LOAN AGREEMENT
 

THIS LOAN AGREEMENT (this “Agreement”) is made as of the 27 ^th day of April, 2018, by and between CrowdOut Capital, LLC, a Texas limited liability company (“ Lender ”), and Sunworks Inc., a Delaware corporation (“ Borrower ”).

RECITALS

A. Lender is providing Borrower a term loan in the Term Loan Amount (the “ Term Loan ”), which shall be evidenced by the Notes, subject to the terms and conditions of this Agreement.

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

ARTICLE 1.
DEFINITIONS

1.1 Definition of Certain Terms . As used in this Agreement, the following terms shall have the meanings set forth below:

“ Affiliate ” of any person or entity shall mean (a) any other person or entity which, directly or indirectly, controls or is controlled by or is under common control with such person or entity, (b) any officer or director of such entity and (c) with respect to Lender, any entity administered or managed by Lender, or an Affiliate or investment advisor thereof and which is engaged in making, purchasing, holding or otherwise investing in commercial loans. A person or entity shall be deemed to be “controlled by” any other person or entity if such person or entity possesses, directly or indirectly, power to direct or cause the direction of the management and policies of such person or entity whether by contract, ownership of voting securities, membership interests or otherwise.

“ Business Day ” shall mean any day other than Saturday or Sunday on which commercial banking institutions are open for business in Austin, Texas.

“ Capital Securities ” shall mean all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of capital, whether now outstanding or issued or acquired after the date hereof, including common shares, preferred shares, membership interests in a limited liability company, limited or general partnership interests in a partnership or any other equivalent of such ownership interest.

“ Cargile ” shall mean Charles F. Cargile, the current Chief Executive Officer and a member of the Board of Directors of Borrower.

“ Change in Control ” shall mean (a) the acquisition of beneficial ownership, directly or indirectly, by any Person or group of Persons acting jointly or otherwise in concert of capital stock representing more than 50% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of Borrower or (b) the acquisition of Control of Borrower by any Person or group of Persons acting jointly or otherwise in concert; in each case whether as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise. For purposes of this definition, “ Control ” means, in respect of a particular Person, the possession, directly or indirectly, pursuant to a written agreement, of the power to make key decisions with regard to the management of such Person.

“ Closing Date ” shall mean the date on which this Agreement and all of the other Loan Documents required to be delivered concurrently with this Agreement shall have been executed and delivered to Lender, the conditions precedent to the closing of the Loan shall have been satisfied and the proceeds of the Loan shall have been disbursed to or for the benefit of Borrower.

“ Collateral ” shall have the meaning set forth in the Security Agreement.

“ Default Interest Rate ” shall mean the lesser of Eighteen Percent (18.0%) per annum or the Maximum Rate.

“ Dividend ” shall mean a payment made, liability incurred, or other consideration given by any Person (other than any stock dividend or stock split payable solely in Capital Securities of that Person) for the purchase, acquisition, redemption or retirement of any Capital Securities of that entity or as a dividend, return of capital, or other distribution in respect of that Person’s Capital Securities.

“ ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as amended, or any successor act or code.

“ Environmental Laws ” shall mean all laws, statutes, ordinances, rules, regulations, orders, and determinations of any Governmental Authority pertaining to health, hazardous substances, natural resources, conservation, wildlife, pollution or the environment.

“ Event of Default ” shall mean any of the events specified in Section 7.1.

“ GAAP ” shall mean generally accepted accounting principles of the United States, consistently applied, subject to fiscal year-end adjustments with respect to any interim financial statements or reports.

“ Governmental Authorities ” shall mean, collectively, all Federal, state and local or regional governmental agencies, boards, tribunals, courts or instrumentalities having jurisdiction over Borrower or the Property.

“ Hazardous Materials ” shall mean any substance that is defined or listed as a hazardous, toxic or dangerous substance under any Environmental Law or is otherwise regulated or prohibited or subject to investigation or remediation under any Environmental Law because of its hazardous, toxic or dangerous properties, including (i) any substance that is a “hazardous substance” under applicable Environmental Law, and (ii) asbestos, petroleum, petroleum products and polychlorinated biphenyls.

“ Head Office ” shall mean Lender’s headquarters, located at 1010 Land Creek Cove, Suite 150, Austin, Texas 78746, or such other location as Lender may designate by providing Borrower with not less than ten (10) days’ prior written notice.

“ Insurance Policies ” shall mean the following insurance policies, in each case acceptable to Lender:

(a) Commercial General Liability Insurance for owners, including blanket contractual liability, products and completed operations, personal injury (including employees), independent contractors, explosion, collapse and underground hazards for bodily injury and property damage the aggregate as set forth on Schedule 1.1;

(b) Workers’ Compensation Insurance for statutory limits;

(c) Property insurance in the amount of the replacement value of the Equipment (as defined in the Security Agreement);

(d) Such other insurance as is required by any other Loan Document or as Lender may otherwise reasonably require.

All Insurance Policies shall be “occurrence” based policies, issued on forms, by companies and in amounts satisfactory to Lender. The Lender hereby agrees that the current Insurance Policies in place and the current coverage amounts are satisfactory to the Lender. All insurance policies shall contain loss-payable clauses in favor of Lender and its successors and assigns, as loss payee under a Lender’s loss payable endorsement or mortgagee, as applicable, together with a non-contributing mortgagee clause acceptable to Lender. All policies of liability insurance shall name Lender and its successors and assigns as additional insureds. All insurance policies and certificates of insurance provided to Lender shall require (30) days’ prior written notice of cancellation or material diminution in coverage. All insurance policies shall be issued by insurers acceptable to Lender. Borrower may satisfy the insurance requirements of this Agreement and the other Loan Documents by using “blanket” policies which cover the property (or the other risks required to be insured hereby or thereby) and other properties or risks of Borrower, provided that any such blanket policy shall comply with the specific requirements set forth herein or therein.

“ Legal Requirements ” shall mean all applicable laws, rules, regulations, ordinances, judgments, orders, decrees, injunctions, arbitral awards, permits, licenses, authorizations, directions and requirements of all Governmental Authorities, including but not limited to the United States Foreign Corrupt Practices Act.

“ LIBOR-Based Rate ” shall mean a fluctuating interest rate per annum as shall be in effect from time to time equal to the LIBOR Rate of Interest, plus Nine Hundred Fifty (950) basis points; provided, however , that in no event shall the LIBOR-Based Rate be greater than the Maximum Rate.

“ LIBOR Rate of Interest ” shall mean, for any day, the one-month fluctuating rate (expressed as a percentage per annum and adjusted as described in the last sentence of this definition of LIBOR Rate of Interest) calculated on a Three Hundred Sixty (360) day calendar year for deposits in United States Dollars as calculated by Intercontinental Exchange (ICE) Benchmark Administration Limited (“ ICE ”) (or any successor thereto) as of 11:00 a.m., Austin, Texas time, three (3) Business Days prior to such date with a term of one (1) month commencing that day. If such rate shall cease to be calculated by ICE (or any successor thereto) or if Lender determines in good faith that the rate calculated by ICE no longer accurately reflects the rate available to Lender in the London interbank market, the LIBOR Rate of Interest shall be determined by Lender to be the offered rate as announced by a recognized commercial service as representing the average LIBOR rate for deposits in United States Dollars (for delivery on such day) as of 11:00 a.m., Austin, Texas time, three (3) Business Days prior to such date with a term of one (1) month commencing that day. If the rates referenced in the two preceding sentences are not available, LIBOR will be determined by a reasonable alternate method mutually agreed to by Lender and Borrower and if Lender and Borrower cannot so agree, Lender and Borrower shall mutually designate an independent third party to select such reasonable alternative method, with Lender and Borrower hereby agreeing to accept such selection by such independent third party. Notwithstanding the foregoing, in no event shall the LIBOR Rate of Interest be less than one and half percent (1.5%) per annum.

“ Loan ” shall mean the Term Loan.

“ Loan Documents ” shall mean, collectively, this Agreement, the Notes, the Security Agreement, the Subordination Agreement, any swap agreements, derivative agreements, interest rate protection agreements or similar agreements entered into by Borrower with Lender or any Affiliate of Lender, and any other document, instrument or agreement evidencing or securing the Loan, together with any and all modifications and amendments to any of the foregoing.

“ Material Adverse Effect ” shall mean a material adverse effect on (i) the business, property or condition (financial or otherwise) of Borrower taken as a whole; (ii) Borrower’s ability to perform its obligations hereunder or any other Loan Document to which it is a party, or (iii) the validity or enforceability of this Agreement or any other Loan Document. Notwithstanding the foregoing, a Material Adverse Effect shall exclude any effect arising from or relating to (i) any action taken by Borrower at the request of Lender, (ii) interest rates, the U.S. or global economy in general, U.S. or global securities markets in general, or acts of war (whether or not declared) or terrorism, except to the extent any of the foregoing has a disproportionate negative impact on Borrower, as compared to other companies similarly situated to Borrower, (iii) changes in any Legal Requirements, except to the extent such changes have a disproportionate negative impact on Borrower, as compared to other companies similarly situated to Borrower, (iv) actions taken or omitted to be taken pursuant to the terms of this Agreement, or (v) any matter appropriately set forth in the Schedules.

“ Maturity Date ” shall mean June 30, 2020.

“ Maximum Rate ” shall mean the maximum non-usurious rate of interest permitted for that day by whichever of applicable federal or Texas (or any jurisdiction whose usury laws are deemed to apply to the Loan or any documents executed in connection therewith despite the intention and desire of the parties to apply the usury laws of the State of Texas) laws permit the higher interest rate, stated as a rate per annum. On each day, if any, that the Texas Finance Code establishes the Maximum Rate, the Maximum Rate shall be the “weekly ceiling” (as defined in Section 303 of the Texas Finance Code) for that day. Lender may from time to time, as to current and future balances, implement any other ceiling under the Texas Finance Code by notice to Borrower, if and to the extent permitted by the Texas Finance Code. Without notice to Borrower or any other Person, the Maximum Rate shall automatically fluctuate upward and downward as and in the amount by which such maximum nonusurious rate of interest permitted by applicable law fluctuates. If no maximum nonusurious rate is established by applicable law, then the term “Maximum Rate” shall mean a rate of interest equal to Eighteen Percent (18.0%) per annum.

“ Notes ” shall mean the Senior Note and the Subordinated Note.

“ Obligations ” shall mean, collectively, Borrower’s obligations for the payment of all sums advanced or to be advanced hereunder, together with interest on the outstanding principal balance of such sums and with any and all other sums payable by Borrower to Lender pursuant to this Agreement, the Notes or any other Loan Document, and payment and performance of all of the warranties, representations, covenants and agreements to be paid, fulfilled, observed and performed by Borrower under each Loan Document to which Borrower is a party.

“ PBGC ” shall mean the Pension Benefit Guaranty Corporation, or any successor thereto.

“ Person ” shall mean an individual, partnership, corporation, limited liability company, trust, unincorporated association, or other entity or association.

“ Permitted Liens ” shall mean with respect to any Person:

“ Regulatory Change ” shall mean any change, effective after the date of closing the Loan, in United States Federal or state laws or regulations (including Regulation D and capital adequacy regulations) or foreign laws or regulations or the adoption or making after such date of any interpretations, directives or requests applying to a class of banks which includes Lender, under any United States Federal or state or foreign laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof.

“ Security Agreement ” shall mean that certain Security Agreement executed by Borrower in favor of Lender pledging and granting a first priority lien on the Collateral, as defined therein, which represent all the assets of Borrower, except for those encumbered by Permitted Liens, collateralizing repayment of the Senior Note.

“ Senior Note ” shall mean that certain promissory note in the amount of Three Million Dollars ($3,000,000.00) executed by Borrower and payable to Lender to evidence the Term Loan, together with any and all modifications and amendments thereto and any note issued in substitution or replacement therefore.

“ Short ” means Kirk Short, the President of the Commercial Solar Division of the Borrower.

“ Subordinated Note ” shall mean that certain promissory note in the amount of Seven Hundred Fifty Thousand Dollars ($750,000.00) executed by Borrower and payable to Lender to evidence the Term Loan, together with any and all modifications and amendments thereto and any note issued in substitution or replacement therefore.

“ Subordination Agreement ” shall mean that certain Subordination Agreement executed by Borrower and Lender which prioritizes payment of the Senior Note ahead of payment of the Junior Note.

“ Subsidiary(ies) ” shall mean, in respect of any Person, any corporation, association, joint stock company, limited liability company, partnership (whether general, limited or both), or business trust (in any case, whether now existing or hereafter organized or acquired), of which more than fifty percent (50%) of the outstanding voting Capital Securities or other ownership interest is owned either directly or indirectly by such Person and/or one or more of its Subsidiaries, or the management of which is otherwise controlled either directly or indirectly by such Person and/or one or more of its Subsidiaries. Unless otherwise specified to the contrary herein or the context otherwise expressly requires, the term Subsidiary(ies) shall refer to the Subsidiary(ies) of Borrower.

“ Term Loan Amount ” shall mean the loan in the aggregate principal amount of $3,750,000.00 as evidenced by the Notes.

“ UCC ” shall mean the Uniform Commercial Code in effect in the State of Delaware from time to time.

1.2 Accounting Terms . Any accounting terms used in this Agreement which are not specifically defined herein shall have the meanings customarily given them in accordance with GAAP. Calculations and determinations of financial and accounting terms used and not otherwise specifically defined hereunder and the preparation of financial statements to be furnished to Lender pursuant hereto shall be made and prepared, both as to classification of items and as to amount, in accordance with sound accounting practices and GAAP as in effect on the date of this Agreement.

1.3 Other Terms Defined in UCC . All other capitalized words and phrases used in this Agreement and not otherwise specifically defined in this Agreement shall have the respective meanings assigned to such terms in the UCC, to the extent the same are used or defined in the UCC.

ARTICLE 2.
THE TERM LOAN

2.1 Term Loan . Lender agrees to loan to Borrower and Borrower agrees to borrow, on the date of execution of this Agreement, a sum equal to the Term Loan Amount. At the time of borrowing, Borrower agrees to execute the Notes. The Loan shall be subject to the terms and conditions of this Agreement, the Security Agreement, the Notes and the Subordination Agreement.

2.2 Interest Rate . The outstanding principal balance of the Loan shall bear interest at the LIBOR-Based Rate, and interest shall be computed, assessed and payable as set forth below.

2.3 Payment of the Term Loan . Subject to the remainder of this Article 2, the Loan shall be repaid in monthly installments on the first day of each calendar month (“ Installment Payments ”) as follows:

(a) During the period beginning on the first month after the Closing Date and continuing until the last month preceding the Maturity Date, the Installment Payments shall be equal to the amount of accrued interest on the outstanding Term Loan Amount calculated at the LIBOR-Based Rate.

(b) On the Maturity Date, the entire outstanding Term Loan Amount, plus all accrued interest on the outstanding Term Loan Amount calculated at the LIBOR-Based Rate shall be paid.

2.4 Calculation of LIBOR-Based Rate . On the date which is three (3) Business Days prior to the date each Installment Payment is due pursuant to the Loan (the “ Calculation Date ”), Lender will deliver to Borrower a billing statement setting forth the LIBOR Rate of Interest on such Calculation Date (“ Current LIBOR Rate of Interest ”). Such Current LIBOR Rate of Interest shall be used to determine the amount of the applicable Installment Payment due three (3) Business Days after the Calculation Date.

2.5 Default Interest Rate . Interest on overdue payments and interest accruing during an Event of Default shall accrue and bear interest at the Default Interest Rate.

2.6 Prepayment; Exit Fee .

(a) Borrower may not prepay the Loan within one (1) year of the Closing Date. Beginning one (1) year following the Closing Date, Borrower may prepay the Loan in whole and not in part, provided, however , that in the event Borrower prepays the Loan, refinances the Loan, or otherwise when the Loan is paid in full prior to the Maturity Date, Borrower shall pay the sum of (i) Three Hundred Seventy-Five Thousand Dollars ($375,000.00) if the Loan is prepaid on or prior to March 31, 2020 or (ii) Four Hundred Thirty-Five Thousand Dollars ($435,000.00) if the Loan is prepaid after March 31, 2020 but prior to the Maturity Date (such amount, the “ Exit Fee ”) in addition to all amounts of principal and accrued interest due and owing on the Loan, with such Exit Fee being payable to the holders of the Senior Note and not to the holders of the Subordinated Note. All payments shall first be applied to all accrued and unpaid interest, with the remainder, if any, applied to unpaid principal.

(b) The Exit Fee shall be deemed consideration for Borrower’s right to prepay the Loan and shall not be deemed interest payable hereunder; provided however, in the event any court of applicable jurisdiction determines that the application of the Exit Fee would cause the effective rate of interest on the Loan to be greater than the Maximum Rate, such Exit Fee shall be reduced such that the effective rate of interest on the Loan is equal to the Maximum Rate.

(c) Borrower at any time may request from Lender to prepay the Loan in part, and may only do so with Lender’s consent, which consent can be denied in Lender’s sole discretion, and pursuant to terms mutually agreed between Borrower and Lender. Any such prepayments shall first be applied to all accrued and unpaid interest, with the remainder, if any, applied to unpaid principal.

2.7 Closing Fee . Borrower shall pay to Lender a non-refundable fully earned closing fee in the amount of Ninety-Three Thousand Seven Hundred Fifty Dollars ($93,750.00) on the Closing Date (“ Closing Fee ”).

2.8 Payments to Lender . All amounts payable hereunder by Borrower to Lender shall be paid pursuant to the wire transfer instructions set forth in Schedule 2.8 hereto unless otherwise designated by Lender to Borrower in writing.

2.9 Fees and Prepaid Charges Fully Earned . Borrower agrees that the Closing Fee and any and all other loan fees payable hereunder as of the Closing Date are earned fully as of the date of the Loan and will not be subject to refund, except as required by law.

2.10 Use of Proceeds : The proceeds of the Term Loan may be used by Borrower only in the ordinary course of its business. The proceeds of the Term Loan may not be used for personal, family or household purposes.

ARTICLE 3.
ADDITIONAL COSTS; INDEMNIFICATION

3.1 Additional Costs; Regulatory Change .

(a) Notwithstanding any conflicting provision of this Agreement to the contrary, if any applicable law or regulation shall (i) subject Lender to any tax, levy, impost, duty, charge, fee, deduction or withholding of any nature with respect to the Loan, this Agreement, any of the Notes, or any other Loan Document or the payment by Borrower of any amounts payable to Lender with respect to the Loan, this Agreement, any of the Notes, or any other Loan Document; or (ii) materially change the basis of taxation of payments to Lender of the principal of or the interest on any Note or any other amounts payable to Lender under this Agreement or any other Loan Document; or (iii) impose on Lender any other condition or requirement with respect to this Agreement, any of the Notes or any other Loan Document, and if the result of any of the foregoing is (A) to increase the cost to Lender of making, funding or maintaining all or any part of the principal of any of the Loan, or (B) to reduce the amount of principal, interest or any other sum payable by Borrower to Lender under this Agreement, any Note or any other Loan Document, or (C) to require Lender to make (or Borrower to withhold) any payment or to forego any interest or other sum payable by Borrower to Lender under this Agreement, any Note or any other Loan Document, the amount of which payment or foregone interest or other sum is measured by or calculated by reference to the gross amount of any sum receivable or deemed received by Lender from Borrower under this Agreement, any Note or any other Loan Document, then, and in each such case, Borrower will pay to Lender, within ten (10) days of written notice, such additional amounts as will (upon the mutual agreement of Lender and Borrower) be sufficient to compensate Lender for such additional cost, withholding reduction, payment or foregone interest or other sum. Anything in this paragraph to the contrary notwithstanding, the foregoing provisions of this paragraph shall not apply in the case of any additional cost, reduction, payment or foregone interest or other sum resulting solely from or arising solely as a consequence of any taxes charged upon or by reference to the overall net income, profits or gains of Lender.

(b) If any present or future applicable law shall make it unlawful for Borrower to perform any of its agreements or obligations under this Agreement, any Note or any other Loan Document, and Lender shall reasonably determine (which determination shall be conclusive and binding on Borrower) that as a consequence of the effect or operation (whether direct or indirect) of any such applicable law, any of the rights, remedies, powers or privileges of Lender under or in respect of this Agreement, any of the Notes or any other Loan Document shall be or become invalid, unenforceable, or materially restricted then Lender may, by giving notice to Borrower, declare all of the Obligations, including without limitation the entire unpaid principal of the Notes, all of the unpaid interest accrued on the Notes and any and all other sums due and payable by Borrower to Lender under this Agreement, the Notes and any other Loan Document, to be immediately due and payable, and, thereupon, such Obligations shall (if not already due and payable) forthwith become and be due and payable without further notice or other formalities of any kind, all of which are hereby expressly waived.

3.2 Indemnification for Losses . Without derogating from any of the other provisions of this Agreement or any other Loan Document, Borrower hereby absolutely and unconditionally agrees to indemnify Lender, upon demand at any time and as often as the occasion therefor may require, against any and all claims, demands, suits, actions, damages, losses, costs, expenses and all other liabilities whatsoever which Lender or any of its directors, managers, or officers may sustain or incur as a consequence of (a) any failure by Borrower to pay any amount payable under this Agreement, any Note or any other Loan Document as and when such amount shall first have become due and payable (giving effect, however, to expiration of the period of grace (if any) applicable thereto), or (b) the acceleration of the maturity of any of the Obligations, or (c) any failure by Borrower to perform or comply with any of the terms and provisions of this Agreement, any Note or any other Loan Document to which Borrower are a party. Such claims, demands, suits, actions, damages, losses, costs or expenses shall include, without limitation (a) any costs incurred by Lender in carrying funds to cover any overdue principal, overdue interest or any other overdue sums payable by Borrower under this Agreement, any Note, or any other Loan Document; (b) any interest payable by Lender to the lenders of the funds borrowed by Lender in order to carry the funds referred to in clause (a) of this Section; and (c) any losses (but excluding losses of anticipated profit) incurred or sustained by Lender in liquidating or re-employing funds acquired from third parties to make, fund or maintain all or any part of the Loan.

3.3 Statements by Lender . A statement signed by an officer of Lender setting forth any additional amount required to be paid by Borrower under Sections 3.1 or 3.2 of this Agreement together with third party documentation evidencing such amounts, shall be submitted by Lender to Borrower in connection with each demand made at any time by Lender under either such Section. A claim by Lender for all or any part of any additional amounts required to be paid by Borrower under such Sections may be made before or after any payment to which such claim relates. Each such statement shall, in the absence of manifest error, constitute conclusive evidence of the additional amount required to be paid to Lender.

ARTICLE 4.
CONDITIONS PRECEDENT

4.1 General . Lender shall not be required to consummate the transactions contemplated by this Agreement or to disburse the proceeds of any of the Loan unless the conditions set forth in this Article 4 shall have been completed to Lender’s satisfaction.

(a) Borrower shall have executed the Loan Documents and shall have delivered the same to Lender. All of the Loan Documents shall be in full force and effect.

(b) Borrower shall have provided Lender with a certificate from a duly authorized representative of Borrower: (i) attaching true and complete copies of Borrower’s Certificate of Incorporation and Bylaws, and certifying that the same are in full force and effect and unmodified; (ii) attaching a resolution authorizing Borrower’s execution and delivery of this Agreement and the other Loan Documents to which Borrower is a party and its performance of its obligations under this Agreement and the other Loan Documents, and confirming that such resolution is in full force and effect; and (iii) identifying the officers, members or managers of Borrower who are authorized to execute and deliver this Agreement for and on behalf of Borrower, and providing specimen signatures for such officers;

(c) Borrower shall have provided Lender with a certificate of its existence and good standing;

(d) Borrower shall have appointed Joshua E. Schechter or such other person as may be designated by Lender from time to time (“ Lender’s Designee ”) to its Board of Directors;

(e) Reserved;

(f) Reserved;

(g) Short and Borrower will have commenced to convert all 1,506,024 shares of Short’s Series B Preferred Stock of Borrower into 1,506,024 shares of Common Stock of Borrower and provide written evidence thereof to Lender. Within ten (10) days of the Closing Date, Borrower will provide satisfactory evidence thereof to Lender. Furthermore, on or before the Closing Date, Borrower will not have sold, repurchased or granted a security interest in or otherwise transferred or encumbered any of its Preferred Stock.

(h) Borrower shall have paid the Closing Fee of Ninety-Three Thousand Seven Hundred Fifty Dollars ($93,750.00) to Lender and all costs and expenses of Lender in connection with this Agreement or the closing of the transactions contemplated hereby including, without limitation, reasonable attorney’s fees, with such cost and expenses not to exceed Thirty-Five Thousand Dollars ($35,000.00); and

(i) UCC-3 lien releases set forth on the attached Schedule 4.1(i) with respect to the Collateral as required by Lender have been obtained on all of the Collateral.

(j) Landlord Waiver in a form acceptable to Lender from the landlord of the property leased by Borrower located at 15 Pepsi Way, Durham, California.

(k) Evidence of Borrower’s termination of the credit card agreement between Wells Fargo Bank and Borrower.

4.2 Conditions for the Benefit of Lender . All of the foregoing conditions are imposed for the benefit of Lender. No party other than Lender shall have standing to require the satisfaction of any such conditions, and no party shall be entitled to assume that Lender would refuse to make advances of Loan proceeds if any one or more of such conditions were to remain unfulfilled. No party other than Lender shall be or be deemed to be the beneficiary of any such conditions; any one or more, or all, of such conditions may be waived if Lender shall deem it advisable to do so.

ARTICLE 5.
GENERAL REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants to Lender, and such representations and warranties shall be deemed to be continuing representations and warranties during the entire life of this Agreement, and thereafter, so long as any Obligations remain unpaid and outstanding:

5.1 Organization and Existence .

(a) Borrower (i) is duly organized, validly existing and in good standing as a corporation under the laws of the State of Delaware; (ii) has all necessary power and authority and full legal right to own its property and to carry on its businesses; and (iii) has all necessary power and authority, and full legal right, to enter into this Agreement and each of the other Loan Documents to which it is a party, and to perform, observe and comply with all of its agreements and obligations under this Agreement and the other Loan Documents.

(b) Borrower has provided Lender with true, correct and complete copies of its Certificate of Incorporation and Bylaws and all of the exhibits thereto (collectively, “ Borrower’s Organizational Documents ”). All of Borrower’s Organizational Documents are unmodified and in full force and effect.

5.2 Due Authorization .

(a) The execution and delivery by Borrower of this Agreement and the other Loan Documents to which Borrower is a party, the performance by Borrower of all of its agreements and obligations under such documents and the making of the borrowings contemplated by this Agreement have been duly authorized by all necessary action on the part of Borrower and do not and will not (i) contravene any provision of Borrower’s Organizational Documents; (ii) except those in which consent has been procured, conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in the creation of any lien (other than those in favor of Lender pursuant to the Loan Documents) upon any of its property under any agreement, indenture, mortgage or other instrument to which Borrower is a party or by which Borrower is bound or affected; (iii) violate or contravene any provision of any law, rule or regulation (including, without limitation, the Regulations of the Board of Governors of the Federal Reserve System) or any order, ruling or interpretation thereunder or any decree, order or judgment of any court or governmental or regulatory authority, bureau, agency or official binding on Borrower; or (iv) except for those that have been procured, require any waivers, consents or approvals by any of the creditors or trustees for creditors of Borrower.

(b) Except as to matters which Borrower has procured, obtained or performed prior to or concurrently with its execution and delivery of this Agreement, no approval, consent, order, authorization or license by, or giving notice to, or taking any other action with respect to, any governmental or regulatory authority or agency is required under any provision of any applicable law:

(i) for Borrower’s execution and delivery of this Agreement and the other Loan Documents to which it is a party or Borrower’s performance of its obligations under this Agreement and the other Loan Documents and the borrowings contemplated by this Agreement; or

(ii) for the continuing legality, validity, binding effect, enforceability or admissibility in evidence of this Agreement and the other Loan Documents.

5.3 General . To the knowledge of Borrower, there are no actions, suits or proceedings pending, threatened against Borrower or any Subsidiary which could, if determined adversely to Borrower or such Subsidiary, reasonably be expected to have a Material Adverse Effect upon Borrower or such Subsidiary.

5.4 Loan Documents . On or before the Closing Date, Borrower will have duly executed and delivered each of the Loan Documents to which it is a party and each such Loan Document will be in full force and effect. Each Loan Document to which Borrower is a party shall constitute the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms (except as such enforceability may be limited by bankruptcy, insolvency or similar laws generally affecting the enforcement of creditor’s rights).

5.5 No Default . To the knowledge of Borrower, no event has occurred and is continuing, and no condition exists, which constitutes (or would, with the provision of notice or the passage of time, or both, constitute) an Event of Default. Borrower has no right to rescind, cancel or terminate this Agreement or any other Loan Document.

5.6 Financial Statements . Except for the absence of footnotes in monthly unaudited financial statements, all of the financial statements of Borrower and each Subsidiary delivered to Lender in connection with the transactions contemplated by this Agreement have been prepared in accordance with GAAP, and fairly present in all material respects the financial condition of Borrower and such Subsidiary as of the dates on which the same were prepared. There are no material liabilities or obligations, secured or unsecured (whether accrued, absolute or actual, contingent or otherwise), not reflected in such financial statements, which, in accordance with GAAP, should have been reflected therein. From the date of the most recent financial statements provided to Lender until the date hereof, there has been no materially adverse change in the financial condition of Borrower or any Subsidiary.

5.7 Tax Returns . Except as set forth on Schedule 5.7, Borrower and each Subsidiary has filed all federal, state and other tax returns required to be filed in respect of all taxing periods prior to the date of this Agreement (or has been granted extensions with respect to same), and has paid or made reasonable provision, in accordance with applicable laws for the payment of all taxes (if any) which have or may become due and payable pursuant to any such returns (or pursuant to any matters raised by audits). Except as set forth on Schedule 5.7, each of Borrower and each Subsidiary has paid or caused to be paid all real and personal property taxes and assessments and other governmental charges lawfully levied or imposed on or against Borrower or such Subsidiary or its property (other than those presently payable without payment of interest or penalty and those which are subject to contests initiated in good faith and diligently prosecuted and as to which adequate reserves have been provided).

5.8 Solvency . Borrower does not intend to, and does not believe that it will, incur debts beyond its ability to pay as they mature, taking into account the timing of and amounts of cash to be received by it and the timing of the amounts of cash to be payable on or in respect of its indebtedness. After giving effect to the closing of the transactions contemplated by this Agreement and the disbursement of the proceeds of the Loan, shall be solvent.

5.9 Business Loan . The Loan is intended solely for business purposes, and no proceeds of the Loan shall be used for personal, family or household purposes.

5.10 Locations . Schedule 5.10 sets forth all locations (whether owned or leased) at which Borrower conducts business or at which Borrower’s assets are located (the “ Locations ”).

5.11 Subsidiaries . Except as listed on Schedule 5.11 , Borrower has no Subsidiaries.

5.12 Encumbrances . To the knowledge of Borrower after due inquiry, there are no security interests in, or liens, mortgages, or other encumbrances on the Collateral, except Permitted Liens set forth in Schedule 1.1.

5.13 Environmental . Neither Borrower nor any Subsidiary has used Hazardous Materials on, in, under or otherwise affecting any real or personal property now or at any time owned, occupied or operated by Borrower or such Subsidiary or upon which Borrower or such Subsidiary has a place of business (collectively and severally the “ Property ”) in any manner which violates any Environmental Law(s), to the extent that any such violation could reasonably be expected to result in a Material Adverse Effect; and, to the best of Borrower’s knowledge, no prior owner, occupant or operator of any of the Property, or any current or prior owner, occupant or operator thereof, has used any Hazardous Materials on or affecting the Property in any manner which violates any Environmental Law(s), to the extent that any such violation could reasonably be expected to result in a Material Adverse Effect. Neither Borrower nor any Subsidiary has ever received any notice of any violation of any Environmental Law(s), and to the best of Borrower’s knowledge, there have been no actions commenced or threatened by any party against Borrower or any Subsidiary or any of the Property for non-compliance with any Environmental Law(s), which, in any case, could reasonably be expected to result in a Material Adverse Effect.

5.14 Property Taxes. Except as otherwise provided herein, there are no property taxes due with respect to the Collateral until the 2019 calendar year.

5.15 Names; Assumed Names . The name and jurisdiction of formation of Borrower and each Subsidiary is exactly as set forth in this Agreement. Within the past five (5) years, except as set forth on Schedule 5.15, Borrower and each Subsidiary have not conducted their business under any corporate, trade, assumed or fictitious name, and following the date hereof Borrower and each Subsidiary will not conduct their business under any other corporate, trade, assumed or fictitious name without thirty (30) days prior written notice to Lender, and execution and delivery of such additional documents as Lender may request.

5.16 Litigation . Except as set forth on Schedule 5.16, there is no action, suit or proceeding pending, or to the knowledge of Borrower threatened, against any Borrower or any Subsidiary, or before any court, governmental department, administrative agency or instrumentality which, if such action, suit or proceeding were adversely determined, (i) would subject Borrower or any Subsidiary to any liability not fully covered by insurance, or (ii) would reasonably be expected to result in a Material Adverse Effect on the financial position or the results of operations of Borrower, any Subsidiary or their business or their ability to perform their obligations under this Agreement, the Notes or any Loan Document to which they are a party.

ARTICLE 6.
COVENANTS OF BORROWER

Borrower covenants with and warrants to Lender that until all of the Obligations are paid and satisfied in full, Borrower shall comply with, observe, perform or fulfill, and shall cause each Subsidiary to comply with, observe, perform or fulfill, all of the covenants set forth in this Article 6 , unless Lender shall have otherwise consented in writing.

6.1 Financial Statements and Reports .

(a) Borrower and each Subsidiary shall keep complete and accurate books and records, in accordance with GAAP, consistently applied at all times during the pendency of the Loan, and shall permit Lender and its representatives, upon reasonable prior notice, to examine and make copies of the same at any reasonable time

(b) Within one hundred eighty (180) days after the end of each fiscal year, Borrower and each Subsidiary shall furnish to Lender its annual audited financial statements, including a balance sheet as of the last day of such fiscal year and the related profit and loss and cash flow statements for such year, in a form acceptable to Lender. The foregoing financial statements shall be audited by the Company’s then current independent certified public accountants in accordance with GAAP, consistently applied.

(c) Borrower shall, within five (5) days after the filing thereof, furnish to Lender a copy of Borrower’s Federal income tax returns.

(d) Borrower shall furnish to Lender a copy of each Subsidiary’s annual Federal income tax return (including all supporting schedules) within five (5) days after the filing thereof.

(e) Borrower will furnish and cause each of its Subsidiaries to furnish such other information regarding its financial matters as Lender may reasonably request promptly after Lender’s request therefor.

(f) Borrower shall maintain compliance with the requirements of the Securities & Exchange Commission, NASDAQ and all other regulatory agencies that govern the financial instruments and securities of Borrower.

6.2 Insurance . Borrower shall maintain insurance coverage pursuant to the Insurance Policies or any new policies contracted by Borrower which contain substantially the same coverage as the Insurance Policies.

6.3 Borrower’s Existence . Borrower shall, and cause each of its Subsidiaries to, preserve and maintain its existence and all of its rights, franchises and privileges, except for the disposition or dissolution of any Special Purpose Vehicles formed for the development of project based business.

6.4 Compliance with Legal Requirements . Borrower shall, and shall cause each of its Subsidiaries to, comply in all material respects with all applicable Legal Requirements, and will promptly notify Lender in the event that Borrower or any of its Subsidiaries receives any notice, claim or demand from any Governmental Authority asserting the violation of any applicable Legal Requirement which could reasonably be expected to have a Material Adverse Effect upon Borrower or any of its Subsidiaries. Borrower or its Subsidiaries may contest the propriety or the applicability of any Legal Requirement, provided (a) that Borrower shall provide Lender with written notice of such contest; (b) that there shall then be no uncured Event of Default; (c) that such contest shall be initiated in good faith in accordance with the appropriate legal or administrative procedure therefor and diligently prosecuted to a timely completion; (d) that such contest shall not, in Lender’s judgment, jeopardize the security for the Loan or any portion of Borrower’s assets to imminent risk of loss or forfeiture; and (e) Borrower shall indemnify Lender from and against any and all liability, loss, cost, damage and expense which may be incurred by or asserted against any such party in connection with or arising from such contest.

6.5 Notice of Litigation . Borrower shall, and shall cause each of its Subsidiaries to, furnish or cause to be furnished to Lender within 5 Business Days after Borrower or any of its Subsidiaries shall have first become aware of the same, a written notice identifying, and describing Borrower’s or such Subsidiary’s proposed response to the commencement or institution of any legal or administrative action, suit, proceeding or investigation by or against Borrower or such Subsidiary in or before any court, governmental or regulatory body, agency, commission or official, board of arbitration or arbitrator which could reasonably be expected to have or result in a Material Adverse Effect on Borrower or any Subsidiary. For the purposes of this Agreement, any such litigation or other matter in which the sum in dispute is Two Hundred Fifty Thousand Dollars ($250,000.00) or more will be deemed to be material.

6.6 Notice of Other Events .

(a) If (and on each occasion that) any Event of Default shall occur, Borrower shall, promptly after becoming aware of the same, furnish Lender with a written notice specifying the nature of such Event of Default and describing Borrower’s proposed response thereto.

(b) Immediately upon Borrower first becoming aware of any of the following occurrences, Borrower will notify Lender in writing of: (i) the business failure, insolvency or bankruptcy of Borrower or any Subsidiary; (ii) the rescission, cancellation or termination of, or the occurrence of a breach, default or event of default under or with respect to any material agreement or contract to which Borrower or any of its Subsidiaries is a party; or (iii) any events of default under any material agreement of Borrower or any of its Subsidiaries or any material violations of any laws, regulations, rules or ordinances of any governmental or regulatory body.

6.7 Payment of Taxes and Other Claims . Borrower shall, and shall cause each of its Subsidiaries to, pay and discharge promptly before interest and penalties accrue, all taxes, assessments and other governmental charges or levies at any time imposed upon it or upon its income, revenues or property, as well as all claims of any kind (including claims for labor, material or supplies) which, if unpaid, might by law reasonably be expected to become a lien, encumbrance, or charge upon all or any part of its income, revenues or property.

6.8 Payment of Indebtedness . Borrower will duly and punctually pay or cause to be paid the principal and interest on the Loan and all fees and other amounts payable hereunder or under the Loan Documents as and when required by this Agreement and the other Loan Documents.

6.9 Governmental Consents and Approvals .

(a) Borrower will obtain, and will cause each of its Subsidiaries to obtain, all such approvals, consents, orders, authorizations and licenses from, give all such notices promptly to, register, enroll or file all such agreements, instruments or documents promptly with, and promptly take all such other action with respect to, any Governmental Authority, regulatory agency or official or any central bank or other fiscal or monetary authority, agency or official, as may be required from time to time under any provision of any applicable law:

(i) for the performance by Borrower or such Subsidiary of any of its agreements or obligations under the Notes, this Agreement or any other Loan Document to which it is a party or for the payment by Borrower to Lender at its Head Office of any sums which shall become due and payable by Borrower thereunder;

(ii) to ensure the continuing legality, validity, binding effect or enforceability of the Notes or any other Loan Document;

(iii) to continue the proper operation of the business and operations of Borrower.

6.10 Pension and Benefit Plans . Borrower will, and will cause each of its Subsidiaries to, at all times meet the minimum funding requirements of ERISA with respect to Borrower’s and each of its Subsidiaries’ employee benefit plans subject to ERISA, if any; promptly after Borrower or any of its Subsidiaries knows or has reason to know of the occurrence of any event which would constitute a reportable event or prohibited transaction under ERISA, or that the PBGC, Borrower or any of its Subsidiaries has instituted or will institute proceedings to terminate an employee pension plan, deliver to Lender a certificate of an authorized officer of Borrower setting forth details as to such event or proceedings and the action which Borrower proposes to take with respect thereto, together with a copy of any notice of such event which may be required to be filed with the PBGC; and upon the request of Lender, furnish to Lender (or cause the plan administrator to furnish Lender) a copy of the annual return (including all schedules and attachments) for each plan covered by ERISA, and filed with the Internal Revenue Service by Borrower or any of its Subsidiaries, as applicable, not later than ten (10) days after such report has been so filed. Borrower shall be permitted to voluntarily terminate employee pension or benefit plans, so long as any such voluntary termination is done in accordance with ERISA and does not result in a material liability or obligation to Borrower.

6.11 Further Assurances . Borrower will execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, any and all further assurances reasonably requested by Lender from time to time in order to give full effect to any of the Loan Documents.

6.12 Use of Proceeds . Borrower shall use all Loan proceeds only in the ordinary course of its business.

6.13 Board of Directors . Within thirty (30) days of the Closing Date, the Board of Directors of Borrower shall select a Chairman of the Board of Directors and a Chairman of the Borrower’s Audit Committee. Cargile shall not be entitled to serve as the Chairman of the Board of Directors of Borrower.

6.14 Acquisition of Margin Securities . Borrower shall not own, purchase or acquire (or enter into any contract to purchase or acquire) any “margin security” as defined by any regulation of the Federal Reserve Board as now in effect or as the same may hereafter be in effect.

6.15 Payment of Claims; Encumbrances . Borrower shall, and shall cause each of its Subsidiaries to, (i) keep the Collateral free of any lien, encumbrance, charge or claim (other than the Permitted Liens and except for the liens and encumbrances arising under the Loan Documents); and (ii) not encumber its assets, whether now owned or hereafter acquired, or any portion thereof or interest therein, permit any lien, levy, attachment or restraint to be made or filed against its assets, whether now owned or hereafter acquired, or any portion thereof or interest therein or permit any receiver or assignee for the benefit of creditors to be appointed to take possession of its assets, whether now owned or hereafter acquired, or any portion thereof.

6.16 Borrower’s Organizational Documents . Borrower shall not, and shall cause each of its Subsidiaries not to, modify, amend or terminate any of Borrower’s or any of its Subsidiaries’ Organizational Documents, or permit any of Borrower’s or any of its Subsidiaries’ Organizational Documents to be modified, amended or terminated, without the prior written consent of Lender. Lender’s consent to any such modification, amendment or termination shall not be unreasonably withheld, provided (a) that there shall be no Event of Default at the time of Borrower’s request for such consent, and (b) the proposed modification, amendment or termination does not (with the provision of notice or the passage of time, or both) violate any provision of this Agreement.

6.17 Prohibition of Assignments, Transfers and Encumbrances . Without Lender’s prior written consent, Borrower shall not, and shall cause each of its Subsidiaries not to, directly or indirectly (i) except in the ordinary course of business, sell, transfer, lease or otherwise dispose of all or any portion of its assets or any interest therein; (ii) except for Permitted Liens, encumber, hypothecate, create a security interest or create or permit any lien upon or affecting the Collateral; (iii) assign, transfer or encumber any interest of Borrower or any of its Subsidiaries under this Agreement or under any other Loan Document, or delegate any of Borrower’s or any of its Subsidiaries’ duties or obligations hereunder or thereunder; (iv) make any material change in its capital structure; (v) change its name, consolidate with or merge into any other Person or permit any other Person to merge into it; or (vi) enter into any sale-leaseback transaction. Notwithstanding the foregoing, Borrower may in the ordinary course of its business, engage in any project based business and any exit activities in connection therewith shall not be deemed to be in violation of this Loan Agreement, including this Section 6.17.

6.18 Prohibition of Other Indebtedness . Without Lender’s prior written consent, Borrower shall not, and shall cause each of its Subsidiaries not to, directly or indirectly, become or remain obligated for any indebtedness for borrowed money, or for any indebtedness incurred in connection with the acquisition of any property, real or personal, tangible or intangible, except: (i) indebtedness to Lender, (ii) unsecured trade payables and accrued liabilities arising in the ordinary course of Borrower’s business, (iii) any non-recourse project finance loans incurred by any of its Subsidiaries that are special purpose vehicles formed for project development, (iv) any indebtedness of the Company or its Subsidiaries outstanding as of the date of this Agreement. Notwithstanding anything herein to the contrary, no later than May 31, 2018, Borrower shall (a) obtain a full lien release from Wells Fargo Bank with respect to the lien on all of Lender’s assets granted pursuant to the credit card agreement between Wells Fargo Bank and (b) provide Lender evidence of such lien release and diligently pursue the appropriate filing of such lien release.

6.19 Loans, Acquisitions, Guaranties, Affiliate Transactions . Without Lender’s prior written consent, Borrower shall not, and shall cause each of its Subsidiaries not to, directly or indirectly, (i) make any loan, investment, advance or extension of credit to any Person other than in the ordinary course of business, (ii) purchase, create or acquire all or substantially all of the properties or assets of any other Person or any Capital Securities of any other Person, (iii) incur any obligation as surety or guarantor, other than in the ordinary course of business, (iv) enter into any transaction with an Affiliate that is not on terms and conditions as favorable to Borrower as would be obtainable in a transaction with a Person that is not an Affiliate or (v) subordinate any indebtedness due it from any Person to indebtedness of other creditors of such Person.

6.20 Dividends; Distributions . Without Lender’s prior written consent, Borrower shall not, and shall cause each of its Subsidiaries not to, pay any Dividends on its Capital Securities.

6.21 Expenses; Taxes; Indemnity .

(a) Borrower agrees to pay or cause to be paid, and to save Lender harmless against liability for the payment of, all reasonable and documented out-of-pocket costs and expenses (including but not limited to reasonable fees and expenses of counsel) (i) incurred by Lender arising from or relating to this Agreement, the Loan Documents and all related due diligence and travel, including, without limitation, the negotiation, preparation, execution and delivery of this Agreement and the other Loan Documents, provided, however , that in no event shall such payment by Borrower exceed Thirty-Five Thousand Dollars ($35,000), (ii) incurred by Lender arising from or relative to the administration or performance of this Agreement and the other Loan Documents or any requested amendments, modifications, supplements, waivers or consents (without regard to whether any of the same is ultimately entered into or granted) to this Agreement or any Loan Document and (iii) reasonably incurred by Lender in connection with the enforcement or preservation of rights under this Agreement or any other Loan Document.

(b) Borrower hereby agrees to pay all stamp, document, transfer, recording, filing, registration, search, sales and excise fees and taxes and all similar impositions (excluding taxes on the overall net income or gross receipts of Lender) now or hereafter determined by Lender to be payable in connection with this Agreement or any other Loan Document or any other documents, instruments or transactions pursuant to or in connection herewith or therewith, and Borrower agrees to save Lender harmless from and against any and all present or future claims, liabilities or losses with respect to or resulting from any omission to pay or delay in paying any such fees, taxes or impositions. All payments of the Term Loan shall be made by Borrower to Lender free and clear of and without deduction or withholding for or on account of any taxes whatsoever, withholdings or other deductions. If any taxes are required to be withheld or paid, then the Borrower shall pay such taxes to the applicable taxing authority and Borrower shall send the original or a certified copy of the receipt evidencing such tax payment, within thirty (30) days of the payment date to the Lender. Borrower shall pay and indemnify and hold the Lender harmless from and against, any taxes that may at any time be asserted in respect of the Term Loan.

(c) Borrower hereby agrees to reimburse and indemnify Lender and each of its officers and directors (collectively, the “ Indemnified Parties ”) from and against any and all documented losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements of any kind or nature whatsoever (including, without limitation, the fees and disbursements of counsel for such Indemnified Party in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not such Indemnified Party shall be designated a party thereto) that may at any time be imposed on, asserted against or incurred by such Indemnified Party as a result of, or arising out of, or in any way related to or by reason of, this Agreement or any other Loan Document or any transaction from time to time contemplated hereby including, without limitation, with respect to any Hazardous Materials or a violation of Environmental Laws, but excluding (i) any such losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements resulting solely from the gross negligence or willful misconduct of such Indemnified Party, as finally determined by a court of competent jurisdiction; and (ii) any consequential, indirect, incidental, punitive or lost profits or revenues.

6.22 Pension or Profit Sharing Plans . Borrower shall not, and shall cause each of its Subsidiaries not to, allow any fact, condition or event to occur or exist with respect to any employee pension or profit sharing plan established or maintained by Borrower or any of its Subsidiaries which might reasonably be expected to constitute grounds for termination of any such plan or for the court appointment of a trustee to administer any such plan; or permit any such plan to be the subject of termination proceedings (whether voluntary or involuntary) which may reasonably be expected to result in a liability of Borrower or any of its Subsidiaries to the PBGC which, in the reasonable opinion of Lender, could reasonably be expected to have a Material Adverse Effect.

6.23 Field Audits . Borrower agrees that Lender may conduct audits of Borrower, its Subsidiaries and their operations, the results of which shall be reasonably satisfactory to Lender, and the costs of which shall be paid by Borrower. Such audits will be conducted no more than one (1) time per calendar year absent an Event of Default. Lender may conduct a field examination of the Collateral at Borrower’s expense, no more than one (1) time per year absent an Event of Default.

6.24 Collateral . Borrower shall maintain the Collateral (as defined in the Security Agreement) in accordance with all recommend manufacturer specifications, as applicable, and applicable law. Borrower shall replace any parts or equipment comprising the Collateral in a timely manner, and with new parts and/or equipment of the same brand and model whenever possible or parts and/or equipment of a higher quality.

6.25 Change in Control . Borrower shall not consummate a Change in Control without causing all Obligations that are then due and owing to be paid at or prior to the closing thereof.

6.26 Lender’s Board Member . Lender shall have the option at any time to designate another individual to replace Lender’s Designee on Borrower’s Board of Directors; provided however, such right shall terminate when all Obligations have been satisfied in full and Lender shall thereafter have no further obligation to maintain Lender’s Designee on Borrower’s Board of Directors after all Obligations have been satisfied in full.

6.27 Landlord Waivers . Borrower shall obtain and deliver to Lender no later than May 31, 2018 a Landlord Waiver in a form reasonably acceptable to Lender from the landlord of the property leased by Borrower located at 1030 Winding Creek Road, Suite 100, Roseville, California. With respect to all of the other Locations (as defined in Section 5.10) leased by Borrower, Borrower shall make commercially reasonable efforts to obtain and deliver to Lender Landlord Waivers in forms reasonably acceptable to Lender from the landlords of all such other Locations.

ARTICLE 7.
DEFAULTS AND REMEDIES

7.1 Events of Default . Any of the following events shall constitute an “ Event of Default ” under this Agreement:

(a) Borrower shall default in the payment of any sum which is or becomes due and payable under this Agreement, any Note or any other Loan Document.

(b) Any material representation or warranty made by Borrower or any of its Subsidiaries in this Agreement or in any certificate or document furnished under the terms of this Agreement shall prove untrue in any material respect.

(c) Borrower, any of its Subsidiaries or any of the persons other than Lender designated herein shall fail to observe or perform any other condition, covenant or agreement of Borrower or such Subsidiary set forth in this Agreement which is reasonably likely to result in a Material Adverse Effect and which failure is not cured within five (5) business days after receipt of written notice from Lender.

(d) Borrower or any of its Subsidiaries shall default in the performance of any of its obligations under any other Loan Document to which Borrower or such Subsidiary is a party, and such default shall not be cured or remedied by Borrower or such Subsidiary within any applicable period of grace or cure with respect thereto.

(e) Default in the payment of any other obligation of Borrower or any of its Subsidiaries for borrowed money, or in the observance or performance of any conditions, covenants or agreements related or given with respect to any obligations for borrowed money, except for non-recourse project finance loans by any of its Subsidiaries that are special purpose vehicles formed for project development, sufficient to permit the holder thereof to accelerate the maturity of such obligation, including, without limitation, obligations of Borrower or such Subsidiary to Lender.

(f) Judgment(s) for the payment of money in excess of the sum of One Hundred Fifty Thousand Dollars ($150,000.00) in the aggregate shall be rendered against Borrower or any of its Subsidiaries and such judgment(s) shall remain unpaid, unvacated, unbonded or unstayed by appeal or otherwise for a period of thirty (30) consecutive days from the date of its entry and such judgment is not covered by insurance from a solvent insurer who is defending such action without reservation of rights.

(g) Borrower or any of its Subsidiaries (i) shall admit in writing the inability to pay its or his debts as they become due and payable; or (ii) shall make an assignment for the benefit of creditors; or (iii) shall be adjudicated a bankrupt; or (iv) shall file a voluntary petition in bankruptcy or effect a plan or other arrangement with creditors; or (v) shall have applied for, or permitted the appointment of, a receiver or trustee or custodian for all or substantially all of the property or assets of Borrower or such Subsidiary, or a trustee, receiver or custodian shall have been appointed for all or substantially all of the property or assets of Borrower or any of its Subsidiaries who shall not have been discharged within sixty (60) days after the date of his appointment.

(h) Borrower shall dissolve or merge with or into any entity, or Borrower or any of its Subsidiaries shall dispose of all or any material portion of its assets; provided that the disposition of all or any material portion of its assets by any of its Subsidiaries formed as special purpose vehicles for project development shall not be deemed to be an Event of Default under this Section 7.1(h).

(i) The occurrence of any “reportable event”, as defined in ERISA, which (i) is determined to constitute grounds for (A) termination by the PBGC of any pension plan of Borrower or any of its Subsidiaries or (B) the appointment by the appropriate United States District Court of a trustee to administer such plan and (ii) is reasonably likely to result in a Material Adverse Effect, and (iii) such reportable event is not corrected and such determination is not revoked within thirty (30) days after (A) notice thereof has been given to the plan administrator, Borrower or such Subsidiary; or (B) the institution of proceedings by the PBGC to terminate any such pension plan or to appoint a trustee to administer such plan; or (C) the appointment of a trustee by the appropriate United States District Court to administer any such pension plan.

(j) Any breach or default by Borrower of any term or condition under any swap agreement, interest rate protection agreement, derivatives agreement, or similar agreements now or hereafter entered into by Borrower with Lender or any Affiliate of Lender.

(k) The occurrence of any event which Lender determines, in the exercise of its reasonable discretion, would reasonably be expected to have a Material Adverse Effect.

(l) A Change in Control.

7.2 Certain Remedies .

(a) If any Event of Default shall occur and be continuing:

(i) Lender may, by giving notice to Borrower, declare all of the Obligations, including the entire unpaid principal balance of the indebtedness evidenced by the Notes, all interest accrued thereon and any and all other sums payable by Borrower under this Agreement (including but not limited to any Exit Fee if applicable), the Notes or any other Loan Document, to be immediately due and payable. Thereupon, all of such Obligations which are not already due and payable shall forthwith become absolutely and unconditionally due and payable, without presentment, demand, protest or any further notice or any other formalities of any kind, all of which are hereby expressly and irrevocably waived. Any commitment or obligation, if any, on the part of Lender to make loans or otherwise extend credit to or in favor of Borrower shall immediately terminate.

(ii) Lender may proceed to protect and enforce all or any of its rights, remedies, powers and privileges under this Agreement, the Notes or any other Loan Document by action at law, suit in equity or other appropriate proceedings, whether for specific performance of any covenant contained.

(b) Upon the occurrence and at any time during the continuance or existence of an Event of Default under Section 7.1(g) of this Agreement, then the Obligations and all indebtedness then outstanding thereunder shall automatically become immediately due and payable without any notice by Lender to Borrower and any commitment or obligation, if any, on the part of Lender to make loans or otherwise extend credit to or in favor of Borrower shall immediately terminate. Further, upon the occurrence or at any time during the continuance or existence of any default hereunder, Lender may collect, deal with and dispose of all or any part of any security in any manner permitted or authorized by the Delaware Uniform Commercial Code or other applicable law (including public or private sale), and after deducting expenses (including, without limitation, reasonable attorneys’ fees and expenses), Lender may apply the proceeds thereof in part or full payment of any of the Obligations, whether due or not, in any manner or order Lender elects. In addition to the foregoing, upon the occurrence and at any time during the continuance or existence of any default hereunder, Lender may exercise any and all rights available to it under the Loan Documents or by application of law.

7.3 No Implied Waiver; Rights Cumulative . No delay by Lender in exercising any right, remedy, power or privilege hereunder or under any other Loan Document, or available to it at law or in equity, shall impair, prejudice or constitute a waiver of any such right, remedy, power or privilege or be construed as a waiver of (or acquiescence to) any Event of Default. No right, remedy, power or privilege conferred on or reserved to Lender under any of the Loan Documents, in equity or at law is intended to be exclusive of any other right, remedy, power or privilege which may then be, or may thereafter become, available to Lender. All rights, remedies, powers and privileges available to Lender shall be cumulative; any of the same may be exercised at such time or times and in such order and manner as Lender shall (in its sole discretion) deem expedient.

ARTICLE 8.
MISCELLANEOUS PROVISIONS

8.1 Consent or Approval .

(a) In all instances in which Lender’s approval of or consent to any item, matter or circumstance is contemplated by the terms of this Agreement or any other Loan Document, such approval or consent or the exercise of such judgment shall (unless otherwise specified) (i) be within the absolute discretion of Lender, and (ii) be expressed only by a specific writing intended for such purpose and signed by Lender.

(b) Lender shall not, by reason of its consent or approval of any item or matter submitted to it, be deemed to have assumed or undertaken any responsibility or obligation for the adequacy, accuracy, completeness, efficacy, form or content of any such matter or item.

8.2 Duration . This Agreement shall continue in full force and effect and the duties, covenants, and liabilities of Borrower hereunder and all the terms, conditions, and provisions hereof relating thereto shall continue to be fully operative until all Obligations have been satisfied in full, provided, however that notwithstanding the provisions of this Section, the Loan shall be due and payable as set forth in the this Agreement and in the Notes.

8.3 Survival of Representations . All representations and warranties made by or on behalf of Borrower in this Agreement or any other Loan Document shall be deemed to have been relied upon by Lender notwithstanding any investigation which may be made by Lender. All such representations and warranties shall survive the closing of the transactions described herein and the disbursement of the proceeds of the Loan until all of the Obligations shall have been fully, finally and indefeasibly paid in full.

8.4 Binding Effect . This Agreement shall inure to the benefit of and be binding upon Borrower, Lender, and their respective successors and assigns; provided, however, that this Agreement and the Loan may not be assigned by Borrower without the consent of Lender but may be assigned by Lender without the consent of Borrower.

8.5 Counterparts . This Agreement may be executed in any number of counterparts (including by electronic delivery of signed signature pages) and by different parties in separate counterparts, each of which counterparts, when so executed and delivered, will be deemed to be an original and all of which counterparts, taken together, will constitute one and the same agreement.

8.6 Notices . Except for any notice required under applicable law to be given in another manner, all notices, requests, consents, demands, or other communications required or permitted to be given pursuant to this Agreement shall be deemed sufficiently given when delivered either (i) personally with a written receipt acknowledging delivery, or (ii) three (3) Business Days after the posting thereof by United States first class, registered or certified mail, return receipt requested, with postage fee prepaid and addressed to the following:

Any Party, at any time, may designate additional or different addresses for subsequent notices or communication by furnishing notice to the other Party in the manner described above.

8.7 Waiver of Jury Trial . AFTER HAVING THE OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL, AND FOR THEIR MUTUAL BENEFIT, BORROWER AND LENDER HEREBY EXPRESSLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN CONNECTION WITH ANY DISPUTE WHICH MAY ARISE UNDER OR IN CONNECTION WITH THIS AGREEMENT.

8.8 Entire Agreement . This Agreement, together with other Loan Documents, and that certain Confidentiality Agreement dated as of March 23, 2018 constitute the entire agreement between Borrower and Lender with respect to the making and funding of the Loan, and no representations or agreements, express or implied, have been made to or with Borrower not herein or therein contained. This Agreement shall not be amended or modified, nor may any of its terms or conditions be waived, except by an instrument in writing duly executed by Lender and Borrower. Lender represents that there are no agreements with Cargile and/or Short, the holders of the Subordinated Notes, except for the Loan Documents.

8.9 Jurisdiction; Governing Law . This Agreement shall be governed by and construed, interpreted and enforced in accordance with the internal, substantive laws of the State of Texas, without giving effect to conflicts of laws principles. The parties voluntarily and irrevocably submit to the jurisdiction of the courts of the State of Texas located in Travis County, Texas, and the Federal Courts of the United States of America located in Travis County, Texas, over any dispute between or among the parties related to or arising out of this Agreement, and each party irrevocably agrees that all such claims in respect of such dispute shall be heard and determined exclusively in such courts. The parties hereby irrevocably consent to the jurisdiction of such courts and hereby waive, to the fullest extent permitted by law, any objection which they may now or hereafter have to the venue of such dispute related to or arising out of this Agreement brought in such court or any defense of inconvenient forum for the maintenance of such dispute. Each party agrees that a judgment in any such dispute may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Notwithstanding anything to the contrary contained herein or in any Loan Document, Lender may bring suit and otherwise make filings in any jurisdiction in which the Collateral is located to enforce its rights pursuant to this Agreement or the Security Agreement.

8.10 Headings . Paragraph headings used in this Agreement are intended for convenience of reference only, and shall not be deemed to alter, affect or limit the meaning of any provision of this Agreement.

8.11 Severability . If any provision of this Agreement, or the application of any provision to any person or circumstance, shall be invalid or unenforceable to any extent, the balance of this Agreement and the application of all provisions of this Agreement to all other persons and circumstances shall not be affected thereby; each provision of this Agreement shall remain valid and enforceable to the fullest extent permitted by law.

8.12 Relationship . The relationship between Borrower and Lender is strictly contractual in nature, and is governed entirely by this Agreement and the other Loan Documents. Nothing contained in this Agreement, and no action which Lender may take hereunder or in respect of the Loan, will create any agent, partnership, co-venture or joint venture between Borrower and Lender or will make Lender liable in any manner to any party dealing with Borrower.

8.13 Press Releases . Each party consents to the publication by the other party of press releases and advertising material relating to the Loan using the other party’s name, logo or trademark; provided, however that each party shall provide a draft reasonably in advance of any press release or advertising material to the other party for review, comment and approval prior to the publication thereof.

8.14 Amendments; Waivers . Borrower covenants and agrees that any decision with respect to any amendments, waivers and enforcement of Lender’s rights under the Loan Agreement and any other Loan Document shall be made independently of the holders of the Subordinated Notes.

8.15 Patriot Act . Borrower and each of its Subsidiaries is not (or will not be) a person with whom Lender is restricted from doing business under regulations of the Office of Foreign Asset Control (“ OFAC ”) of the Department of the Treasury of the United States of America (including, those Persons named on OFAC’s Specially Designated and Blocked Persons list) or under any statute, executive order (including, the September 24, 2001 Executive Order Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism), or other governmental action and is not and shall not engage in any dealings or transactions or otherwise be associated with such persons. In addition, Borrower hereby agrees to provide to Lender with any additional information that Lender deems necessary from time to time in order to ensure compliance with all applicable Laws concerning money laundering and similar activities.

[Remainder of Page Intentionally Left Blank]

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered of the day and year first set forth above.

[Signature Page to Loan Agreement]

SENIOR PROMISSORY NOTE

FOR VALUE RECEIVED, Sunworks Inc., a Delaware corporation (“ Maker ”), whose principal place of business and chief executive office is located at 1030 Winding Creek Road, Suite 100, Roseville, California 95678, promises to pay to the order of CrowdOut Capital, LLC, a Texas limited liability company (“ Payee ”), the sum of THREE MILLION AND NO/100 U.S. DOLLARS ($3,000,000.00) , in lawful money of the United States of America which shall be legal tender for the payment of debts from time to time, together with interest on the principal amount that remains outstanding and unpaid from the date advanced until paid in full, at such interest rates and at such times as are specified in that certain Loan Agreement of even date herewith executed by Payee and Maker, as same may hereafter be modified, renewed, extended, amended or restated (the “ Loan Agreement ”). All such amounts payable hereunder shall be paid pursuant to the wire transfer instructions set forth in Schedule 2.8 to the Loan Agreement or at such other place and to such other party or parties as the owner and holder hereof may from time to time designate in writing.

This Note is being executed pursuant to the terms of the Loan Agreement and is the Note described therein. Any capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Loan Agreement. In the event of any irreconcilable conflict between the provisions of the Loan Agreement and this Note, then the provisions of the Loan Agreement shall govern and control. Any Event of Default under the Loan Agreement shall constitute a default under this Note.

This Note shall be payable as set forth in the Loan Agreement. All principal and accrued interest under this Note shall be due and payable in full on the Maturity Date. This Note shall bear interest at the Applicable Interest Rate as set forth in the Loan Agreement. This Note is subject to the Exit Fee set forth in the Loan Agreement. If an Event of Default shall occur, this Note shall bear interest at the Default Interest Rate.

Payment of this Note is secured by that certain Security Agreement of even date herewith between Maker and Payee (the “ Security Agreement ”).

Maker expressly agrees that upon the occurrence and during the continuance of an Event of Default, Payee, or any other holder of this Note may, at its or his option, without demand or presentment for payment, notice of default or nonpayment, notice or presentment of default, notice of acceleration, notice of intention to accelerate or otherwise, to Maker or to any other entity, declare the principal and any then accrued and unpaid interest thereon, at once due and payable. Further, upon the occurrence and during the continuance of any Event of Default, Payee, or any other holder of this Note, shall also have the right to exercise any and all of the rights, remedies and recourses now or hereafter existing in equity or at law, by virtue of statute or otherwise, including, but not limited to, the right to foreclose any and all liens and security interests securing the indebtedness evidenced hereby. Failure to exercise any option to accelerate described in this paragraph shall not constitute a waiver of the right to exercise the same in the event of any subsequent Event of Default.

In the event default is made in the prompt payment of this Note when due or declared due, and the same is placed in the hands of an attorney for collection, or suit is brought on same, or the same is collected through any judicial proceeding whatsoever, or if any action or foreclosure be had hereon, then Maker agrees and promises to pay an additional amount consisting of all reasonable, calculated and foreseeable attorneys’ and collection fees incurred by Payee in connection with enforcing its rights herein contemplated, all of which amounts shall become part of the principal hereof.

No failure to exercise and no delay on the part of Payee in exercising any power or right in connection herewith or under the Loan Agreement or the Security Agreement or any other instrument evidencing, securing, or guaranteeing this Note shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. No course of dealing between Maker and Payee shall operate as a waiver of any right of Payee. No modification or waiver of any provision of this Note or any other instrument evidencing, securing, or guaranteeing this Note nor any consent to any departure therefrom shall in any event be effective unless the same shall be in writing and signed by the person against whom enforcement thereof is to be sought, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.

To the extent permitted by applicable Legal Requirements, all makers, endorsers, sureties and guarantors hereof, if any, as well as any person to become liable on this Note, hereby waive demand or presentment for payment of this Note, notice of default or nonpayment, protest, notice of protest, suit, notice of intention to accelerate, notice of acceleration, diligence or any notice of or defense on account of the extension of time of payments or change in the method of payments, and consent to any and all renewals and extensions in the time of payment hereof, and to any substitution, exchange or release of any security herefor or the release of any party primarily or secondarily liable hereon.

It is expressly provided and stipulated that notwithstanding any provision of this Note or the Loan Agreement or any other instrument evidencing or securing the indebtedness herein set forth, in no event shall the aggregate of all interest paid by Maker to Payee hereunder on the principal balance of this Note remaining unpaid ever exceed the Maximum Rate. It is expressly stipulated and agreed by Maker that it is the intent of Payee and Maker in the execution and delivery of this Note to contract in furtherance of applicable law, and that none of the terms of this Note, or said other instruments, shall ever be construed to create a contract to pay for the use, forbearance or detention of money, at any interest rate in excess of the Maximum Rate. Neither Maker or other parties now or hereafter becoming liable for payment of this Note shall ever be liable for interest in excess of the Maximum Rate, and the provisions of this paragraph and the immediately succeeding paragraph shall govern over all other provisions of this Note, and all other instruments evidencing or securing the indebtedness evidenced hereby, should any such provisions be in apparent conflict herewith.

Specifically and without limiting the generality of the foregoing paragraph, it is expressly provided that:

(i)        In the event of prepayment of the principal of this Note, in whole or in part, or the payment of the principal of this Note prior to the stated Maturity Date, whether resulting from acceleration of the maturity of this Note or otherwise, if the aggregate amounts of interest accruing hereon prior to such payment plus the amount of any interest accruing after maturity and plus any other amount paid or accrued in connection with the indebtedness evidenced hereby which by law are deemed interest on the indebtedness evidenced by the Note or the Loan Agreement and which aggregate amounts paid or accrued (if calculated in accordance with the provisions of this Note other than this paragraph) would exceed the Maximum Rate which could lawfully be charged as above mentioned on the unpaid principal balance of the indebtedness evidenced by this Note from time to time advanced (less any discount) and remaining unpaid from the date advanced to the date of final payment thereof, then in such event the amount of such excess shall be credited, as of the date paid, toward the payment of the principal of this Note so as to reduce the amount of the final payment of principal due on this Note, or if the principal amount hereof has been paid in full, refunded to Maker.

(ii)        If under any circumstances the aggregate amounts paid on the indebtedness evidenced by this Note prior to and incident to the final payment hereof include amounts which by law are deemed interest and which would exceed the Maximum Rate of interest which could lawfully have been charged or collected on this Note, as above mentioned, Maker stipulates that (a) any non-principal payment shall be characterized as an expense, fee, or premium rather than as interest and any excess shall be credited hereon by the holder hereof (or, if this Note shall have been paid in full, refunded to Maker); and (b) determination of the rate of interest for determining whether the indebtedness evidenced hereby is usurious shall be made by amortizing, prorating, allocating, and spreading, in equal parts during the full stated term hereof, all interest at any time contracted for, charged, or received from Maker in connection with such indebtedness, and any excess shall be canceled, credited, or refunded as set forth in clause (a) herein. Time shall be of the essence in performing all such actions.

Any check, draft, money order, or other instrument given in payment of all or any portion of this Note may be accepted by Payee and handled in collection in the customary manner, but the same shall not constitute payment hereunder or diminish any rights of Payee except to the extent that actual cash proceeds of such instruments are unconditionally received by Payee.

Maker agrees that Payee may assign this Note subject to compliance with applicable securities laws and the following conditions: (i) Payee may freely assign this Note to any of Payee’s affiliates; (ii) Payee may assign a portion of its interest in this Note to one or more unaffiliated third parties; and (iii) upon any such assignment in clause (i) or clause (ii), Payee shall promptly provide written notice to Maker of the name and address of the applicable assignee upon making any such assignment.

Maker represents and warrants that the extension of credit represented by this Note is for business, commercial, investment, or other similar purposes and not for personal, family, household or agricultural use.

This Note has been executed and delivered and shall be construed in accordance with and governed by the internal, substantive laws of the State of Texas and of the United States of America applicable in Texas, without giving effect to conflicts of laws principles. The parties voluntarily and irrevocably submit to the jurisdiction of the courts of the State of Texas located in Travis County, Texas, and the Federal Courts of the United States of America located in Travis County, Texas, over any dispute between or among the parties related to or arising out of this Note, and each party irrevocably agrees that all such claims in respect of such dispute shall be heard and determined exclusively in such courts. The parties hereby irrevocably consent to the jurisdiction of such courts and hereby waive, to the fullest extent permitted by law, any objection which they may now or hereafter have to the venue of such dispute related to or arising out of this Note brought in such court or any defense of inconvenient forum for the maintenance of such dispute. Each party agrees that a judgment in any such dispute may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Notwithstanding anything to the contrary contained herein or in any Loan Document, Payee may bring suit and otherwise make filings in any jurisdiction in which the Collateral is located to enforce its rights pursuant to the Loan Documents.

THIS NOTE AND THE OTHER LOAN DOCUMENTS EXECUTED IN CONNECTION HEREWITH OR THEREWITH, REPRESENT THE FINAL AGREEMENT BETWEEN MAKER AND PAYEE AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN MAKER AND PAYEE.

Signature Page Follows:

THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN MAKER AND PAYEE.

[Signature Page to Senior Promissory Note]

SUBORDINATED PROMISSORY NOTE

FOR VALUE RECEIVED, Sunworks Inc., a Delaware corporation (“ Maker ”), whose principal place of business and chief executive office is located at 1030 Winding Creek Road, Suite 100, Roseville, California 95678, promises to pay to the order of CrowdOut Capital, LLC, a Texas limited liability company (“ Payee ”), the sum of SEVEN HUNDRED FIFTY THOUSAND AND NO/100 U.S. DOLLARS ($750,000.00) , in lawful money of the United States of America which shall be legal tender for the payment of debts from time to time, together with interest on the principal amount that remains outstanding and unpaid from the date advanced until paid in full, at such interest rates and at such times as are specified in that certain Loan Agreement of even date herewith executed by Payee and Maker, as same may hereafter be modified, renewed, extended, amended or restated (the “ Loan Agreement ”). All such amounts payable hereunder shall be paid pursuant to the wire transfer instructions set forth in Schedule 2.8 to the Loan Agreement or at such other place and to such other party or parties as the owner and holder hereof may from time to time designate in writing.

This Note is being executed pursuant to the terms of the Loan Agreement and is the Note described therein. Any capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Loan Agreement. In the event of any irreconcilable conflict between the provisions of the Loan Agreement and this Note, then the provisions of the Loan Agreement shall govern and control. Any Event of Default under the Loan Agreement shall constitute a default under this Note.

This Note shall be payable as set forth in the Loan Agreement. All principal and accrued interest under this Note shall be due and payable in full on the Maturity Date. This Note shall bear interest at the Applicable Interest Rate as set forth in the Loan Agreement. If an Event of Default shall occur, this Note shall bear interest at the Default Interest Rate.

Payment of this Note is secured by that certain Security Agreement of even date herewith between Maker and Payee (the “ Security Agreement ”).

Maker expressly agrees that upon the occurrence and during the continuance of an Event of Default, Payee, or any other holder of this Note may, at its or his option, without demand or presentment for payment, notice of default or nonpayment, notice or presentment of default, notice of acceleration, notice of intention to accelerate or otherwise, to Maker or to any other entity, declare the principal and any then accrued and unpaid interest thereon, at once due and payable. Further, upon the occurrence and during the continuance of any Event of Default, Payee, or any other holder of this Note, shall also have the right to exercise any and all of the rights, remedies and recourses now or hereafter existing in equity or at law, by virtue of statute or otherwise, including, but not limited to, the right to foreclose any and all liens and security interests securing the indebtedness evidenced hereby. Failure to exercise any option to accelerate described in this paragraph shall not constitute a waiver of the right to exercise the same in the event of any subsequent Event of Default.

In the event default is made in the prompt payment of this Note when due or declared due, and the same is placed in the hands of an attorney for collection, or suit is brought on same, or the same is collected through any judicial proceeding whatsoever, or if any action or foreclosure be had hereon, then Maker agrees and promises to pay an additional amount consisting of all reasonable, calculated and foreseeable attorneys’ and collection fees incurred by Payee in connection with enforcing its rights herein contemplated, all of which amounts shall become part of the principal hereof.

No failure to exercise and no delay on the part of Payee in exercising any power or right in connection herewith or under the Loan Agreement or the Security Agreement or any other instrument evidencing, securing, or guaranteeing this Note shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. No course of dealing between Maker and Payee shall operate as a waiver of any right of Payee. No modification or waiver of any provision of this Note or any other instrument evidencing, securing, or guaranteeing this Note nor any consent to any departure therefrom shall in any event be effective unless the same shall be in writing and signed by the person against whom enforcement thereof is to be sought, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.

To the extent permitted by applicable Legal Requirements, all makers, endorsers, sureties and guarantors hereof, if any, as well as any person to become liable on this Note, hereby waive demand or presentment for payment of this Note, notice of default or nonpayment, protest, notice of protest, suit, notice of intention to accelerate, notice of acceleration, diligence or any notice of or defense on account of the extension of time of payments or change in the method of payments, and consent to any and all renewals and extensions in the time of payment hereof, and to any substitution, exchange or release of any security herefor or the release of any party primarily or secondarily liable hereon.

It is expressly provided and stipulated that notwithstanding any provision of this Note or the Loan Agreement or any other instrument evidencing or securing the indebtedness herein set forth, in no event shall the aggregate of all interest paid by Maker to Payee hereunder on the principal balance of this Note remaining unpaid ever exceed the Maximum Rate. It is expressly stipulated and agreed by Maker that it is the intent of Payee and Maker in the execution and delivery of this Note to contract in furtherance of applicable law, and that none of the terms of this Note, or said other instruments, shall ever be construed to create a contract to pay for the use, forbearance or detention of money, at any interest rate in excess of the Maximum Rate. Neither Maker or other parties now or hereafter becoming liable for payment of this Note shall ever be liable for interest in excess of the Maximum Rate, and the provisions of this paragraph and the immediately succeeding paragraph shall govern over all other provisions of this Note, and all other instruments evidencing or securing the indebtedness evidenced hereby, should any such provisions be in apparent conflict herewith.

Specifically and without limiting the generality of the foregoing paragraph, it is expressly provided that:

(i)        In the event of prepayment of the principal of this Note, in whole or in part, or the payment of the principal of this Note prior to the stated Maturity Date, whether resulting from acceleration of the maturity of this Note or otherwise, if the aggregate amounts of interest accruing hereon prior to such payment plus the amount of any interest accruing after maturity and plus any other amount paid or accrued in connection with the indebtedness evidenced hereby which by law are deemed interest on the indebtedness evidenced by the Note or the Loan Agreement and which aggregate amounts paid or accrued (if calculated in accordance with the provisions of this Note other than this paragraph) would exceed the Maximum Rate which could lawfully be charged as above mentioned on the unpaid principal balance of the indebtedness evidenced by this Note from time to time advanced (less any discount) and remaining unpaid from the date advanced to the date of final payment thereof, then in such event the amount of such excess shall be credited, as of the date paid, toward the payment of the principal of this Note so as to reduce the amount of the final payment of principal due on this Note, or if the principal amount hereof has been paid in full, refunded to Maker.

(ii)        If under any circumstances the aggregate amounts paid on the indebtedness evidenced by this Note prior to and incident to the final payment hereof include amounts which by law are deemed interest and which would exceed the Maximum Rate of interest which could lawfully have been charged or collected on this Note, as above mentioned, Maker stipulates that (a) any non-principal payment shall be characterized as an expense, fee, or premium rather than as interest and any excess shall be credited hereon by the holder hereof (or, if this Note shall have been paid in full, refunded to Maker); and (b) determination of the rate of interest for determining whether the indebtedness evidenced hereby is usurious shall be made by amortizing, prorating, allocating, and spreading, in equal parts during the full stated term hereof, all interest at any time contracted for, charged, or received from Maker in connection with such indebtedness, and any excess shall be canceled, credited, or refunded as set forth in clause (a) herein. Time shall be of the essence in performing all such actions.

Any check, draft, money order, or other instrument given in payment of all or any portion of this Note may be accepted by Payee and handled in collection in the customary manner, but the same shall not constitute payment hereunder or diminish any rights of Payee except to the extent that actual cash proceeds of such instruments are unconditionally received by Payee.

Maker agrees that Payee may assign this Note subject to compliance with applicable securities laws and the following conditions: (i) Payee may freely assign this Note to any of Payee’s affiliates; (ii) Payee may assign a portion of its interest in this Note to one or more unaffiliated third parties; and (iii) upon any such assignment in clause (i) or clause (ii), Payee shall promptly provide written notice to Maker of the name and address of the applicable assignee upon making any such assignment.

Maker represents and warrants that the extension of credit represented by this Note is for business, commercial, investment, or other similar purposes and not for personal, family, household or agricultural use.

This Note has been executed and delivered and shall be construed in accordance with and governed by the internal, substantive laws of the State of Texas and of the United States of America applicable in Texas, without giving effect to conflicts of laws principles. The parties voluntarily and irrevocably submit to the jurisdiction of the courts of the State of Texas located in Travis County, Texas, and the Federal Courts of the United States of America located in Travis County, Texas, over any dispute between or among the parties related to or arising out of this Note, and each party irrevocably agrees that all such claims in respect of such dispute shall be heard and determined exclusively in such courts. The parties hereby irrevocably consent to the jurisdiction of such courts and hereby waive, to the fullest extent permitted by law, any objection which they may now or hereafter have to the venue of such dispute related to or arising out of this Note brought in such court or any defense of inconvenient forum for the maintenance of such dispute. Each party agrees that a judgment in any such dispute may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Notwithstanding anything to the contrary contained herein or in any Loan Document, Payee may bring suit and otherwise make filings in any jurisdiction in which the Collateral is located to enforce its rights pursuant to the Loan Documents.

THIS NOTE AND THE OTHER LOAN DOCUMENTS EXECUTED IN CONNECTION HEREWITH OR THEREWITH, REPRESENT THE FINAL AGREEMENT BETWEEN MAKER AND PAYEE AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN MAKER AND PAYEE.

Signature Page Follows:

THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN MAKER AND PAYEE.

[Signature Page to Subordinated Promissory Note]

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (the “ Security Agreement ”) is made as of April 27, 2018 by and between SUNWORKS INC. , a Delaware corporation, whose address is 1030 Winding Creek Road, Suite 100, Roseville, California 95678 (“ Obligor ”) and CROWDOUT CAPITAL, LLC , a Texas limited liability company, whose address is 1010 Land Creek Cove, Austin, Texas 78746 (“ Secured Party ”). Obligor and Secured Party may be hereinafter referred to singularly as a “ Party ” or collectively as the “ Parties ”.

W   I   T   N   E   S   S   E   T   H:

WHEREAS, Obligor and Secured Party have entered into that certain Loan Agreement dated as of even date herewith (“ Loan Agreement ”) pursuant to which Secured Party has agreed to lend to Obligor, and Obligor has agreed to pay the Secured Party, the amounts outstanding under that certain Promissory Note made by Obligor as of even date herewith for the benefit of Secured Party in the original principal amount of Three Million and No/100 Dollars ($3,000,000) (“ Promissory Note ”). All capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Loan Agreement;

WHEREAS, pursuant to the Loan Agreement and the Promissory Note, and as a material inducement for Secured Party to enter into the same, Obligor has agreed to grant Secured Party a first priority security interest in certain assets of Obligor, as more fully set forth herein, in the Promissory Note, and in the Loan Agreement; and

WHEREAS, this Security Agreement is the Security Agreement referenced in the Loan Agreement.

NOW, THEREFORE, it is hereby agreed by the Parties as follows:

1. Defined Terms .

As used in this Security Agreement, the following terms shall have the following meanings:

“Collateral” has the meaning specified in Section 2 .

“Excluded Property” means all property of Obligor subject to a Permitted Lien.

“Event of Default” has the meaning specified in Section 10 .

“Proceeds” means all proceeds of, and all other profits, rentals or receipts, in whatever form, arising from the collection, sale, lease, exchange, assignment, licensing or other disposition of, or realization upon, Collateral, including, without limitation, all claims of Obligor against third parties for loss of, damage to or destruction of, or for proceeds payable under, or unearned premiums with respect to, policies of insurance in respect of, any Collateral, and any condemnation or requisition payments with respect to any Collateral, in each case whether now existing or hereafter arising.

“Receivables” means all “accounts” , “chattel paper”, “instruments”, “documents”, “general intangibles” (including “payment intangibles”) (as each such term is defined in the UCC) and other obligations owed to Obligor of any kind, now or hereafter existing, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services, and whether or not evidenced by a written agreement, and all rights now or hereafter existing in and to all security agreements, leases, and other contracts including support agreements (as such term is defined in the UCC) (all such written or unwritten agreements, security agreements, leases and other contracts, including all support agreements, being the “ Related Contracts ”), securing or otherwise relating to any such accounts, chattel paper, instruments, documents, general intangibles or other obligations.

“Secured Liabilities” means the Obligations, together with:

(i) any modification, renewal or extension of or increase in any such Obligations;

(ii) any claim for damages or restitution in the event of rescission of any such Obligations or otherwise in connection with the Loan Documents;

(iii) any claim against Obligor flowing from the recovery by Obligor of a payment or discharge in respect of any such Obligations on grounds of preference or otherwise; and

(iv) any amounts that would be included in any of the foregoing but for any discharge, non-provability, unenforceability or non-allowability of the same in any insolvency, bankruptcy or other proceedings.

“Security Interest” means the security interest granted in accordance with Section 2 , as well as all other security interests created or assigned as additional Collateral for the Secured Liabilities in accordance with the provisions of this Security Agreement or otherwise.

“UCC” means the Uniform Commercial Code in effect from time to time in the State of Texas; provided that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of the Security Interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of Texas, “ UCC ” means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions of this Security Agreement relating to such perfection or effect of perfection or non-perfection.

2. Security Interest .

(a) In order to secure the full and punctual payment of the Secured Liabilities in accordance with the terms of the Loan Documents, Obligor hereby grants and assigns to the Secured Party a continuing security interest in and to all right, title and interest of Obligor in all of Obligor’s property, including but not limited to the following property, whether now owned or existing or hereafter acquired or arising and regardless of where located (all being collectively referred to as the “ Collateral ”):

(i) Accounts . All accounts (as such term is defined in Article 9 of the UCC) whether now owned or existing or hereafter arising or acquired by Obligor, and all returned or repossessed goods arising from or relating to any such accounts, or other proceeds of any sale, lease or other disposition of inventory, and expressly including all notes, drafts, acceptances, instruments and chattel paper arising from any of the foregoing, and all refunds and rights to reimbursement.

(ii) Inventory . All inventory (as such term is defined in Article 9 of the UCC), including all goods, merchandise, raw materials, work in process, finished goods and other tangible personal property, wheresoever located, whether now owned or existing or hereafter arising or acquired by Obligor, and (a) leased by Obligor as lessor, (b) held for sale or lease or furnished or to be furnished under contracts for service, (c) furnished by Obligor under a contract of service, or (d) used or consumed in Obligor’s business, and all additions and accessions thereto and all purchase orders, leases and contracts with respect thereto and all documents of title evidencing or representing any part thereof, and all products and proceeds thereof, whether in the possession of Obligor, a warehouseman, a bailee, or any other person.

(iii) Fixtures . All fixtures (as such term is defined in Article 9 of the UCC) and appurtenances thereto, whether now owned or existing or hereafter arising or acquired by Obligor, and such other goods, chattels, fixtures, equipment and personal property affixed or in any manner attached to the real estate and/or building(s) or structure(s), including all attachments, appurtenances, additions and accessions thereto and replacements thereof and articles in substitution therefor, howsoever attached or affixed (together with all tools, components, parts and equipment now or hereafter added to or used in connection with the foregoing).

(iv) Equipment . All equipment (as such term is defined in Article 9 of the UCC) of every nature and description whatsoever, whether now owned or existing or hereafter arising or acquired by Obligor, including all appurtenances and additions and accessions thereto and substitutions therefor and replacements thereof, wheresoever located, including all tools, parts, components and accessories used in connection therewith, and expressly including all vehicles, rolling stock, and goods (as such term is defined in Article 9 of the UCC) other than inventory, farm products and consumer goods.

(v) General Intangibles . All general intangibles (as such term is defined in Article 9 of the UCC) and other personal property, whether now owned or existing or hereafter arising or acquired by Obligor, and expressly including any personal property, including things in action, other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment property, letter of credit rights, letters of credit, money, oil, gas or other minerals before extraction. The term “general intangibles” includes (a) payment intangibles (as such term is defined in Article 9 of the UCC), (b) software (as such term is defined in Article 9 of the UCC), (c) all patents, copyrights, trademarks, service marks, processes, formulae, know-how, prototypes, samples, plans, scientific and/or technical information, trade secrets, confidential or proprietary information, items under development, in application or other “pending” status, and all other items of a similar nature used in the conduct of Obligor’s business, and (d) all benefits, rights, titles and interests under all partnership, joint venture and other corporation agreements between or among Obligor and any other party (but none of Obligor’s liabilities or obligations with respect thereto); however, the term “general intangibles” shall not include any swap agreement (as defined in 11 U.S.C. Sec. 101) with Secured Party.

(vi) Chattel Paper . All chattel paper (as such term is defined in Article 9 of the UCC), whether now owned or existing or hereafter arising or acquired by Obligor.

(vii) Instruments . All instruments (as such term is defined in Article 9 of the UCC), including promissory notes, whether now owned or existing or hereafter arising or acquired by Obligor.

(viii) Documents . All documents (as such term is defined in Article 9 of the UCC) whether now owned or existing or hereafter arising or acquired by Obligor.

(ix) Letter of Credit Rights . All letter of credit rights (as such term is defined in Article 9 of the UCC) whether now owned or existing or hereafter arising or acquired by Obligor.

(x) Deposit Accounts . All deposit accounts (as such term is defined in Article 9 of the UCC), whether now owned or existing or hereafter arising or acquired by Obligor, and expressly including without limitation all cash, money, property, deposit accounts, accounts, securities, documents, chattel paper, claims, demands, instruments, items or deposits of Obligor, now held or hereafter coming within Secured Party’s custody or control, including without limitation, all certificates of deposit and other depository accounts, whether such have matured or the exercise of Secured Party’s rights results in loss of interest or principal or other penalty on such deposits, but excluding deposits subject to tax penalties if assigned.

(xi) Pledged Equity . All Capital Securities of Obligor (the “ Pledged Equity ”).

(xii) Proceeds . All of the Proceeds of the foregoing.

(b) Notwithstanding anything to the contrary contained in clauses (a) above, the security interest created by this Agreement shall not extend to Excluded Property.

(c) The Security Interest is granted as security only and shall not subject the Secured Party to, or transfer or in any way affect or modify, any obligation or liability of Obligor with respect to any of the Collateral or any transaction in connection therewith.

(d) The inclusion of Proceeds in this Security Agreement does not authorize Obligor to sell, dispose of or otherwise use the Collateral in any manner not specifically authorized hereby.

3. Representations and Warranties . Obligor represents and warrants as follows:

(a) The exact legal name of Obligor, as the legal name appears in Obligor’s Certificate of Formation as of the date of this Security Agreement, is as set forth in the introductory paragraph of this Security Agreement. Obligor has no other trade name, assumed name or alias other than as set forth in the introductory paragraph of this Security Agreement.

(b) The place of business or, if any Obligor has more than one place of business, the chief executive office is located at the address of Obligor specified in the introductory paragraph of this Security Agreement.

(c) The office where Obligor keeps its records concerning the Receivables, and all originals of all chattel paper which evidence Receivables, is located at the address of Obligor specified in Section 3(b) of this Security Agreement. None of the Receivables are evidenced by a promissory note or other instrument.

(d) Obligor owns its Collateral free and clear of any Lien (except for Permitted Liens). No effective financing statement or other instrument similar in effect covering all or any part of such Collateral is on file in any recording office except for the filing by Secured Party.

(e) This Security Agreement creates a valid security interest and when the financing statements have been filed in the appropriate offices, will create a perfected first priority security interest in the Collateral securing the payment of the Secured Liabilities.

(f) No authorization, approval or other action by, and no notice to or filing with, any Governmental Authority is required either (i) for the grant by Obligor of the Security Interest or for the execution, delivery or performance of this Security Agreement thereby, or (ii) for the perfection of or the exercise by the Secured Party of its rights and remedies under this Security Agreement, including without limitation, the filing of a UCC-1 financing statement.

(g) Obligor is a corporation duly organized and validly existing under the laws of the State of Delaware, qualified to do business in all jurisdictions in which the nature of the business conducted by Obligor makes such qualification necessary and where failure so to qualify would not have a Material Adverse Effect.

(h) Obligor is not in violation of any applicable Legal Requirements, which violations, individually or in the aggregate, would materially affect Obligor’s performance of any obligation under the Loan Documents to which it is a party; there is no litigation before any Governmental Authorities now pending or (to Obligor’s Knowledge) threatened against Obligor which, if adversely determined, could reasonably be expected to have a Material Adverse Effect.

(i) Obligor is the holder of all governmental approvals, permits and licenses required to permit Obligor to conduct its business as currently conducted and to enter into and perform Obligor’s obligations under the Loan Documents to which it is a party.

(j) None of the execution and delivery of this Security Agreement, the consummation of the transactions contemplated in this Security Agreement, or compliance with the terms and provisions of this Security Agreement will conflict with or result in a breach of, or require any consent under, Obligor’s Organizational Documents, or any applicable Legal Requirements, or any agreement or instrument to which Obligor is a party or by which Obligor is bound or to which Obligor or any of its assets are subject, or constitute a default under any such agreement or instrument.

(k) Obligor has all necessary power and authority to execute, deliver and perform Obligor’s obligations under this Security Agreement; Obligor’s execution, delivery and performance of this Security Agreement has been duly authorized by all necessary action on Obligor’s part; and this Security Agreement has been duly and validly executed and delivered by Obligor and constitutes Obligor’s legal, valid and binding obligation, enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or moratorium or other similar laws relating to the enforcement of creditors’ rights generally and by general equitable principles.

4. Places of Business . Obligor will notify the Secured Party promptly of the addition or discontinuance of any place of business or any change in the address of its principal or any other place of business. None of the Collateral shall be removed from Obligor’s principal place of business set forth in the introductory paragraph of this Security Agreement or the other locations set forth on Schedule 5.10 to the Loan Agreement, as from time to time supplemented, unless the Secured Party is given thirty (30) days prior written notice of such removal, which notice shall state the location or locations to which said Collateral will be removed, or Obligor shall have paid all amounts relating to the purchase price of such Collateral. Obligor warrants that all of its Collateral is and shall continue to be located at the locations set forth herein or such other locations of which the Secured Party receives notice in accordance with this Section.

5. Encumbrances . Obligor will not create, incur, assume, or suffer to exist now or at any time throughout the duration of the term of this Security Agreement, any Lien (except for Permitted Liens) against the Collateral, whether now owned or hereafter acquired. Obligor will notify the Secured Party of any Lien (other than Permitted Liens) securing an obligation against the Collateral, and will defend the Collateral against any such Lien.

6. Maintenance of Collateral . Obligor shall preserve its Collateral for the benefit of the Secured Party. Without limiting the generality of the foregoing, Obligor shall:

(a) make all repairs, replacements, additions and improvements to its equipment necessary to prevent the deterioration or loss thereof;

(b) preserve all of its beneficial contract rights to the extent commercially reasonable;

(c) in conjunction with, and at the direction of, the Secured Party, take commercially reasonable steps to collect all of its Receivables; and

(d) pay all taxes, assessments or other charges on its Collateral when due, unless the amount or validity of such taxes, assessments or charges are being contested in good faith by appropriate proceedings and reserves have been deposited with the Secured Party with respect thereto.

7. Additional Provisions Concerning the Collateral .

(a) Obligor authorizes the Secured Party to file, without the signature of Obligor, where permitted by law, one or more financing or continuation statements, and amendments thereto, relating to the Collateral, all in the discretion of the Secured Party.

(b) If there is an Event of Default, Obligor hereby irrevocably appoints the Secured Party as its attorney-in-fact (which power of attorney is coupled with an interest) and proxy, with full authority in the place and stead of Obligor and in its name or otherwise, from time to time in the Secured Party’s discretion, to take any action or execute any instrument which the Secured Party may deem necessary or advisable to accomplish the purposes of this Security Agreement, including, without limitation: (i) to obtain and adjust insurance required to be paid to the Secured Party pursuant to Section 8 hereof; (ii) to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (iii) to receive, endorse, and collect any checks, drafts or other instruments, documents, and chattel paper in connection with clause (i) or clause (ii) above; (iv) to sign Obligor’s names on any invoice or bill of lading relating to any account, on drafts against customers, on schedules and assignments of accounts, on notices of assignment, financing statements and other public records, on verification of accounts and on notices to customers (including notices directing customers to make payment directly to the Secured Party); (v) during the continuation of an Event of Default hereunder, to notify the postal authorities to change the address for delivery of its mail to an address designated by the Secured Party, to receive, open and process all mail addressed to Obligor; (vi) to send requests for verification of accounts to customers; and (vii) to file any claims or take any action or institute any proceedings which the Secured Party may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Secured Party with respect to any of the Collateral. Obligor hereby ratifies and approves in advance all acts of said attorney, and so long as the attorney acts in good faith and without gross negligence or willful misconduct, the attorney shall have no liability to Obligor for any act or omission as to such attorney.

(c) If Obligor fails to perform any agreement relating to the Collateral contained herein, the Secured Party may perform, or cause performance of, such agreement or obligation, and the reasonable costs and expenses of the Secured Party incurred in connection therewith shall be payable by Obligor immediately upon demand by Secured Party, shall bear interest at the Default Interest Rate from the date incurred until paid and shall be fully secured hereby.

(d) The powers conferred on the Secured Party hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon the Secured Party to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Secured Party shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral.

(e) Anything herein to the contrary notwithstanding, (i) Obligor shall remain liable under any contracts and agreements relating to the Collateral, to the extent set forth therein, to perform all of its obligations thereunder, to the same extent as if this Security Agreement had not been executed; (ii) the exercise by the Secured Party of any of its rights hereunder shall not release Obligor from any of their obligations under the contracts and agreements relating to the Collateral; and (iii) the Secured Party shall not have any obligation or liability by reason of this Security Agreement under any contracts and agreements relating to the Collateral, nor shall the Secured Party be obligated to perform any of the obligations or duties of Obligor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

(f) Until the Secured Liabilities are paid in full, Obligor agrees that Obligor will (i) preserve its company existence and not without the prior written consent of Secured Party, in one transaction or a series of related transactions, convert to a different type of entity, merge into or consolidate with any other entity, or sell all or substantially all of its assets; (ii) not change the state of Obligor’s organization without the prior written consent of Secured Party; and (iii) not change Obligor’s name or identity in any manner without the prior written consent of Secured Party, in each case except as otherwise permitted under the Loan Agreement.

8. Insurance . Obligor shall at all times maintain all Insurance Policies required by the Loan Agreement.

9. Fixtures . It is the intention of the Parties hereto that none of the equipment or other property securing the Secured Liabilities hereunder shall become fixtures.

10. Default . An “Event of Default” as defined in the Loan Agreement shall constitute an Event of Default hereunder.

11. Remedies .

(a) Upon the occurrence of an Event of Default and at any time or times during the continuance thereof, unless such Event of Default shall have been waived in writing by the Secured Party, and subject to the provisions of applicable law, the Secured Party may exercise any one or more of the following remedies:

(i) The Secured Party shall have full power and authority to sell or otherwise dispose of the Collateral or any part thereof. Any such sale or other disposition, subject to the provisions of applicable law, may be by public or private proceedings and may be made by one or more contracts, as a unit or in parcels, at such time and place, by such method, in such manner and on such terms as the Secured Party may determine. Except as required by law, such sale or other disposition and such notice will be deemed to have been sufficiently given if such notice is hand-delivered or mailed postage prepaid, at least fifteen (15) days before the time of such sale or other disposition, to Obligor at its address as specified in the Security Agreement. To the extent permitted by law, the Secured Party may buy any or all of the Collateral upon any sale thereof. To the extent permitted by law, upon any such sale or sales, the Collateral so purchased shall be held by the purchaser absolutely free from any claims or rights of whatsoever kind or nature, including any claim of redemption and any similar rights being hereby expressly waived and released by Obligor. In connection with any such sale, the Secured Party shall be permitted to limit its warranties to the maximum extent provided in the UCC. After deducting all reasonable costs and expenses of collection, custody, sale or other disposition or delivery (including legal costs and reasonable attorneys’ fees) and all other charges due against the Collateral, the residue of the proceeds of any such sale or other disposition shall be applied to the payment of the Secured Liabilities, except as otherwise provided by law or directed by any court of competent jurisdiction, and any surplus after the payment in full of the Secured Liabilities shall be returned to Obligor, except as otherwise provided by law or any such court. Obligor shall be liable for any deficiency in payment of the Secured Liabilities, including all reasonable costs and expenses of collection, custody, sale or other disposition or delivery and all other charges due against the Collateral, as herein enumerated.

(ii) The Secured Party may notify a debtor of Obligor to make payment to the Secured Party whether Obligor or the Secured Party were previously making collections on any of the accounts receivable, and the Secured Party may also take control of any proceeds from any Collateral.

(iii) Upon the occurrence and during the continuance of an Event of Default, with or without notice, the Secured Party is authorized to offset and charge against any other credits and obligations owed by the Secured Party to Obligor under the Loan Documents, any amount for which Obligor may become obligated to the Secured Party at any time, whether under the Promissory Note or otherwise. The obligations secured by the Security Interest granted and by the Secured Party’s right of offset includes all obligations of any kind or type now or hereafter arising, owed by Obligor to the Secured Party, whether liquidated or unliquidated, direct or indirect, contingent or not.

(iv) The Secured Party may commence proceedings in any court of competent jurisdiction for the appointment of a receiver (which term shall include a receiver-manager) of the Collateral or of any part thereof or may by instrument in writing appoint any person to be a receiver of the Collateral or any part thereof and may remove any receiver so appointed by the Secured Party and appoint another in his stead; and any such receiver appointed by instrument in writing shall have power (a) to take possession of the Collateral or any part thereof, (b) to carry on the business of Obligor, (c) to borrow money on the security of the Collateral in priority to this Security Agreement to the extent required for the maintenance, preservation or protection of the Collateral or any part thereof or for the carrying on of the business of Obligor, and (d) to sell lease or otherwise dispose of the whole or any part of the Collateral at public auction, by public tender or by private sale, either for cash or upon credit, at such time and upon such terms and conditions as the receiver may determine; provided that any such receiver shall be deemed the agent of Obligor and the Secured Party shall not be in any way responsible for any misconduct or negligence of any such receiver.

(v) The Secured Party shall have all other rights and remedies of a secured party provided under the UCC.

(vi) The Secured Party shall have all other rights and remedies allowed at law and/or in equity.

(vii) The Secured Party shall have all other rights and remedies set forth in the Loan Agreement.

(b) It is provided, however, that in the Secured Party’s efforts in collection on the Collateral, Obligor shall be liable and responsible for any deficiency.

(c) Upon the occurrence of an Event of Default and at any time or times during the continuance thereof, unless such Event of Default shall have been waived in writing by the Secured Party, and subject to the provisions of applicable Legal Requirements, Obligor hereby grants Secured Party an irrevocable proxy and power of attorney to exercise all voting rights, which proxy and power of attorney shall be effective upon the occurrence of an Event of Default and is coupled with an interest and is thus irrevocable, to vote the Pledged Equity for all purposes. Upon the request of Secured Party, Obligor shall deliver to Secured Party such further evidence of such irrevocable proxy and power of attorney to exercise the voting rights as Secured Party may request.

12. Limitation on Duty of the Secured Party in Respect of Collateral . The powers conferred on the Secured Party under this Security Agreement are solely to protect the Secured Party’s interests in the Collateral and shall not impose any duty upon the Secured Party to exercise any such powers. Except for reasonable care in the custody of any Collateral in the Secured Party’s possession and the accounting for moneys actually received by the Secured Party under this Security Agreement, the Secured Party shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. The Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in the Secured Party’s possession if the Collateral is accorded treatment substantially equal to that which the Secured Party accords its own property, it being understood that the Secured Party 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 bailee selected by the Secured Party in good faith. Except as otherwise expressly provided in this Section 12 , Obligor has the risk of loss of the Collateral. Further, the Secured Party has no duty to collect any income accruing on the Collateral or to preserve any rights relating to the Collateral. The Secured Party shall have no obligation to clean up or otherwise prepare the Collateral for sale.

13. Concerning Secured Party . In furtherance and not in derogation of the rights, privileges and immunities of the Secured Party:

(a) The Secured Party is authorized to take all such action as is provided to be taken by the Secured Party under this Security Agreement and all other action reasonably incidental thereto. As to any matters not expressly provided for in this Security Agreement (including the timing and methods of realization upon the Collateral), the Secured Party shall act or refrain from acting in the Secured Party’s sole reasonable discretion.

(b) The Secured Party shall not be responsible for the existence, genuineness or value of any of the Collateral or for the validity, perfection, priority or enforceability of the Security Interests in any of the Collateral, whether impaired by operation of law or by reason of any action or omission to act on the Secured Party’s part under this Security Agreement. The Secured Party shall have no duty to ascertain or inquire as to the performance or observance of any of the terms of this Security Agreement by Obligor.

14. Payment of Taxes, Charges, Etc. The Secured Party, at its option, after written notice to Obligor, may discharge any Lien (other than Permitted Liens) upon the Collateral or otherwise protect the value thereof. All such expenditures incurred by the Secured Party shall become payable by Obligor to the Secured Party upon demand, shall bear interest at the rate then applicable to the Obligations from the date incurred to the date of payment, and shall be secured by the Collateral.

15. Waivers . To the extent permitted by law, Obligor hereby waives demand for payment, notice of dishonor or protest and all other notices of any kind in connection with the Secured Liabilities except notices required hereby, by law or by any other agreement between Obligor and the Secured Party. The Secured Party may release, supersede, exchange or modify any Collateral or security which it may from time to time hold and may release, surrender or modify the liability of any third party without giving notice hereunder to Obligor. Such modifications, changes, renewals, releases or other actions shall in no way affect Obligor’s obligations hereunder.

16. Transfer Expenses, Etc. Obligor will pay, indemnify and hold the Secured Party harmless from and against all reasonable costs and expenses (including taxes, if any) arising out of or incurred in connection with any transfer of Collateral into or out of the name of the Secured Party and all reasonable costs and expenses, including reasonable legal fees, of the Secured Party arising out of or incurred in connection with this Security Agreement.

17. Termination . This Security Agreement and the Security Interest shall terminate following the full payment, satisfaction, or discharge of all Secured Liabilities. Upon such termination, the Secured Party will promptly deliver to Obligor appropriate UCC termination statements with respect to Collateral so released from the Security Interest for filing with each filing officer with which UCC financing statements have been filed by the Secured Party to perfect the Security Interest in such Collateral.

18. Successors and Assigns . This Security Agreement shall be binding upon and inure to the benefit of Obligor and the Secured Party and their respective successors and assigns.

19. Severability of Provisions . Any provision of any Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Security Agreement or affecting the validity or enforceability of this Security Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

20. Governing Law; Venue . This Security Agreement shall be governed by and construed, interpreted and enforced in accordance with the internal, substantive laws of the State of Texas, without giving effect to conflicts of laws principles. The Parties voluntarily and irrevocably submit to the jurisdiction of the courts of the State of Texas located in Travis County, Texas, and the Federal Courts of the United States of America located in Travis County, Texas, over any dispute between or among the Parties related to or arising out of this Security Agreement, and each Party irrevocably agrees that all such claims in respect of such dispute shall be heard and determined exclusively in such courts. The Parties hereby irrevocably consent to the jurisdiction of such courts and hereby waive, to the fullest extent permitted by law, any objection which they may now or hereafter have to the venue of such dispute related to or arising out of this Security Agreement brought in such court or any defense of inconvenient forum for the maintenance of such dispute. Each Party agrees that a judgment in any such dispute may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Notwithstanding anything to the contrary contained herein or in any Loan Document, Lender may bring suit and otherwise make filings in any jurisdiction in which the Collateral is located to enforce its rights pursuant to this Security Agreement.

21. Waiver of Jury Trial . OBLIGOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS SECURITY AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION WITH THIS SECURITY AGREEMENT OR ARISING FROM OR RELATING TO ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS SECURITY AGREEMENT, AND AGREES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

22. Notice. Any notice or communication required or permitted hereunder shall be made in accordance with the terms of the Loan Agreement.

SIGNATURE PAGE FOLLOWS:

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

[Signature Page to Security Agreement]

SUBORDINATION AGREEMENT

THIS SUBORDINATION AGREEMENT (this “ Agreement ”) is entered into as of April 27, 2018 by and among CrowdOut Capital, LLC, a Texas limited liability company (“ Lender ” and referred to herein as the “ Junior Creditor ” in its capacity as the payee under the Junior Note, as such term is defined below, and as the “ Senior Creditor ” in its capacity as the payee under the Senior Note, as such term is defined below ), and Sunworks Inc., a Delaware corporation (the “ Borrower ”).

R E C I T A L S

A. Borrower and Lender have entered into a Loan Agreement of even date herewith (as the same may be amended, supplemented or otherwise modified from time to time, the “ Loan Agreement ”) and a Security Agreement of even date herewith (as the same may be amended, supplemented or otherwise modified from time to time, the “ Security Agreement ”) pursuant to which, among other things, Lender has agreed, subject to the terms and conditions set forth in the Loan Agreement and the Security Agreement, to make certain loans and financial accommodations to Borrower.

B. Pursuant to the Loan Agreement, Borrower s hall deliver (a) to Senior Creditor that certain Promissory Note in the amount of Three Million Dollars ($3,000,000.00) ( as the same may be amended, supplemented or otherwise modified from time to time, the “ Senior Note ”) and (b) to Junior Creditor that certain Promissory Note in the amount of Seven Hundred Fifty Thousand Dollars ($750,000.00) ( as the same may be amended, supplemented or otherwise modified from time to time, the “ Junior Note ”).

C. As an inducement to and as one of the conditions precedent to the agreement of Senior Creditor to consummate the transactions contemplated by the Loan Agreement and the Security Agreement, Senior Creditor has required the execution and delivery of this Agreement by Junior Creditor and Borrower.

NOW, THEREFORE, in order to induce Senior Creditor to consummate the transactions contemplated by the Loan and Security Agreements, and for other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto hereby agree as follows:

1. Definitions . All capitalized terms used in this Agreement without definition shall have the meanings ascribed to such terms in the Loan Agreement. In addition, the following terms shall have the following meanings in this Agreement:

Blockage Period shall have the meaning set forth in Section 2.3(a)(i) hereto.

Covenant Default shall mean any “Event of Default” described in Section 7.1 of the Loan Agreement, other than a Senior Payment Default, or any condition or event that, after notice or lapse of time or both, would constitute such an Event of Default if that condition or event were not cured or removed within any applicable grace or cure period set forth therein.

Enforcement Action shall mean (a) to demand, sue for, take or receive from or on behalf of Borrower or any guarantor of the Junior Debt, by setoff or in any other manner, the whole or any part of any moneys which may now or hereafter be owing by Borrower or any such guarantor with respect to the Junior Debt, (b) to initiate or participate with others in any suit, action or proceeding against Borrower or any such guarantor to (i) enforce payment of or to collect the whole or any part of the Junior Debt or (ii) commence judicial enforcement of any of the rights and remedies under the Junior Debt Documents or applicable law with respect to the Junior Debt, (c) to accelerate any Junior Debt, or (d) to exercise any put option or to cause Borrower or any such guarantor to honor any redemption or mandatory prepayment obligation under any Junior Debt Document.

Junior Debt shall mean all of the obligations of Borrower to Junior Creditor evidenced by the Junior Note and all other amounts now or hereafter owed by Borrower to Junior Creditor under any of the Junior Debt Documents.

Junior Debt Documents shall mean the Junior Note and all other documents and instruments evidencing or pertaining to all or any portion of the Junior Debt.

Junior Default shall mean a default in the payment of the Junior Debt or in the performance of any term, covenant or condition contained in the Junior Debt Documents or any other occurrence resulting in the maturity of the Junior Debt prior to Payment in Full of the Senior Debt, or permitting Junior Creditor to accelerate the payment of, put or cause the redemption of all or any portion of the Junior Debt.

Junior Default Notice shall mean a written notice from Junior Creditor or Borrower to Senior Creditor pursuant to which Senior Creditor is notified of the occurrence of a Junior Default, which notice incorporates a reasonably detailed description of such Junior Default.

Payment in Full or Paid in Full shall mean the indefeasible payment in full in cash of the Senior Debt in accordance with the Loan Agreement and the Senior Note.

Proceeding shall mean any voluntary or involuntary insolvency, bankruptcy, receivership, custodianship, liquidation, dissolution, reorganization, assignment for the benefit of creditors, appointment of a custodian, receiver, trustee or other officer with similar powers or any other proceeding for the liquidation, dissolution or other winding up of a Person.

Senior Debt shall mean the “Obligations,” as such term is defined in the Loan Agreement, with respect to the Loan Agreement and all amounts pursuant to the Loan Agreement, together with (a) all complete or partial refinancings of the Obligations, (b) any amendments, modifications, renewals or extensions thereof and (c) any interest and fees accruing thereon after the commencement of a Proceeding, without regard to whether or not such interest or fees are an allowed claim in such Proceeding.

Senior Debt Documents shall mean the Loan Agreement and all other documents and instruments evidencing or pertaining to all or any portion of the Senior Debt.

Senior Default shall mean any Senior Payment Default or Covenant Default.

Senior Default Notice shall mean a written notice from Senior Creditor to Junior Creditor pursuant to which Junior Creditor is notified of the occurrence of a Senior Default, which notice incorporates a reasonably detailed description of such Senior Default.

Senior Payment Default shall mean any “Event of Default” described in Section 7.1 of the Loan Agreement, including, without limitation, any default in payment of Senior Debt after acceleration thereof.

2. Subordination .

2.1. Subordination of Junior Debt to Senior Debt . Borrower covenants and agrees, and Junior Creditor by its acceptance of the Junior Note (whether upon original issue or upon transfer or assignment) likewise covenants and agrees, that (a) the payment of any and all of the Junior Debt shall be subordinate and subject in right of payment, to the extent and in the manner hereinafter set forth, to the prior Payment in Full of the Senior Debt and (b) any amounts of Exit Fees (as such term is defined in the Loan Agreement) or similar fees payable by Borrower pursuant to the Loan Agreement shall be payable for the benefit of the Senior Creditor only and not the Junior Creditor. Each holder of Senior Debt, whether now outstanding or hereafter created, incurred, assumed or guaranteed, shall be deemed to have acquired Senior Debt in reliance upon the provisions contained in this Agreement.

2.2. Proceedings . In the event of any Proceeding involving Borrower, (a) all Senior Debt first shall be Paid in Full before any payment of or with respect to the Junior Debt shall be made; (b) any payment or distribution, whether in cash, property or securities which, but for the terms hereof, otherwise would be payable or deliverable in respect of the Junior Debt, shall be paid or delivered directly to Senior Creditor (to be held and/or applied in accordance with the terms of the Loan Agreement) until all Senior Debt is Paid in Full, and Junior Creditor irrevocably authorizes, empowers and directs all receivers, trustees, liquidators, custodians, conservators and others having authority in the premises to effect all such payments and distributions, and Junior Creditor also irrevocably authorizes, empowers and directs Senior Creditor to demand, sue for, collect and receive every such payment or distribution; (c) Junior Creditor agrees to execute and deliver to Senior Creditor or its representative all such further instruments confirming the authorization referred to in the foregoing clause (b); (d) Junior Creditor agrees not to initiate or prosecute or encourage any other Person to initiate or prosecute any claim, action or other proceeding challenging the enforceability of the Senior Debt or any liens and security interests securing the Senior Debt, (e) Junior Creditor agrees not to object to any use of cash collateral by Borrower under Section 363 of the Bankruptcy Code permitted by Senior Creditor or any borrowing by Borrower from Senior Creditor, or to any grant of a lien or security interest by any Person in favor of Senior Creditor (or any agent therefore), under Section 364 of the Bankruptcy Code; and (f) Junior Creditor agrees to execute, verify, deliver and file any proofs of claim in respect of the Junior Debt requested by Senior Creditor in connection with any such Proceeding and hereby irrevocably authorizes, empowers and appoints Senior Creditor its agent and attorney-in-fact to (i) execute, verify, deliver and file such proofs of claim upon the failure of Junior Creditor promptly to do so (and, in any event, prior to 15 days before the expiration of the time to file any such proof) and (ii) vote such claim in any such Proceeding upon the failure of Junior Creditor to do so prior to 15 days before the expiration of the time to vote any such claim; provided Senior Creditor shall have no obligation to execute, verify, deliver, file and/or vote any such proof of claim. In the event that Senior Creditor votes any claim in accordance with the authority granted hereby, Junior Creditor shall not be entitled to change or withdraw such vote. Junior Creditor agrees that it will consent and not otherwise object to a sale or other disposition of any assets securing the Senior Debt (or any portion thereof) free and clear of Liens, claims and other interests under the Bankruptcy Code, including Sections 363, 365 and 1129, if Senior Creditor has consented to such sale or other disposition. At the written request of Senior Creditor, Junior Creditor will object to any such sale. Junior Creditor waives any claims it may now or hereafter have arising out of the Senior Creditor’s election of the application of Section 1111(b)(2) of the Bankruptcy Code. Junior Creditor agrees not to (i) initiate or prosecute or join with any other Person to initiate or prosecute any claim, action or other proceeding opposing a motion by Senior Creditor to lift the automatic stay, or (ii) propose or vote (to the extent such vote is required to satisfy Section 1129(a)(10) of the Bankruptcy Code) in favor of any chapter 11 plan that seeks confirmation under Section 1129(b)(2)(A) of the Bankruptcy Code with respect to Senior Debt. The Senior Debt shall continue to be treated as Senior Debt and the provisions of this Agreement shall continue to govern the relative rights and priorities of Senior Creditor and Junior Creditor even if all or part of the Senior Debt or the liens and security interests securing the Senior Debt are subordinated, set aside, avoided or disallowed in connection with any such Proceeding and this Agreement shall be reinstated if at any time any payment of any of the Senior Debt is rescinded or must otherwise be returned by any holder of Senior Debt or any representative of such holder.

2.3. Payment Upon Senior Default . (a) Borrower may not make, and Junior Creditor may not receive, any payment with respect to the Junior Debt Documents; provided, (x) that subject to the limitations set forth in this Section 2.3, Borrower may make and Junior Creditor may retain scheduled payments of interest with respect to the Junior Debt (“Permitted Payments”) and (y) Borrower may make, and Junior Creditor may retain, payments on the Junior Debt permitted by the second sentence of subsection 2.4. Notwithstanding the foregoing, Borrower may not make and Junior Creditor may not receive any Permitted Payments or any other amount due with respect to the Junior Debt if, at the time of such payment:

(i) A Senior Payment Default exists and such Senior Payment Default shall not have been cured or waived in accordance with the terms of the Senior Debt Documents; or

(ii) Subject to the last sentence of this subsection 2.3, (x) Borrower and Junior Creditor shall have received a Senior Default Notice from Senior Creditor stating that a Covenant Default exists or would be created by the making of such payment, and (y) each such Covenant Default shall not have been cured or waived in accordance with the terms of the Senior Debt Documents (the period during which either of such conditions described in Section 2.3(i) or (ii) exist being referred to as a “ Blockage Period ”).

(b) Subject to the last sentence of this subsection 2.3, Borrower may resume payments of Permitted Payments (and may make any payments of Permitted Payments missed due to the existence of a Blockage Period) in respect of the Junior Debt or any judgment with respect thereto upon the expiration of the Blockage Period, whether by cure or waiver of the applicable Senior Payment Default or Covenant Default.

(c) Notwithstanding any provision of this subsection 2.3 to the contrary:

(i) No Covenant Default existing on the date any Senior Default Notice is given pursuant to clause (a)(ii)(x) of this subsection 2.3 shall, unless the same shall have ceased to exist for a period of at least 30 consecutive days, be used as a basis for any subsequent such notice; and

(ii) The failure of Borrower to make any payment with respect to the Junior Debt by reason of the operation of this subsection 2.3 shall not be construed as preventing the occurrence of a Junior Default under the applicable Junior Debt Documents.

The provisions of this subsection 2.3 shall not apply to any payment with respect to which subsection 2.2 would be applicable.

2.4. Payments Otherwise Permitted . Nothing contained in this Section 2 or elsewhere in this Agreement or in the Junior Debt Documents shall prevent Borrower at any time, except during the pendency of any Proceeding referred to in subsection 2.2 or under the conditions referred to in subsection 2.3, from making Permitted Payments with respect to the Junior Debt. Notwithstanding anything to the contrary herein, except during the pendency of any Proceeding referred to in subsection 2.2 or unless a Senior Default is then in effect and has not been cured or waived by Senior Creditor, Borrower may repay the Junior Debt as provided in Section 2.6 of the Loan Agreement.

2.5. Restriction on Action by Junior Creditor .

(a) Until the Senior Debt is Paid in Full, Junior Creditor shall not, without the prior written consent of Senior Creditor, take any Enforcement Action with respect to the Junior Debt.

Notwithstanding anything herein to the contrary, on or after (but not before) the filing of a Proceeding with respect to the Borrower, Junior Creditor may (a) accelerate the Junior Debt and (b) file proofs of claim against the Borrower; provided that any distributions or other proceeds of any Enforcement Action obtained by Junior Creditor shall be held in trust by it for the benefit of Senior Creditor and be paid or delivered to Senior Creditor in the form received until all Senior Debt is indefeasibly Paid in Full.

(b) Until the Senior Debt is Paid in Full and notwithstanding anything contained in the Junior Debt Documents, the Loan Agreement or any of the other Senior Debt Documents to the contrary, Junior Creditor shall not, without the prior written consent of Senior Creditor, agree to any amendment, modification or supplement to the Junior Debt Documents, including, without limitation, any amendment, modification or supplement the effect of which is to (i) increase the maximum principal amount of the Junior Debt, the amount of any fee payable with respect to the Junior Debt or rate of interest on any of the Junior Debt, (ii) change the dates upon which payments of principal or interest on the Junior Debt are due, (iii) change or add any event of default or any covenant with respect to the Junior Debt, (iv) change any redemption or prepayment provisions of the Junior Debt, (v) alter the subordination provisions with respect to the Junior Debt, including, without limitation, subordinating the Junior Debt to any other debt, (vi) change the maturity date of any of the Junior Debt or otherwise to alter the repayment terms of the Junior Debt, or (vii) change or amend any other term of the Junior Debt Documents if such change or amendment would result in an Event of Default under the Loan Agreement, increase the obligations of Borrower or any guarantor of the Junior Debt or confer additional material rights on Junior Creditor or any other holder of the Junior Debt in a manner adverse to Borrower, any such guarantor or Senior Creditor.

2.6. Incorrect Payments . If any payment or distribution on account of the Junior Debt not permitted to be made by Borrower or received by Junior Creditor under this Agreement is received by Junior Creditor before all Senior Debt is Paid in Full, such payment or distribution shall not be commingled with any asset of Junior Creditor, shall be held in trust by Junior Creditor for the benefit of Senior Creditor and shall be promptly paid over to Senior Creditor, or its designated representative, for application (in accordance with the Loan Agreement) to the payment of the Senior Debt then remaining unpaid, until all of the Senior Debt is Paid in Full.

2.7. Sale and Transfer . Junior Creditor shall not sell, assign, pledge, dispose of or otherwise transfer all or any portion of the Junior Debt or any Junior Debt Document (a) without giving prior written notice of such action to Senior Creditor and (b) unless prior to the consummation of any such action, the transferee thereof shall execute and deliver to Senior Creditor an agreement substantially identical to this Agreement, providing for the continued subordination and forbearance of the Junior Debt to the Senior Debt as provided herein and for the continued effectiveness of all of the rights of Senior Creditor arising under this Agreement. Notwithstanding the failure to execute or deliver any such agreement, the subordination effected hereby shall survive any sale, assignment, pledge, disposition or other transfer of all or any portion of the Junior Debt, and the terms of this Agreement shall be binding upon the successors and assigns of Junior Creditor, as provided in Section 14 below.

2.8. Legends . Until the Senior Debt is Paid in Full, the Junior Note and any other Junior Debt Document at all times shall contain in a conspicuous manner the following legend:

“This instrument and the rights and obligations evidenced hereby are subordinate in the manner and to the extent set forth in that certain Subordination Agreement (the “ Subordination Agreement ”) dated as of April 27, 2018, by and among Sunworks Inc., a Delaware corporation (“ Borrower ”), and CrowdOut Capital, LLC, a Texas limited liability company (“ CrowdOut ”), to the indebtedness (including interest) owed by Borrower pursuant to that certain Loan Agreement dated as of April 27, 2018 between Borrower and CrowdOut, as such Loan Agreement has been and hereafter may be amended, supplemented or otherwise modified from time to time; and each holder of this instrument, by its acceptance hereof, shall be bound by the provisions of the Subordination Agreement.”

3. Modifications to Senior Debt . Senior Creditor may at any time and from time to time without the consent of or notice to Junior Creditor, without incurring liability to Junior Creditor and without impairing or releasing the obligations of Junior Creditor under this Agreement, change the manner or place of payment or extend the time of payment of or renew or alter any of the terms of the Senior Debt, or amend in any manner any agreement, note, guaranty or other instrument evidencing or securing or otherwise relating to the Senior Debt.

4. Continued Effectiveness of this Agreement . The terms of this Agreement, the subordination effected hereby, and the rights and the obligations of Junior Creditor, Borrower and Senior Creditor arising hereunder shall not be affected, modified or impaired in any manner or to any extent by: (a) any amendment or modification of or supplement to the Loan Agreement, any of the other Senior Debt Documents or any of the Junior Debt Documents; (b) the validity or enforceability of any of such documents; or (c) any exercise or non-exercise of any right, power or remedy under or in respect of the Senior Debt or the Junior Debt or any of the instruments or documents referred to in clause (a) above. The Junior Creditor and each other holder of Junior Debt hereby acknowledges that the provisions of this Agreement are intended to be enforceable at all times, whether before the commencement of, after the commencement of, in connection with or premised on the occurrence of a Proceeding.

5. No Contest by Junior Creditor; No Security for Junior Debt . Junior Creditor agrees that it will not at any time contest the validity, perfection, priority or enforceability of the Senior Debt, the Senior Debt Documents, or the liens and security interests of Senior Creditor in the Collateral securing the Senior Debt. Junior Creditor shall not accept any security for the Junior Debt at any time. In the event that Junior Creditor at any time obtains any lien on or security interest in the assets of Borrower or any guarantor of the Senior Debt, Junior Creditor hereby authorizes Senior Creditor to file terminations of any Uniform Commercial Code financing statements with respect thereto and shall deliver such other releases as Senior Creditor shall require to evidence the release of such liens and security interests.

6. Representations and Warranties . Junior Creditor hereby represents and warrants, severally as to itself and not jointly, to Senior Creditor as follows as of the date hereof:

6.1. Existence and Power . Junior Creditor is a duly organized limited liability company, validly existing and in good standing under the laws of the State of Texas.

6.2. Authority . Junior Creditor has the power and authority to enter into, execute, deliver and carry out the terms of this Agreement, all of which have been duly authorized by all proper and necessary action and are not prohibited by its organizational documents.

6.3. Binding Agreements . This Agreement, when executed and delivered, will constitute the valid and legally binding obligation of Junior Creditor enforceable in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by equitable principles.

6.4. Conflicting Agreements; Litigation . No provisions of any mortgage, indenture, contract, agreement, statute, rule, regulation, judgment, decree or order binding on Junior Creditor conflicts with, or requires any consent which has not already been obtained under, or would in any way prevent the execution, delivery or performance of the terms of this Agreement by Junior Creditor. The execution, delivery and carrying out of the terms of this Agreement will not constitute a default under, or result in the creation or imposition of, or obligation to create, any lien or security interest in the property of Junior Creditor pursuant to the terms of any such mortgage, indenture, contract or agreement. No pending or, to the best of Junior Creditor’s knowledge, threatened, litigation, arbitration or other proceedings if adversely determined would in any way prevent the performance of the terms of this Agreement by Junior Creditor.

6.5. No Divestiture . The Junior Creditor is the sole owner, beneficially and of record, of the Junior Note and the Junior Debt.

6.6. Default under Junior Note . To its knowledge, no Junior Default exists under or with respect to the Junior Note or any of the other Junior Debt Documents.

7. Junior Default Notice . Junior Creditor (after it obtains knowledge of a Junior Default) and Borrower each shall provide Senior Creditor with a Junior Default Notice upon the occurrence of each Junior Default, and Junior Creditor shall notify Senior Creditor in the event such Junior Default is cured or waived.

8. Cumulative Rights, No Waivers . Each and every right, remedy and power granted to Senior Creditor hereunder shall be cumulative and in addition to any other right, remedy or power specifically granted herein, in the Loan Agreement or the other Senior Debt Documents or now or hereafter existing in equity, at law, by virtue of statute or otherwise, and may be exercised by Senior Creditor, from time to time, concurrently or independently and as often and in such order as Senior Creditor may deem expedient. Any failure or delay on the part of Senior Creditor in exercising any such right, remedy or power, or abandonment or discontinuance of steps to enforce the same, shall not operate as a waiver thereof or affect the rights of Senior Creditor thereafter to exercise the same, and any single or partial exercise of any such right, remedy or power shall not preclude any other or further exercise thereof or the exercise of any other right, remedy or power, and no such failure, delay, abandonment or single or partial exercise of the rights of Senior Creditor hereunder shall be deemed to establish a custom or course of dealing or performance among the parties hereto.

9. Modification . Any modification or waiver of any provision of this Agreement, or any consent to any departure by Junior Creditor therefrom, shall not be effective in any event unless the same is in writing and signed by Senior Creditor, and then such modification, waiver or consent shall be effective only in the specific instance and for the specific purpose given. Any notice to or demand on Junior Creditor in any event not specifically required of Senior Creditor hereunder shall not entitle Junior Creditor to any other or further notice or demand in the same, similar or other circumstances unless specifically required hereunder.

10. Additional Documents and Actions . Junior Creditor at any time, and from time to time, after the execution and delivery of this Agreement, promptly will execute and deliver such further documents and do such further acts and things as Senior Creditor reasonably may request that may be necessary in order to effect fully the purposes of this Agreement.

11. Independent Credit Investigations . None of Senior Creditor nor its directors, members, managers, officers, agents or employees shall be responsible to Junior Creditor for Borrower’s solvency, financial condition or ability to repay the Junior Debt or for statements of Borrower or any other obligor, oral or written, or for the validity, sufficiency or enforceability of the Senior Debt, the Senior Debt Documents or any liens or security interests granted by Borrower or any other obligor to Senior Creditor in connection therewith. Junior Creditor has entered into its financing arrangements with Borrower based on its own independent investigation and does not rely upon any representation of Senior Creditor with respect to matters identified or referred to in this section. If Senior Creditor, in its sole discretion, undertakes, at any time or from time to time, to provide any information of the type described herein to Junior Creditor, Senior Creditor shall be under no obligation to subsequently update any such information or to provide any such information to Junior Creditor on any subsequent occasion.

None of Junior Creditor nor its directors, members, managers, officers, agents or employees shall be responsible to Senior Creditor for Borrower’s solvency, financial condition or ability to repay the Senior Debt or for statements of Borrower or any other obligor, oral or written, or for the validity, sufficiency or enforceability of the Junior Debt or the Junior Debt Documents. Senior Creditor has entered into its financing arrangements with Borrower based on its own independent investigation and does not rely upon any representation of Junior Creditor with respect to matters identified or referred to in this section. If Junior Creditor, in its sole discretion, undertakes, at any time or from time to time, to provide any information of the type described herein to Senior Creditor, Junior Creditor shall be under no obligation to subsequently update any such information or to provide any such information to Senior Creditor on any subsequent occasion.

12. Notices . Unless otherwise specifically provided herein, any notice or other communication required or permitted to be given shall be in writing addressed to the respective party as set forth below and may be personally served, telecopied or sent by overnight courier service or certified or registered United States mail and shall be deemed to have been given (a) if delivered in person, when delivered; or (b) if delivered by overnight courier, one Business Day after delivery to such courier properly addressed; or (c) if by United States mail, four (4) Business Days after deposit in the United States mail, postage prepaid and properly addressed.

Notices shall be addressed as follows:

or in any case, to such other address as the party addressed shall have previously designated by written notice to the serving party, given in accordance with this Section 12. A notice not given as provided above shall, if it is in writing, be deemed given if and when actually received by the party to whom given.

13. Severability . In the event that any provision of this Agreement is deemed to be invalid, illegal or unenforceable by reason of the operation of any law or by reason of the interpretation placed thereon by any court or governmental authority, the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby, and the affected provision shall be modified to the minimum extent permitted by law so as most fully to achieve the intention of this Agreement.

14. Successors and Assigns . This Agreement shall inure to the benefit of the successors and assigns of Senior Creditor and shall be binding upon the successors and assigns of Junior Creditor and Borrower.

15. Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which taken together shall be one and the same instrument.

16. Defines Rights of Creditors . The provisions of this Agreement are solely for the purpose of defining the relative rights of Junior Creditor and Senior Creditor and shall not be deemed to create any rights or priorities in favor of any other Person, including, without limitation, Borrower.

17. Conflict . In the event of any conflict between any term, covenant or condition of this Agreement and any term, covenant or condition of any of the Junior Debt Documents, the provisions of this Agreement shall control and govern.

18. Headings . The paragraph headings used in this Agreement are for convenience only and shall not affect the interpretation of any of the provisions hereof.

19. Termination . This Agreement shall terminate upon the indefeasible Payment in Full of the Senior Debt.

20. Applicable Law . This Agreement shall be governed by and shall be construed and enforced in accordance with the internal laws of the State of Texas, without regard to conflicts of law principles.

21. CONSENT TO JURISDICTION . EACH OF JUNIOR CREDITOR AND BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN TRAVIS COUNTY, TEXAS AND IRREVOCABLY AGREES THAT, SUBJECT TO SENIOR CREDITOR’S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE JUNIOR DEBT DOCUMENTS OR THE SENIOR DEBT DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS. EACH OF JUNIOR CREDITOR AND BORROWER EXPRESSLY SUBMITS AND CONSENTS TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS. EACH OF JUNIOR CREDITOR AND BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON IT BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO JUNIOR CREDITOR AND BORROWER AT THEIR RESPECTIVE ADDRESSES SET FORTH IN THIS AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED.

22. WAIVER OF JURY TRIAL . JUNIOR CREDITOR, BORROWER AND SENIOR CREDITOR HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE JUNIOR DEBT DOCUMENTS OR ANY OF THE SENIOR DEBT DOCUMENTS. EACH OF JUNIOR CREDITOR, BORROWER AND SENIOR CREDITOR ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THE SENIOR DEBT DOCUMENTS AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH OF JUNIOR CREDITOR, BORROWER AND SENIOR CREDITOR WARRANTS AND REPRESENTS THAT EACH HAS HAD THE OPPORTUNITY OF REVIEWING THIS JURY WAIVER WITH LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS.

23. Subrogation . Subject to the Payment in Full of the Senior Debt, the Junior Creditor shall be subrogated to the rights of Senior Creditor to receive payments and distributions with respect to the Senior Debt until the Junior Debt is paid in full. Junior Creditor agrees that in the event that all or any part of a payment made with respect to the Senior Debt is recovered from the holders of the Senior Debt in a Proceeding or otherwise, any payment or distribution received by Junior Creditor with respect to the Junior Debt at any time after the date of the payment that is so recovered, whether pursuant to the right of subrogation provided for in this Agreement or otherwise, shall be deemed to have been received by such Junior Creditor in trust as property of the holders of the Senior Debt and such Junior Creditor shall forthwith deliver the same to Senior Creditor for application to the Senior Debt until the Senior Debt is paid in full. A payment or distribution made pursuant to this Agreement to Senior Creditor which otherwise would have been made to a Junior Creditor is not, as between the Borrower and such Junior Creditor, a payment by the Borrower to or on account of the Junior Debt.

24. Drafting . Each of the parties hereto acknowledges that each party was actively involved in the negotiation and drafting of this Agreement and that no law or rule of construction shall be raised or used in which the provisions of this Agreement shall be construed in favor or against any party hereto because one is deemed to be the author thereof.

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IN WITNESS WHEREOF, Borrower and Lender have caused this Agreement to be executed as of the date first above written.

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Subordination Agreement