, pledge, security interest, assignment, encumbrance, judgment, lien, claim or charge of any kind, whether perfected or unperfected, avoidable or unavoidable, including, without limitation, any conditional sale or other title retention agreement, any lease in the nature thereof, the agreement to any provision for a confession of judgment, cognovit, consent to decree or similar remedy.

 

Security Interests” means the security interests granted or provided for pursuant to Section 2 hereof, as well as all other security interests created, assigned or provided as additional security for the Obligations pursuant to the provisions of this Agreement or any of the other Transaction Documents.

 

1.2 Other Definition Provisions. References to “Sections” or “Schedules” shall be to Sections or Schedules of this Agreement unless otherwise specifically provided. For purposes hereof, “including” is not limiting and “or” is not exclusive. Except as provided by the immediately following sentence, capitalized terms used herein and not otherwise defined herein shall have the respective meanings provided for in the Note Purchase Agreement. All capitalized terms defined in the UCC and not otherwise defined herein shall have the respective meanings provided for by the UCC. Any of the terms defined in Section 1.1 may, unless the context otherwise requires, be used in the singular or the plural depending on the reference. All references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations.

 

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SECTION 2 Grant of Security Interests. To secure the payment and performance of the Obligations, each Debtor hereby grants to the Agent, on behalf of and for the ratable benefit of the Secured Parties, a lien on, security interest in and right of set-off against any and all right, title and interest in and to any and all property and interests in property of such Debtor, whether now owned or existing or hereafter created, acquired or arising and wherever located, including all of the following properties and interests in properties, whether now owned or hereafter created, acquired or arising (all being collectively referred to herein as the “Collateral”):

 

(a) all Accounts;

 

(b) all Chattel Paper;

 

(c) all Commercial Tort Claims, including, without limitation, those Commercial Tort Claims described on Schedule 2(c) hereto;

 

(d) all Deposit Accounts, all cash, and other property deposited therein or otherwise credited thereto from time to time and other monies and property in the possession or under the control of the Agent or any Purchaser or any affiliate, representative, agent or correspondent of the Agent or any Purchaser;

 

(e) all Documents;

 

(f) all General Intangibles;

 

(g) all Goods, including without limitation any and all Inventory, any and all Equipment and any and all Fixtures;

 

(h) all Instruments;

 

(i) all Investment Property;

 

(j) all Letter-of-Credit Rights;

 

(k) all Supporting Obligations;

 

(l) any and all other personal property and interests in property whether or not subject to the UCC;

 

(m) any and all books and records, in whatever form or medium, that at any time evidence or contain information relating to any of the foregoing properties or interests in properties or are otherwise necessary or helpful in the collection thereof or realization thereon;

 

(n) all Accessions and additions to, and substitutions and replacements of, any and all of the foregoing; and

 

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(o) all Proceeds and products of the foregoing, and all insurance pertaining to the foregoing and proceeds thereof.

 

Anything in this Agreement to the contrary notwithstanding, “Collateral” shall not include any Excluded Property; provided, however, that if and when any property shall cease to be Excluded Property, such property shall be deemed at all times from and after the date hereof to constitute Collateral.

 

SECTION 3 Representations and Warranties. Each Debtor represents and warrants to the Agent and Secured Parties as follows:

 

3.1 Binding Obligation; Perfection. This Agreement constitutes a valid and binding obligation of such Debtor, enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, or similar laws relating to the enforcement of creditors’ rights generally and by general equitable principles. The Agent has a valid and perfected first priority security interest in the Collateral securing the payment of the Obligations, and such Security Interests are entitled to all of the rights, priorities and benefits afforded by the UCC or other applicable law as enacted in any relevant jurisdiction which relates to perfected security interests.

 

3.2 Organizational Information. Schedule 3.2 sets forth (i) the full, correct and current name of such Debtor, as its appears in such Debtor’s Organizational Documents, (ii) any names of such Debtor other than such Debtor’s current name, as set forth on such Debtor’s Organizational Documents during the five (5) year period preceding the Closing Date, (iii) such Debtor’s type of organization, (iv) such Debtor’s jurisdiction of organization and (v) such Debtor’s organizational identification number (except where such Debtor’s jurisdiction of organization does not assign organizational numbers).

 

3.3 Collateral Locations. Schedule 3.3 sets forth all addresses at which any Collateral is located, indicating for each whether such location is owned or leased by such Debtor, or owned or operated by a third-party such as a warehouseman, consignee or processor. Schedule 3.3 indicates which of the foregoing addresses serves as such Debtor’s chief executive office.

 

3.4 No Existing Liens. Each Debtor owns the Collateral, and will own all after-acquired Collateral, free and clear of any Lien other than any Liens permitted under Section 5(e) of the Note Purchase Agreement. No effective financing statement or other form of Lien notice covering all or any part of the Collateral is on file in any recording office except with respect to Liens permitted under Section 5(e) of the Note Purchase Agreement.

 

3.5 Governmental Authorizations; Consents; Federal Registration Collateral. No authorization, approval or other action by, and no notice to or filing with, any governmental authority or consent of any other Person is required for (i) the grant by any Debtor of the Security Interests granted hereby or for the execution, delivery or performance of this Agreement by the Debtor; or (ii) the exercise by the Agent of its rights and remedies hereunder (except as may have been accomplished by or at the direction of any Debtor or the Agent). Except for (a) the filing of UCC financing statements with the Secretary of State of each Debtor’s jurisdiction of organization, and (b) execution and delivery of Deposit Account Control Agreements in respect of Deposit Accounts, no authorization, approval or other action by, and no notice to or filing with, any governmental authority or consent of any other Person is required for the perfection of the security interests granted hereby and pursuant to any other Transaction Documents.

 

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3.6 Accounts. Each existing Account constitutes, and each hereafter arising Account will constitute, the legally valid and binding obligation of the applicable Account Debtor. The amount represented by each Debtor to the Agent as owing by each Account Debtor, and the amount set forth on any invoice pertaining to any Account, is, or will be, the correct amount actually and unconditionally owing, except for normal cash discounts and allowances where applicable. No Account Debtor has, or will have, any defense, set-off, claim or counterclaim against any Debtor that can be asserted against the Agent, whether in any proceeding to enforce the Agent or Secured Parties’ rights in the Collateral or otherwise except defenses, setoffs, claims or counterclaims that are not, in the aggregate, material to the value of the Accounts. None of the Accounts is, nor will any hereafter-arising Account be, evidenced by a promissory note or other Instrument other than a check.

 

3.7 Inventory. All Inventory is, and will be, of good and merchantable quality, free from any material defects. Such Inventory is not, and will not be, subject to any licensing, patent, trademark, trade name or copyright agreement with any Person that restricts any Debtor’s or the Agent’s ability to manufacture and/or sell the Inventory. The completion and manufacturing process of such Inventory by a Person other than a Debtor would be permitted under any contract to which any Debtor is a party or to which the Inventory is subject. No Debtor sells any Inventory to any customer on approval or on any other basis that entitles the customer to return, or which may obligate such Debtor to repurchase, such Inventory. None of any Debtor’s Inventory has been, or will be, produced in violation of any provision of the Fair Labor Standards Act of 1938, or in violation of any other law.

 

3.8 Control Arrangements. Except for control arising by operation of law in favor of banks and securities intermediaries having custody over Deposit Accounts and Securities Accounts set forth on Schedule 3.8, no Person (other than the Agent on behalf of the Secured Parties) has control of any Deposit Accounts, Electronic Chattel Paper, Investment Property or Letter-of-Credit Rights in which any Debtor has any interest.

 

3.9 Accurate Information. All information heretofore, herein or hereafter supplied to the Agent or any Secured Party by or on behalf of any Debtor with respect to the Collateral is and will be accurate and complete in all material respects.

 

3.10 Survival of Representations and Warranties. All representations and warranties of each Debtor contained in this Agreement shall survive the execution and delivery of this Agreement.

 

SECTION 4 Covenants and Further Assurances.

 

4.1 Name or Entity Changes. No Debtor shall change its name, type of organization or jurisdiction of organization, unless such Debtor has given the Agent not less than thirty (30) days prior written notice thereof.

 

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4.2 Accounts. Except as otherwise provided in this Section 4.2, each Debtor shall continue to collect, at its own expense, all amounts due or to become due to such Debtor with respect to Accounts and apply such amounts as are so collected to the outstanding balances thereof. In connection with such collections, each Debtor may take (and, at the Agent’s direction during the continuance or any Default or Event of Default, shall take) such action as such Debtor or the Agent may deem necessary or advisable to enforce collection of the Accounts. The Agent shall have the right at any time after the occurrence and during the continuance of a Default or an Event of Default to: (i)  notify the Account Debtor under any Accounts (or any other Person obligated thereon) of the Lien granted upon such Accounts in favor of the Agent and to direct such Account Debtors and other Persons to make payment of all amounts due or to become due or otherwise render performance directly to the Agent; (ii) exercise the rights of any Debtor with respect to the obligation of the Account Debtor to make payment or otherwise render performance to any such Debtor and with respect to any property that secures the obligations of the Account Debtor or any other Person obligated on the Collateral; and (iii) adjust, settle or compromise the amount or payment of such Accounts. After the occurrence and during the continuance of an Event of Default all amounts and Proceeds received by any Debtor with respect to the Accounts shall be received in trust for the benefit of Secured Parties, shall be segregated from other funds of such Debtor and shall be forthwith paid over to the Agent in the same form as so received (with any necessary endorsement) to be held in any Deposit Account pursuant to Section 4.12 and applied pursuant to the Obligations in such manner as the Secured Parties may determine in their sole discretion. No Debtor shall adjust, settle or compromise the amount or payment of any Account, or release wholly or partly any Account Debtor, or allow any credit or discount thereon (other than adjustments, settlements, compromises, releases credits and discounts in the ordinary course of its business and in amounts which are not material to the Debtor) without the prior consent of the Agent.

 

4.3 Bailees. No Collateral shall at any time be in the possession or control of any warehouse, consignee, bailee or any of any Debtor’s agents or processors without prior written notice to the Agent and the receipt by the Agent, if Agent has so requested, of warehouse receipts or bailee lien waivers (as applicable) reasonably satisfactory to the Agent prior to the commencement of such possession or control. Each Debtor shall, upon the reasonable request of the Agent, notify any such warehouse, consignee, bailee, agent or processor of the Security Interests, shall instruct such Person to hold all such Collateral for the Agent’s account subject to the Agent’s instructions and shall obtain an acknowledgement from such Person that such Person holds the Collateral for the Agent’s benefit. The Agent agrees with each Debtor that it shall not give any such instructions unless an Event of Default has occurred and is continuing.

 

4.4 Chattel Paper and Instruments. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any Instrument or Chattel Paper in an individual amount in excess of $50,000 or together with all other Instruments or Chattel Paper in an aggregate amount in excess of $250,000, each Debtor shall deliver to the Agent all such Tangible Chattel Paper and all Instruments duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance reasonably satisfactory to the Agent. Each Debtor shall provide the Agent with control of all Electronic Chattel Paper by having the Agent identified as the assignee of the Records pertaining to the single authoritative copy thereof and otherwise complying with the applicable elements of control set forth in the UCC. Each Debtor also shall deliver to the Agent all security agreements securing any such Chattel Paper and securing any such Instruments. Each Debtor will mark conspicuously all Chattel Paper and all Instruments with a legend, in form and substance reasonably satisfactory to the Agent, indicating that such Chattel Paper and such Instruments are subject to the Security Interests.

 

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4.5 Letters of Credit. Each Debtor shall deliver to the Agent all Letters of Credit duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance reasonably satisfactory to the Agent. Each Debtor also shall deliver to the Agent all security agreements securing any Letters of Credit. Each Debtor shall take any and all actions as may be necessary or desirable, or that the Agent may reasonably request, from time to time, to cause the Agent to obtain exclusive control of any Letter-of-Credit Rights owned by such Debtor in a manner acceptable to the Agent.

 

4.6 Equipment. Each Debtor shall cause all Equipment to be maintained and preserved in good working order and repair, and shall promptly make or cause to be made all repairs, replacements and other improvements in connection therewith that are necessary or desirable to such end. Upon request of the Agent, each Debtor shall promptly deliver to the Agent any and all certificates of title, applications for title or similar evidence of ownership of all requested Equipment having a value in excess of $50,000 individually and shall cause the Agent to be named as lienholder on any such certificate of title or other evidence of ownership (except to the extent already encumbered by a Permitted Lien). Each Debtor shall promptly inform the Agent of any deletions from the Equipment and shall not permit any such items to become Fixtures to real estate other than real estate subject to mortgages or deeds of trust in favor of the Agent.

 

4.7 Investment Property. Each Debtor shall take any and all actions as may be necessary or desirable, or that the Agent may reasonably request from time to time, to (i) cause the Agent to obtain exclusive control of any Investment Property owned by such Debtor in a manner acceptable to the Agent and (ii) obtain from any issuers of Investment Property and such other Persons, for the benefit of Secured Parties, written confirmation of the Agent’s Control over such Investment Property upon terms and conditions acceptable to the Agent. The Agent agrees with each Debtor that it shall not give entitlement orders or instructions or directives to any such issuer unless an Event of Default has occurred and is continuing.

 

4.8 General Intangibles. Each Debtor shall use commercially reasonable efforts to obtain any consents, waivers or agreements necessary to enable the Agent to exercise remedies hereunder and under the other Transaction Documents with respect to any of such Debtor’s rights under any General Intangibles, including such Debtor’s rights as a licensee of Software.

 

4.9 Commercial Tort Claims. Each Debtor shall promptly advise the Agent upon such Debtor becoming aware that it has any interest in Commercial Tort Claims involving potential recoveries in excess of $10,000. With respect to any Commercial Tort Claim in which any Debtor has any interest, such Debtor shall execute and deliver such documents as may be necessary or desirable, or that the Agent may reasonably request, to create, perfect and protect the Agent’s security interest in such Commercial Tort Claim.

 

4.10 Taxes and Claims. Each Debtor shall pay when due all property and other taxes, assessments and governmental charges imposed upon, and all claims against, the Collateral (including claims for labor, materials and supplies); provided that no such tax, assessment or charge need be paid to the extent the same is being contested in good faith and the same may be contested without risk of loss or forfeiture or material impairment of the Collateral or the use thereof.

 

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4.11 Bank Accounts; Collection of Accounts and Payments. Upon request by the Agent, each Debtor agrees to enter into a deposit account control agreement (“Deposit Account Control Agreement”), in a form specified by the Agent, with each financial institution with which such Debtor maintains from time to time any Deposit Account, except with respect to any Excluded Accounts. No Debtor shall establish any such Deposit Account with any financial institution unless prior thereto the Agent and such Debtor shall have entered into a Deposit Account Control Agreement with such financial institution, or unless the Agent shall have waived such requirement.

 

4.12 Collateral Generally.

 

(a) Each Debtor hereby authorizes the Agent to file one or more financing or continuation statements, and amendments thereto (or similar documents required by any laws of any applicable jurisdiction), relating to all or any part of the Collateral without the signature of any Debtor (to the extent such signature is required under the laws of any applicable jurisdiction), which financing statements may describe the Collateral as “all assets” or “all personal property” or words of like import.

 

(b) Each Debtor will furnish to the Agent, from time to time upon request, statements and schedules further identifying, updating, and describing the Collateral and such other information, reports and evidence concerning the Collateral as the Agent may reasonably request, all in reasonable detail.

 

(c) No Debtor shall use or permit any Collateral to be used unlawfully or in material violation of any provision of applicable law, or any policy of insurance covering any of the Collateral.

 

(d) Subject to the next sentence, each Debtor shall keep the Collateral (other than Collateral in the possession of the Agent, cash on deposit in permitted Deposit Accounts and investments in permitted Securities Accounts) at the locations maintained by such Debtor and set forth on Schedule 3.3. Each Debtor shall give the Agent not less than thirty (30) days prior written notice of any change in such Debtor’s chief executive office and principal place of business or of any new location of business or any new location for any of the Collateral. With respect to any new location (which in any event shall be within the continental United States), each Debtor shall execute and deliver such instruments, documents and notices and take such actions as may be necessary or desirable, or that the Agent may reasonably request, to create, perfect and protect the Security Interests.

 

(e) Each Debtor shall keep full and accurate books and records relating to the Collateral and shall stamp or otherwise mark such books and records in such manner as the Agent may reasonably request indicating that the Collateral is subject to the security interest hereunder.

 

(f) Except as otherwise permitted herein, no Debtor shall (i) sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Collateral, except that any Debtor may sell Inventory to buyers in the ordinary course of its business; or (ii) create or suffer to exist any Lien (other than Liens permitted under Section 5(e) of the Note Purchase Agreement) upon or with respect to any of the Collateral to secure indebtedness of any Debtor or any other Person except for the security interests arising under this Agreement.

 

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(g) Beyond the safe custody thereof, each Debtor agrees that the Agent and Secured Parties shall have no duties concerning the custody and preservation of any Collateral in their possession (or in the possession of any agent or bailee) or with respect to any income thereon or the preservation of rights against prior parties or any other rights pertaining thereto. The Agent and Secured Parties shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in their possession if the Collateral is accorded treatment substantially equal to that which they accord their own property. The Agent and Secured Parties shall not be liable or responsible for any loss or damage to any of the Collateral, or for any diminution in the value thereof, by reason of the act or omission of any warehouseman, carrier, forwarding agency, consignee or other agent or bailee selected by the Agent or Secured Parties in good faith.

 

(h) Each Debtor shall do nothing to impair the rights of the Agent, for the benefit of the Agent and the Secured Parties, in the Collateral. The Debtor shall at all times maintain insurance with respect to the Collateral reasonably satisfactory to the Agent. Each Debtor assumes all liability and responsibility in connection with the Collateral acquired by it, and the liability of such Debtor to pay the Obligations shall in no way be affected or diminished by reason of the fact that such Collateral may be lost, stolen, damaged, or for any reason whatsoever unavailable to such Debtor.

 

4.13 Federal Compliance. Each Debtor shall promptly notify the Agent in writing of any Collateral which constitutes a claim against the United States government or any instrumentality or agency thereof, the assignment of which claim is restricted by federal law. Upon the request of the Agent, each Debtor shall take such steps as may be necessary or desirable, or that the Agent may reasonably request, to comply with any applicable federal assignment of claims laws and other comparable laws.

 

4.14 Debtors Remain Liable. Anything herein to the contrary notwithstanding: (i) each Debtor shall remain liable under the contracts and agreements included in the Collateral to the extent set forth therein and shall perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed; (ii) the exercise by the Agent of any of the rights hereunder shall not release any Debtor from any of its duties or obligations under the contracts and agreements included in the Collateral; (iii) the Agent shall not have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Agreement, nor shall the Agent be obligated to perform any of the obligations or duties of any Debtor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder; and (iv) the Agent shall not have any liability in contract or tort for any Debtor’s acts or omissions.

 

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4.15 Other Documents and Actions. Each Debtor shall, from time to time, at its expense, promptly execute and deliver all further instruments, documents and notices and take all further action that may be necessary, or that the Agent may reasonably request, in order to create, perfect and protect any Security Interests, or to enable the Agent (with the concurrence or at the direction of the Required Purchasers) to exercise and enforce its rights and remedies hereunder or under any other Transaction Document with respect to any Collateral. Without limiting the generality of the foregoing, each Debtor shall: (i) at any reasonable time, upon commercially reasonable prior written notice to such Debtor by the Agent, allow the Agent or Persons designated by the Agent to inspect the Collateral and to examine and make copies of the records of such Debtor related thereto, and to discuss the Collateral and the records of such Debtor with respect thereto with, and to be advised as to the same by, such Debtor’s officers and employees and, after the occurrence and during the continuance of an Event of Default, with any other Person which is or may be obligated with respect to any Collateral; and (ii) upon the Agent’s request, appear in and defend any action or proceeding that may affect such Debtor’s title to or the Agent’s security interest in the Collateral.

 

4.16 Voting Rights; Dividends. Each Debtor agrees that:

 

(a) after any Event of Default shall have occurred, such Debtor shall deliver (properly endorsed where required hereby or requested by the Agent) to the Agent (on behalf of the Secured Parties) all dividends and distributions received in respect of any Investment Property, all of which shall be held by the Agent (on behalf of the Secured Parties) as additional Collateral;

 

(b) after any Event of Default shall have occurred, upon written notice to such Debtor by the Agent, all rights of such Debtor to exercise or refrain from exercising voting or other consensual rights in respect of the Collateral shall cease and all such rights shall thereupon become vested in the Agent who shall thereupon have the sole right to exercise or refrain from exercising such voting and other consensual rights; and

 

(c) after any Event of Default shall have occurred, promptly upon request of the Agent, each Debtor shall deliver to the Agent such proxies and other documents as may be necessary to allow the Agent to exercise the voting and other consensual rights with respect to any Collateral.

 

Except as set forth in the immediately preceding sentence, each Debtor shall be entitled to exercise, in its reasonable judgment, but in a manner not inconsistent with the terms of the Transaction Documents (including this Agreement), the voting powers and all other incidental rights of ownership with respect to any capital stock constituting Collateral (subject to such Debtor’s obligation to deliver to the Agent such capital stock in pledge hereunder) and to the receipt of all dividends. All dividends, distributions, cash payments and proceeds which such Debtor is then obligated to deliver to the Agent on behalf of the Secured Parties, shall, until delivery to the Agent, be held by such Debtor separate and apart from his other property in trust for the Agent and the Secured Parties.

 

4.17 Termination of Security Agreement. This Agreement and the security interest granted herein shall terminate immediately upon the repayment in full or conversion of the Note. In such event, the Agent agrees to execute any documents and, at the applicable Debtor’s cost, take any actions, in each case reasonably requested by such Debtor to evidence or effectuate such termination of security interest.

 

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SECTION 5 Remedial Provisions.

 

(a) Following the occurrence and during the continuance of an Event of Default, the Agent or its attorneys shall have the right without notice or demand or legal process (unless the same shall be required by applicable law), personally, or by an agent, (i) to enter upon, occupy and use any premises owned or leased by any Debtor or where the Collateral is located (or is believed to be located) until the Obligations are paid in full without any obligation to pay rent to any Debtor, to render the Collateral useable or saleable and to remove the Collateral or any part thereof to the premises of the Agent for such time as the Agent may desire in order to effectively collect or liquidate the Collateral and use in connection with such removal any and all services, supplies and other facilities of any Debtor; (ii) to take possession of any Debtor’s original books and records, to obtain access to any Debtor’s data processing equipment, computer hardware and Software relating to the Collateral and to use all of the foregoing and the information contained therein in any manner the Agent deems appropriate; and (iii) to notify postal authorities to change the address for delivery of each Debtor’s mail to an address designated by the Agent and to receive, open and dispose of all mail addressed to any Debtor. If any Debtor’s books and records are prepared or maintained by an accounting service, contractor or other third-party agent, such Debtor hereby irrevocably authorizes such service, contractor or other agent, upon notice by the Agent to such Person that an Event of Default has occurred and is continuing, to deliver to the Agent or its designees such books and records, and to follow the Agent’s instructions with respect to further services to be rendered.

 

(b) If any Event of Default shall have occurred and be continuing, the Agent may, with the concurrence or at the direction of the Required Purchasers, exercise in respect of the Collateral, in addition to all other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of the Agent on default under the UCC (whether or not the UCC applies to the affected Collateral) and also may: (i) require each Debtor to, and each Debtor hereby agrees that it will, at its expense and upon request of the Agent forthwith, assemble all or part of the Collateral as directed by the Agent and make it available to the Agent at any place or places designated by the Agent which is reasonably convenient to the Agent in which event such Debtor shall at its own expense (A) forthwith cause the same to be moved to the place or places so designated by the Agent, (B) store and keep any Collateral so delivered to the Agent at such place or places pending further action by the Agent, and (C) while Collateral shall be so stored and kept, provide such guards and maintenance services as shall be necessary to protect the same and to preserve and maintain the Collateral in good condition; (ii) withdraw all cash in any Deposit Account and apply such monies in payment of the Obligations; and (iii) without notice except as specified below, sell, lease, license or otherwise dispose of the Collateral or any part thereof by one or more contracts, in one or more parcels at public or private sale, and without the necessity of gathering at the place of sale of the property to be sold, at any of the Agent’s offices or elsewhere, at such time or times, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as the Agent may deem commercially reasonable. The Agent shall have no obligation to marshal any Collateral in favor of any Debtor or any other Person. The Agent is hereby granted a license or other right, solely pursuant to the provisions of this Section 5, to use, without charge, each Borrower’s labels, Patents, Copyrights, rights of use of any name, trade secrets, trade names, Trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with the Agent’s exercise of its rights under this Section 5, each Debtor’s rights under all licenses and all franchise agreements shall inure to the Agent’s benefit;

 

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(c) Each Debtor agrees that, to the extent notice of sale shall be required by law, a reasonable authenticated notification of disposition shall be a notification given at least ten (10) days prior to any such sale and such notice shall (i) describe the Agent, the Secured Parties and the applicable Debtor, (ii) describe the Collateral that is the subject of the intended disposition, (iii) state the method of intended disposition, (iv) state that such Debtor is entitled to an accounting of the Obligations and state the charge, if any, for an accounting, and (v) state the time and place of any public disposition or the time after which any private sale is to be made. At any sale of the Collateral, if permitted by law, the Agent or any Secured Party may bid directly or through an affiliate or special purpose entity (which bid may be, in whole or in part, in the form of cancellation of indebtedness) for the purchase, lease, license or other disposition of the Collateral or any portion thereof for the account of Secured Parties. The Agent, on behalf of the Secured Parties, shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Agent, on behalf of the Secured Parties, may disclaim any warranties that might arise in connection with the sale, lease, license or other disposition of the Collateral and have no obligation to provide any warranties at such time. The Agent, on behalf of the Secured Parties, may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. To the extent permitted by law, each Debtor hereby specifically waives all rights of redemption, stay or appraisal, which it has or may have under any law now existing or hereafter enacted.

 

(d) If an Event of Default has occurred, each Debtor hereby irrevocably authorizes and empowers the Agent, on behalf of the Secured Parties, without limiting any other authorizations or empowerments contained in any of the other Transaction Documents, to assert, either directly or on behalf of such Debtor, any claims such Debtor may have, from time to time, against any other party to any of the agreements to which such Debtor is a party or to otherwise exercise any right or remedy of such Debtor under any such agreements (including, without limitation, the right to enforce directly against any party to any such agreement all of such Debtor’s rights thereunder, to make all demands and give all notices and to make all requests required or permitted to be made by such Debtor thereunder).

 

(e) If an Event of Default has occurred, the proceeds of any collection, enforcement, sale or other disposition of, or other realization upon, all or any part of the Collateral and any cash held in any Deposit Account shall be applied as determined by the Secured Parties in their sole discretion.

 

(f) Each Debtor acknowledges and agrees that a breach of any of the covenants contained in Sections 4, 5 and 6 hereof will cause irreparable injury to the Secured Parties, and that the Secured Parties have no adequate remedy at law in respect of such breaches and therefore agrees, without limiting the right of the Agent or any Secured Party to seek and obtain specific performance of other obligations of such Debtor contained in this Agreement, that the covenants of such Debtor contained in the Sections referred to in this Section shall be specifically enforceable against such Debtor.

 

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(g) No failure or delay on the part of the Agent or any other Secured Party in the exercise of any power, right or privilege hereunder shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or any other right, power or privilege. In addition to the rights and remedies described above, the Agent and Secured Parties shall have all rights and remedies available to secured creditors under the UCC, or otherwise available at law or in equity. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available.

 

SECTION 6 Attorney-in-Fact. Each Debtor hereby irrevocably appoints the Agent, its nominee, and any other Person whom the Agent may designate, as such Debtor’s attorney-in-fact for the purposes of carrying out the terms of this Agreement, with full power during the existence of any Event of Default to sign such Debtor’s name on verifications of Accounts and other Collateral; to send requests for verification of Collateral to such Debtor’s customers, Account Debtors and other obligors; to endorse such Debtor’s name on any checks, notes, acceptances, money orders, drafts, and any other forms of payment or security that may come into the Agent’s possession or on any assignments, stock powers, or other instruments of transfer relating to the Collateral or any part thereof; to sign such Debtor’s name on any invoice or bill of lading relating to any Collateral, on claims to enforce collection of any Collateral, on notices to and drafts against customers and Account Debtors and other obligors, on schedules and assignments of Collateral, on notices of assignment and on public records; to notify the post office authorities to change the address for delivery of such Debtor’s mail to an address designated by the Agent; to receive, open and dispose of all mail addressed to such Debtor; and to do all things necessary to carry out the terms and provisions of this Agreement. Each Debtor hereby ratifies and approves all acts of any such attorney and agrees that neither the Agent nor any such attorney will be liable for any acts or omissions nor for any error of judgment or mistake of fact or law other than, and to the extent of, such Person’s gross negligence or willful misconduct. The foregoing powers of attorney, being coupled with an interest, are irrevocable until the Obligations have been fully paid and satisfied and the Security Interests shall have terminated in accordance with the terms hereof.

 

SECTION 7 Expenses. Without limiting any Debtor’s obligations under the Note Purchase Agreement or the other Transaction Documents, each Debtor hereby agrees to promptly pay all fees, costs and expenses (including reasonable attorneys’ fees and expenses) incurred by any Secured Party in connection with (i) protecting, storing, warehousing, appraising, insuring, handling, maintaining and shipping the Collateral, (ii) maintaining and enforcing the Agent’s Liens and (iii) collecting, enforcing, retaking, holding, preparing for disposition, processing and disposing of the Collateral.

 

If any Debtor fails to promptly pay any portion of the above costs, fees and expenses when due or to perform any other obligation of such Debtor under this Agreement, the Agent may, at its option, but shall not be required to, pay or perform the same and charge for such Debtor’s account for all fees, costs and expenses incurred therefor, and such Debtor agrees to reimburse the Agent therefor on demand. All sums so paid or incurred by the Agent for any of the foregoing, any and all other sums for which such Debtor may become liable hereunder and all fees, costs and expenses (including reasonable attorneys’ fees, legal expenses and court costs) incurred by the Agent in enforcing or protecting the Security Interests or any of its rights or remedies under this Agreement shall be payable on demand, shall constitute Obligations, shall bear interest until paid at the highest rate provided in the Note and shall be secured by the Collateral.

 

13

 

SECTION 8 Notices. All notices, approvals, requests, demands and other communications hereunder to be delivered to any Debtor and all notices, approvals, requests, demands and other communications hereunder shall be given in accordance with the notice provision of the Note Purchase Agreement.

 

SECTION 9 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns except that no party hereto may assign its rights or obligations hereunder except in accordance with the terms of the Note Purchase Agreement. No sales of participations, other sales, assignments, transfers or other dispositions of any agreement governing or instrument evidencing the Obligations or any portion thereof or interest therein shall in any manner impair the Lien granted to the Agent hereunder.

 

SECTION 10 Changes in Writing. No amendment, modification, termination or waiver of any provision of this Agreement shall be effective unless the same shall be in writing signed by the Agent with the consent of, or at the direction of, the Required Purchasers.

 

SECTION 11 GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT, AND ALL MATTERS RELATING HERETO OR ARISING HEREFROM (WHETHER SOUNDING IN CONTRACT LAW, TORT LAW OR OTHERWISE) SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. EACH DEBTOR HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE Borough of Manhattan, City of New York AND IRREVOCABLY AGREES THAT, SUBJECT TO THE AGENT’S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE LITIGATED IN SUCH COURTS. EACH DEBTOR EXPRESSLY SUBMITS AND CONSENTS TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS. EACH DEBTOR HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON SUCH DEBTOR BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO SUCH DEBTOR IN ACCORDANCE WITH THE PROVISIONS OF SECTION 8 HEREOF AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED.

 

SECTION 12 WAIVER OF JURY TRIAL. EACH DEBTOR, EACH PURCHASER AND THE AGENT HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

 

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SECTION 13 Rights and Remedies Cumulative. All rights and remedies of any party hereto are cumulative of each other and of every other right or remedy such party may otherwise have at law or in equity, and the exercise of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of other rights or remedies.

 

SECTION 14 Further Assurances. Upon the reasonable request of the Agent, each other party hereto agrees to take any and all actions, including, without limitation, the execution of certificates, documents or instruments, necessary or appropriate to give effect to the transactions described herein or contemplated by this Agreement.

 

SECTION 15 Counterparts; Integration. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersede any and all prior agreements and understandings, oral or written, relating to the subject matter hereof.

 

SECTION 16 Headings. Headings and captions used in this Agreement are included for convenience of reference and shall not be given any substantive effect.

 

[Signature Page Follows]

 

15

 

IN WITNESS WHEREOF, each of the undersigned has executed this Security Agreement as of the date first written above.

 

  DEBTORS:
     
  1847 HOLDINGS LLC
     
  By: /s/ Ellery W. Roberts
  Name:  Ellery W. Roberts
  Title: Chief Executive Officer
     
  1847 WOLO INC.
     
  By: /s/ Ellery W. Roberts
  Name: Ellery W. Roberts
  Title: Executive Chairman
     
  1847 CABINETS INC.
     
  By: /s/ Ellery W. Roberts
  Name: Ellery W. Roberts
  Title: Executive Chairman
     
  1847 ASIEN INC.
     
  By: /s/ Ellery W. Roberts
  Name: Ellery W. Roberts
  Title: Executive Chairman
     
  ASIEN’S APPLIANCES, INC.
     
  By: /s/ Ellery W. Roberts
  Name: Ellery W. Roberts
  Title: Executive Chairman
     
  KYLE’S CUSTOM WOOD SHOP, INC.
     
  By: /s/ Ellery W. Roberts
  Name: Ellery W. Roberts
  Title: Executive Chairman

 

[SIGNATURE PAGE TO SECURITY AGREEMENT]

 

 

 

 

  HIGH MOUNTAIN DOOR & TRIM INC.
     
  By: /s/ Ellery W. Roberts
  Name:  Ellery W. Roberts
  Title: Executive Chairman
     
  SIERRA HOMES LLC
     
  By: /s/ Ellery W. Roberts
  Name: Ellery W. Roberts
  Title: Executive Chairman
     
  WOLO INDUSTRIAL HORN & SIGNAL, INC.
     
  By: /s/ Ellery W. Roberts
  Name: Ellery W. Roberts
  Title: Executive Chairman
     
  WOLO MFG. CORP.
     
  By: /s/ Ellery W. Roberts
  Name: Ellery W. Roberts
  Title: Executive Chairman

 

[SIGNATURE PAGE TO SECURITY AGREEMENT]

 

 

 

 

  AGENT
     
  LEONITE CAPITAL LLC
     
  By: /s/ Avi Geller
  Name:  Avi Geller
  Title: CIO

 

[SIGNATURE PAGE TO SECURITY AGREEMENT]

 

 

 

Exhibit 10.17

 

Execution Version

 

INTELLECTUAL PROPERTY SECURITY AGREEMENT

 

THIS INTELLECTUAL PROPERTY SECURITY AGREEMENT (this “IP Security Agreement”) is dated as of the 8th day of October 2021, and executed by WOLO INDUSTRIAL HORN & SIGNAL, INC., a New York corporation and WOLO MFG. CORP., a New York corporation (each a “Grantor” and collectively the “Grantors”), in favor of Leonite Capital LLC as agent for the Secured Parties under the Security Agreement referenced below (in such capacity, the “Agent”).

 

Capitalized terms used and not otherwise defined herein shall have the meanings assigned to them in the Note Purchase Agreement (as defined below).

 

WHEREAS, 1847 Holdings LLC, a Delaware limited liability company (“Issuer”), the Grantors and the other guarantors party thereto (the “Guarantors”), the purchasers party thereto (the “Purchasers”), and the Agent, as agent for the Purchasers, have entered into a Note Purchase Agreement, dated as of October 8, 2021 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Note Purchase Agreement”); and

 

WHEREAS, each of the Grantors, the Issuer, and the other Guarantors are party to a Security Agreement dated as of October 8, 2021, in favor of the Agent, for the benefit of the Secured Parties (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Security Agreement”), pursuant to which the Grantors are required to execute and deliver this IP Security Agreement.

 

Subject to the terms of the Security Agreement, Grantors have granted, and hereby grant to Agent, for the benefit of the Secured Parties, a continuing security interest in, lien on and right of set-off against, all of Grantors’ rights, titles and interests in and to (a) the United States patents and patent applications described on Schedule 1 attached hereto and made a part hereof, (b) the United States trademarks and trademark applications described on Schedule 2 attached hereto and made a part hereof, and (c) the United States copyrights and copyright applications described on Schedule 3 attached hereto and made a part hereof, in each case, to secure the payment and performance of the Obligations (used herein as such term is defined in the Security Agreement). Grantors hereby authorize the Commissioner for Patents, the Commissioner for Trademarks and Register of Copyrights and any other governmental officials to record and register this IP Security Agreement upon request by Agent.

 

This IP Security Agreement shall be construed in accordance with and governed by the laws of the State of New York, except as otherwise required by mandatory provisions of law and except to the extent that remedies provided by the laws of any jurisdiction other than New York are governed by the laws of such jurisdiction.

 

The provisions of this IP Security Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. In the event of any conflict between the terms of this IP Security Agreement and the terms of the Security Agreement, the terms of the Security Agreement shall control.

 

[Remainder of page intentionally blank; signature page follows.]

 

 

 

IN WITNESS WHEREOF, this Intellectual Property Security Agreement has been executed by the undersigned as of the day and year first above written.

 

  WOLO INDUSTRIAL HORN & SIGNAL, INC.
     
  By: /s/ Ellery W. Roberts
    Name: Ellery W. Roberts
    Title:   Executive Chairman
     
  WOLO MFG. CORP.
     
  By: /s/ Ellery W. Roberts
    Name: Ellery W. Roberts
    Title:   Executive Chairman

 

[SIGNATURE PAGE TO INTELLECTUAL PROPERTY SECURITY AGREEMENT]

 

 

 

 

 

 

 

Exhibit 10.18

 

AMENDMENT NO. 1

TO THE

SECURITIES PURCHASE AGREEMENT

 

This AMENDMENT NO. 1 TO THE SECURITIES PURCHASE AGREEMENT, dated as of October 8, 2021 (this “Amendment”), is entered into among 1847 Asiens Inc., a Delaware corporation (the “Buyer”), and Joerg Christian Wilhelmsen and Susan Kay Wilhelmsen, as Trustees of the Wilhelmsen Family Trust, U/D/T dated May 1, 1992 (the “Seller”). The Buyer and the Seller are sometimes referred to in this Amendment individually as a “Party” and, collectively, as the “Parties.”

 

RECITALS

 

A. The Parties have previously entered into that certain Securities Purchase Agreement, dated as of July 29, 2020 (the “Securities Purchase Agreement”).

 

B. In consideration for entering into that certain Subordination Agreement in connection with a proposed financing between the parent company of the Buyer, and Leonite Capital, LLC, as agent (the “Agent”), as requested by the Agent, the Parties desire to amend the 6% Amortizing Promissory Note (the “Promissory Note”), dated July 29, 2020, as attached as Exhibit A to the Securities Purchase Agreement, on the terms and in the manner set forth herein.

 

C. Pursuant to Section 10 of the Promissory Note, the Promissory Note may be amended by the Parties only by written consent of the Buyer and the Seller.

 

AGREEMENT

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereby agree to the following:

 

1. Definitions. All capitalized terms used herein without definition shall have the meanings ascribed to them in the Securities Purchase Agreement or the Promissory Note, as applicable.

 

2. Amendments.

 

A. Section 1 as set forth in the Promissory Note shall be amended and restated in its entirety to read as follows.

 

Principal Repayment. One-half (50%) of the outstanding principal amount of this Note ($518,750) (the “Amortized Principal”) and all accrued interest thereon shall be amortized on a two-year straight-line basis and payable quarterly in accordance with the amortization schedule set forth on Exhibit A to this Note (the “Amortization Schedule”), except for the payments that were initially scheduled on January 1, 2022 and April 1, 2022, which shall be paid upon closing of the proposed financing between the parent company of the Buyer and Leonite Capital, LLC, as agent (the “Financing”). The second-half (50%) of the outstanding principal amount of this Note ($518,750) (the “Unamortized Principal”) with all accrued, but unpaid interest thereon shall be paid on the Second Anniversary of the date of this Note (the “Maturity Date”) along with any other unpaid principal or accrued interest thereon. All payments of interest and principal shall be in lawful money of the United States of America.”

 

 

 

 

B. Exhibit A to the Promissory Note, as set forth in the Promissory Note, shall be amended and restated in its entirety to read as follows.

 

Exhibit A

 

Amortization Schedule

 

Quarterly payments begin on October 1, 2020 and shall be made on each January 1, April 1, July 1, and October 1 thereafter, and the balance of unpaid principal and accrued, but unpaid interest thereon, being fully paid on the Maturity Date; provided, however, the payments scheduled on January 1, 2022 and April 1, 2022 shall be accelerated and paid upon closing of the SILAC Financing, and the quarterly payments schedule will resume on July 1, 2022.

 

 

Quarterly Payment No.

 

 

Payment
Amount

   

 

 

Principal

   

 

 

Interest

   

Remaining
Amortized
Principal Balance

(50% of Total
Principal)

 
October 1, 2020   $ 69,296.71     $ 61,515.46     $ 7,781.25     $ 457,234.54  
January 1, 2021   $ 69,296.71     $ 62,438.19     $ 6,858.52     $ 394,796.35  
April 1, 2021   $ 69,296.71     $ 63,374.76     $ 5,921.95     $ 331,421.59  
July 1, 2021   $ 69,296.71     $ 64,325.39     $ 4,971.32     $ 267,096.20  
October 1, 2021   $ 69,296.71     $ 65,290.27     $ 4,006.44     $ 201,805.93  
Upon Closing of the Financing   $ 133,533.29     $ 133,533.29       -     $ 68,272.64  
July 1, 2022   $ 71,391.22     $ 70,336.18     $ 1,055.04     $ 0.00  
TOTALS:   $ 554,373.70     $ 520,813.54     $ 30.594.52          

 

3. Effect of Amendment. Except as amended as set forth above, the Promissory Note and Securities Purchase Agreement shall continue in full force and effect.

 

4. Counterparts. This Amendment may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.

 

5. Governing Law. This Amendment will be governed by, and construed in accordance with, the Laws of the State of California, without giving effect to any choice of Law or conflict of Law provision or rule that would cause the application of the Laws of any jurisdiction other than the State of California.

 

[Signature page follows]

 

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IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be duly executed as of the date first above written.

 

  BUYER:
   
  1847 Asiens Inc.
   
  By: /s/ Robert Patterson
  Name: Robert Patterson
  Title: CEO
   
  SELLER:
   
  JOERG CHRISTIAN WILHELMSEN AND SUSAN
  KAY WILHELMSEN, AS TRUSTEES OF THE
  WILHELMSEN FAMILY TRUST, U/D/T
  DATED MAY 1, 1992
   
  By: /s/ Joerg Christian Wilhelmsen
  Name:  JOERG CHRISTIAN WILHELMSEN
  Title: Trustee
   
  By: /s/ Susan Kay Wilhelmsen
  Name: Susan Kay WILHELMSEN
  Title: Trustee

 

 

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