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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
___________________________________________________________________
Date of Report (Date of earliest event reported): October
16, 2023
AULT ALLIANCE, INC.
(Exact name of registrant as specified in its charter)
Delaware |
|
001-12711 |
|
94-1721931 |
(State or other jurisdiction of
incorporation or organization) |
|
(Commission File Number) |
|
(I.R.S. Employer Identification No.) |
11411 Southern Highlands Parkway, Suite 240,
Las Vegas, NV 89141
(Address of principal executive offices) (Zip Code)
(949) 444-5464
(Registrant's telephone number, including area
code)
Check the appropriate box below if the Form 8-K
filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written
communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b)
of the Act:
Title of each class |
|
Trading
Symbol(s) |
|
Name of each exchange on which registered |
Common Stock, $0.001 par value |
|
AULT |
|
NYSE American |
13.00% Series D Cumulative Redeemable Perpetual Preferred Stock, par value $0.001 per share |
|
AULT PRD |
|
NYSE American |
Indicate by check mark whether the registrant
is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the
Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. o
ITEM
1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
On October 13, 2023 (the “Closing Date”),
Ault Alliance, Inc., a Delaware corporation (the “Company”) entered into a Note Purchase Agreement (the “Agreement”)
with Ault & Company, Inc., a Delaware corporation (the “Purchaser”), pursuant to which the Company sold to the
Purchaser (i) a senior secured convertible promissory note in the principal face amount of $17,519,832 (the “Note”)
and warrants (the “Warrants”) to purchase shares of the Company’s common stock, par value $0.001 per share (the
“Common Stock”) for a total purchase price of up to $17,519,832 (the “Transaction”).
The purchase price was comprised of the following:
(i) cancellation of $4,625,000 of cash loaned by the Purchaser to the Company since June 8, 2023 pursuant to a short-term loan agreement;
(ii) cancellation of $11,644,832 of term loans made by the Company to the Purchaser in exchange for the Purchaser assuming liability for
the payment of $11,644,832 of secured notes; and (iii) the retirement of $1,250,000 stated value of 125,000 shares of the Company’s
Series B Convertible Preferred Stock (representing all shares issued and outstanding of that series) being transferred from the Purchaser
to the Company.
The Purchaser is an affiliate of the Company.
In addition,
the Company, various subsidiaries of the Company (the “Subsidiaries”) and the Purchaser entered into a security agreement
(the “Security Agreement”) pursuant to which the Company and the Subsidiaries granted the Purchaser a senior security
interest in substantially all of their assets as collateral for the repayment of the Note. Further, the Company, the Subsidiaries, the
Purchaser and senior lenders of the Company (the “Senior Lenders”) entered into a subordination agreement (the “Subordination
Agreement”), pursuant to which the Purchaser subordinated the security interest granted pursuant to the Security Agreement to
the outstanding security interest of the Senior Lenders in various collateral of the Company and the Subsidiaries.
Description of the Senior Secured Convertible Promissory Note
The Note has a principal
face amount of $17,519,832 and has a maturity date of October 12, 2028 (the “Maturity Date”). The Note bears interest
at the rate of 10% per annum. Interest is payable, at the Purchaser’s option, in cash or shares of Common Stock at the applicable
Conversion Price (as defined below). Accrued interest is payable on the Maturity Date, provided, however, that the Purchaser has the option,
on not less than 10 calendar days’ notice to the Company, to require payment of accrued but unpaid interest on a monthly basis in
arrears.
The Note is convertible
at any time after NYSE approval of the Supplemental Listing Application into shares of Common Stock
(the “Conversion Shares”) at a conversion price equal to the greater of (i) $0.10 per share (the “Floor Price”),
and (ii) the lesser of (A) $0.2952, which represented 105% of the volume weighted average price of the Common Stock during the ten trading
days immediately prior to the Closing Date, or (B) 105% of the closing sale price of the Common Stock on the trading day immediately prior
to the date of conversion (the “Conversion Price”). The Conversion Price is subject to adjustment in the event of an
issuance of Common Stock at a price per share lower than the Conversion Price then in effect, as well as upon customary stock splits,
stock dividends, combinations or similar events. The Floor Price shall not be adjusted for stock dividends, stock splits, stock combinations
and other similar transactions.
The Notes contain standard
and customary events of default including, but not limited to, failure to make payments when due under the Note, failure to comply with
certain covenants contained in the Note, or bankruptcy or insolvency of the Company. Upon an event of default, the Purchaser has a right
to accelerate the Maturity Date and require the Company to redeem the Note at a price equal to 110% of the principal amount of the Note
plus accrued and unpaid interest to the date of redemption. The Purchaser does not have the right to repay the Note prior to the Maturity
Date.
Description of the Warrants
On the Closing Date, the Company issued the Purchaser
the Warrants, which grant the Purchaser the right to purchase 47,685,988 shares of Common Stock (the “Warrant Shares”).
The exercise price of the Warrants is $0.1837, which represented 110% of the closing price of the
Common Stock on the Closing Date (the “Exercise Price”). The Exercise Price is subject to adjustment in the
event of customary stock splits, stock dividends, combinations or similar events.
The Warrants have a five-year term, expiring on
the fifth anniversary of the Closing Date, and become exercisable on the first business day after the six-month anniversary of the Closing
Date.
Exchange Cap Limitation and Stockholder
Approval
The Company may not issue
Conversion Shares and/or Warrant Shares to the extent such issuances would result in an aggregate number of shares of Common Stock exceeding
19.99% of the total shares of Common Stock issued and outstanding as of the Closing Date, in accordance with the rules and regulations
of the NYSE American, LLC (the “Exchange”) unless the Company first obtains stockholder approval (the “Stockholder
Approval”). Pursuant to the Agreement and as required by the Exchange, the Company agreed to file a proxy statement to obtain
the Stockholder Approval.
The foregoing descriptions
of the Agreement, the Note, the Warrants, the Security Agreement and the Subordination Agreement and the transactions contemplated thereby
do not purport to be complete and are qualified in their entirety by reference to the Agreement, the Security Agreement and the Subordination
Agreement filed as Exhibits 10.1, 10.2 and 10.3, respectively, and the forms of the Note and the Warrants, copies which
are filed as Exhibits 4.1 and 10.2, respectively, hereto to this Current Report on Form 8-K and are incorporated herein
by reference.
ITEM 2.03 CREATION
OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT
The information contained
in Item 1.01 of this Current Report on Form 8-K is incorporated herein by reference to this Item 2.03.
ITEM 3.02 UNREGISTERED
SALES OF EQUITY SECURITIES
The information contained
in Item 1.01 of this Current Report on Form 8-K is incorporated herein by reference to this Item 3.02. The Notes, Warrants, Conversion
Shares and the Warrant Shares described in this Current Report on Form 8-K were offered and sold to the Investors in reliance upon exemption
from the registration requirements under Section 4(a)(2) under the Securities Act of 1933.
ITEM 7.01 REGULATION
FD DISCLOSURE.
On October 16, 2023,
the Company issued a press release announcing the closing of the Transaction. A copy of the press release is furnished herewith as Exhibit
99.1 and is incorporated by reference herein.
In accordance with General
Instruction B.2 of Form 8-K, the information under this item shall not be deemed filed for purposes of Section 18 of the Securities Exchange
Act of 1934, as amended, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933,
as amended, except as shall be expressly set forth by specific reference in such a filing. This report will not be deemed an admission
as to the materiality of any information required to be disclosed solely to satisfy the requirements of Regulation FD.
The Securities and Exchange
Commission encourages registrants to disclose forward-looking information so that investors can better understand the future prospects
of a registrant and make informed investment decisions. This Current Report on Form 8-K and exhibits may contain these types of statements,
which are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, and which
involve risks, uncertainties and reflect the Registrant’s judgment as of the date of this Current Report on Form 8-K. Forward-looking
statements may relate to, among other things, operating results and are indicated by words or phrases such as “expects,” “should,”
“will,” and similar words or phrases. These statements are subject to inherent uncertainties and risks that could cause actual
results to differ materially from those anticipated at the date of this Current Report on Form 8-K. Investors are cautioned not to rely
unduly on forward-looking statements when evaluating the information presented within.
ITEM 9.01 FINANCIAL
STATEMENTS AND EXHIBITS.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
AULT ALLIANCE, INC. |
|
|
|
|
|
|
|
Dated: October 16, 2023 |
/s/ Henry Nisser |
|
|
Henry Nisser
President and General Counsel |
|
4
Exhibit 4.1
NEITHER THIS SECURITY NOR
THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
THIS NOTE IS SUBJECT TO THE
SUBORDINATION AGREEMENT (AS DEFINED BELOW) AND IS SUBORDINATE TO THE RIGHTS OF THE SENIOR LENDERS (AS DEFINED BELOW) AND THE SENIOR AGENT
(AS DEFINED BELOW) AS SET FORTH IN THE SUBORDINATION AGREEMENT AND SECTION 8(k) OF THIS NOTE.
Original Issue Date: October 13, 2023
|
Original Principal Amount: $17,519,832.00
|
10%
SENIOR SECURED CONVERTIBLE PROMISSORY NOTE
DUE
OCTOBER 12, 2028
THIS 10% SENIOR SECURED CONVERTIBLE
PROMISSORY NOTE is a duly authorized and validly issued debt obligation of Ault Alliance, Inc, a Delaware corporation (the “Company”
or the “Borrower”), having its principal place of business at 11411 Southern Highlands Parkway, Suite 240, Las Vegas,
NV 89141, designated as its 10% Senior Secured Convertible Promissory Note due October 12, 2028 (the “Note”).
FOR VALUE RECEIVED, the Company
promises to pay to Ault & Company, Inc., or its registered assigns (the “Holder”), or shall have paid pursuant
to the terms hereunder, the principal sum of $17,519,832.00, Late Fees (as defined below), and any other sums due hereunder on October
12, 2028 (the “Maturity Date”), or such earlier date as this Note is required to be repaid as provided hereunder, and
to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Note in accordance with the provisions
hereof. This Note is subject to the following additional provisions:
Section 1. Definitions.
For the purposes hereof, in addition to the terms defined elsewhere in this Note, (a) capitalized terms not otherwise defined herein shall
have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:
“Bankruptcy
Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w)
of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant
Subsidiary thereof; (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that
is not dismissed within sixty (60) days after commencement; (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent
or bankrupt or any order of relief or other order approving any such case or proceeding is entered; (d) the Company or any Significant
Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged
or stayed within sixty (60) calendar days after such appointment; (e) the Company or any Significant Subsidiary thereof makes a general
assignment for the benefit of creditors; (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a
view to arranging a composition, adjustment or restructuring of its debts; or (g) the Company or any Significant Subsidiary thereof, by
any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate
or other action for the purpose of effecting any of the foregoing.
“Base Share
Price” shall have the meaning set forth in Section 5(c).
“Board
of Directors” means the Company’s board of directors.
“Business
Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day
on which the New York Federal Reserve Bank is closed.
“Buy-In”
shall have the meaning set forth in Section 4(c)(v).
“Change
of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an
individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control
(whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of fifty percent
(50%) of the voting securities of the Company (other than by means of conversion of the Note), (b) the Company merges into or consolidates
with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders
of the Company immediately prior to such transaction own less than fifty-one percent (51%) of the aggregate voting power of the Company
or the successor entity of such transaction, (c) the Company sells or transfers all or substantially all of its assets to another Person
and the stockholders of the Company immediately prior to such transaction own less than fifty-one percent (51%) of the aggregate voting
power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than
one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board
of Directors on the Original Issue Date (or by those individuals who are serving as members of the Board of Directors on any date whose
nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof),
or (e) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the
events set forth in clauses (a) through (d) above.
“Common
Stock” means the common stock, par value $0.001 per share, of the Company
“Conversion
Date” shall have the meaning set forth in Section 4(a).
“Conversion
Price” shall have the meaning set forth in Section 4(b).
“Conversion
Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Note in accordance with the terms hereof.
"Designated
Senior Debt" means (a) Debt under or in respect of the Loan and Guaranty Agreement (the “Senior Loan Agreement”),
dated as of November 7, 2022 as amended by the First Amendment and Joinder dated July 19, 2023, by and among (1) the Company, (2) the
other Borrowers and Guarantors party thereto (collectively with the Company, the “Loan Parties”), (3) JGB Capital,
LP, JGB Partners, LP and JGB (Cayman) Buckeye Ltd., as lenders (collectively, the “Senior Lenders”), and (4) JGB Collateral,
LLC, as agent for the Senior Lenders (the “Senior Agent”).
“Dilutive
Issuance” shall have the meaning set forth in Section 5(c).
“Dilutive
Issuance Notice” shall have the meaning set forth in Section 5(c).
“DTC”
means the Depository Trust Company.
“DTC Chill”
shall have the meaning set forth in Section 7(a)(vii).
“DWAC”
means Deposit Withdrawal at Custodian as defined by the DTC.
“Event
of Default” shall have the meaning set forth in Section 7(a).
“Purchase
Agreement” means the Note Purchase Agreement, dated as of October 13, 2023, by and between the Company and the Holder, as amended,
modified or supplemented from time to time in accordance with its terms.
“Exempt
Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers, directors, advisors or independent
contractors of the Company issued pursuant to a Company’s equity incentive plan and reserved for such purpose or, provided it is
scheduled to the Purchase Agreement, otherwise as compensation for services provided to the Company, (b) shares of Common Stock issued
for consideration other than cash pursuant to a merger, consolidation, acquisition, or similar business combination approved by the Board
of Directors; (c) shares of Common Stock issued pursuant to any equipment loan or leasing arrangement, real property leasing arrangement
or debt financing from a bank or similar financial institution approved by the Board of Directors, or (d) shares of Common Stock with
respect to which the Holder has waived its anti-dilution rights.
“Conversion
Price” shall have the meaning set forth in Section 4(b).
“Late Fees”
shall have the meaning set forth in Section 2(b).
“Mandatory
Default Amount” means the payment of 110% of the outstanding principal amount of this Note and accrued and unpaid interest hereon,
in addition to the payment of all other amounts, costs, expenses and liquidated damages due in respect of this Note.
“New York
Courts” shall have the meaning set forth in Section 8(d).
“Note Register”
shall have the meaning set forth in Section 2(c).
“Notice
of Conversion” shall have the meaning set forth in Section 4(a).
“Original
Issue Date” means the date of the first issuance of the Note, regardless of any transfers of any Note and regardless of the
number of instruments which may be issued to evidence such Note.
“Permitted
Indebtedness” means the indebtedness evidenced by the Senior Loan Agreement and the Note.
“Permitted
Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental
charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and
by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established
in accordance with GAAP, (b) Liens imposed by law which were incurred in the ordinary course of the Company’s business, such as
carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in
the ordinary course of the Company’s business, and which (x) do not individually or in the aggregate materially detract from the
value of such property or assets or materially impair the use thereof in the operation of the business of the Company and its consolidated
Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for
the foreseeable future the forfeiture or sale of the property or asset subject to such Lien and (c) Liens incurred in connection with
Permitted Indebtedness.
“Purchase
Rights” shall have the meaning set forth in Section 5(d).
“Securities
Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Share
Delivery Date” shall have the meaning set forth in Section 4(c)(ii).
"Subordination
Agreement” means the Subordination Agreement by and between the Holder, the Loan Parties, the Senior Lenders and the Agent dated
as of the date hereof.
“Subsequent
Financing” means any issuance by the Company or any of its Subsidiaries (as defined in the Purchase Agreement) of Common Stock
or Common Stock Equivalents (as defined in the Purchase Agreement) for cash consideration, Indebtedness (as defined in the Purchase Agreement)
or a combination of units thereof.
“Trading
Day” means a day on which the principal Trading Market is open for trading.
“Trading
Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date
in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock
Exchange, any market or quotation service of the OTC Markets Group or the OTC Bulletin Board (or any successors to any of the foregoing).
“Variable
Rate Transaction” means a transaction in which the Company issues or sells Common Stock or Common Stock Equivalents either (i)
at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or
quotations for the Common Stock at any time after the initial issuance of such debt or equity securities or (ii) with a conversion, exercise
or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon
the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common
Stock (other than pursuant to terms and conditions applicable to such Common Stock Equivalents in effect as of the date hereof and disclosed
in filings of the Company with the Commission prior to the date hereof).
“VWAP”
means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30
a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if the OTC Bulletin Board is not a Trading Market, the volume
weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board, (c) if the Common
Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink
Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices),
the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share
of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company,
the fees and expenses of which shall be paid by the Company.
Section 2. Interest.
(a) Payment
of Interest in Cash or Kind. Subject to Section 2(b) and Section 7, the Company shall pay interest to the
Holder on the aggregate unconverted and then outstanding principal amount of this Note at the rate of ten percent (10%) per annum. All
interest payments hereunder shall be payable, in the Holder’s discretion, in cash, or in Common Stock at the applicable Conversion
Price. Accrued and unpaid interest shall be due and payable on the Maturity Date, subject to the Holder’s ability, in its sole and
absolute discretion, to require, on a month-to-month basis, monthly payments in arrears. In the event that the Holder intends to require
monthly payments, it shall notify the Company of such intent no later than ten (10) calendar days prior to the last date of the applicable
month.
(b) Late
Fee. Upon the occurrence and during the continuance of an Event of Default, the Company shall pay a late fee in cash or, at Holder’s
discretion, in shares of Common Stock at the applicable Conversion Price to the Holder on the aggregate unconverted and then outstanding
principal amount of this Note at an interest rate equal to the lesser of eighteen percent (18%) per annum or the maximum rate permitted
by applicable law (the “Late Fees”) which shall accrue daily from the date of the occurrence and during the continuance
of such Event of Default hereunder through and including the date of actual payment in full. Interest hereunder will be paid to the Person
in whose name this Note is registered on the records of the Company regarding registration and transfers of this Note (the “Note
Register”).
(c) Interest
Calculations. Interest shall be calculated on the basis of a 360-day year, consisting of twelve (12) thirty (30) calendar day periods,
and shall accrue daily commencing on the Original Issue Date until payment in full of the outstanding principal, together with all accrued
and unpaid interest, liquidated damages and other amounts which may become due hereunder, has been made. Interest hereunder will be paid
to the Person in whose name this Note is registered on the Note Register.
Section 3. Registration
of Transfers and Exchanges.
(a) Different
Denominations. This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as
requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.
(b) Investment
Representations. This Note has been issued subject to certain investment representations of the original Holder set forth in the Purchase
Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities
laws and regulations.
(c) Reliance
on Note Register. Prior to due presentment for transfer to the Company of this Note, the Company and any agent of the Company may
treat the Person in whose name this Note is duly registered on the Note Register as the owner hereof for the purpose of receiving payment
as herein provided and for all other purposes, whether or not this Note is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
Section 4. Conversion.
(a) Voluntary
Conversion. At any time after the Original Issue Date until this Note is no longer outstanding, this Note shall be convertible, in
whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time. The Holder shall effect
conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice
of Conversion”), specifying therein the principal amount of this Note to be converted and the date on which such conversion
shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion,
the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. No ink-original Notice of Conversion
shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be
required. To effect conversions hereunder, the Holder shall not be required to physically surrender this Note to the Company unless the
entire principal amount of this Note, plus all accrued and unpaid interest thereon, has been so converted. Conversions hereunder shall
have the effect of lowering the outstanding principal amount of this Note in an amount equal to the applicable conversion. The Holder
and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver
an objection to any Notice of Conversion within one (1) Business Day of delivery of such Notice of Conversion. In the event of any dispute
or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and
any assignee by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion
of a portion of this Note, the unpaid and unconverted principal amount of this Note may be less than the amount stated on the face hereof.
(b) Conversion
Price. The conversion price in effect on any Conversion Date shall be equal to the greater of (i) $0.10 per share (the “Floor
Price”), which Floor Price shall not be adjusted for stock dividends, stock splits, stock combinations and other similar transactions
and (ii) the lesser of a 5% premium to the Company’s VWAP during the ten trading days (the “10-Day VWAP”) immediately
prior to (A) the closing of the Agreement or (B) the date of conversion into shares of Common Stock (the “Conversion Price”).
All such determinations, other
than the Floor Price, to be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar
transaction that proportionately decreases or increases the Common Stock during such measuring period, as more fully set forth in Section
5 hereof.
Nothing herein shall limit
a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 7 hereof and the Holder
shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages
pursuant to any other Section hereof or under applicable law.
(c) Mechanics
of Conversion.
i. Conversion
Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder shall be
determined by the quotient obtained by dividing (x) the outstanding principal amount of this Note to be converted by (y) the Conversion
Price.
ii. Delivery
of Certificate Upon Conversion. Not later than three (3) Trading Days after each Conversion Date (the “Share Delivery Date”),
the Company shall deliver, or cause to be delivered, to the Holder a certificate or certificates representing the Conversion Shares which,
on or after the six (6)-month anniversary of the Original Issue Date shall be free of restrictive legends and trading restrictions (other
than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the
conversion of this Note and (B) at the Holder’s discretion, a bank check in the amount of the Late Fees. Except in the case of any
certificate or certificates bearing a restrictive legend, all certificate or certificates required to be delivered by the Company under
this Section 4(c) shall be delivered electronically through the DTC or another established clearing corporation performing
similar functions. If the Conversion Date is prior to the twelve (12)-month anniversary of the Original Issue Date, then the Conversion
Shares shall bear a restrictive legend in the following form, as appropriate:
“THE ISSUANCE AND SALE OF
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL
BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT
TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
iii. Failure
to Deliver Certificates. If, in the case of any Notice of Conversion, such certificate or certificates are not delivered to or as
directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at
any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event the Company shall promptly
return to the Holder any original Note delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates
issued to such Holder pursuant to the rescinded Conversion Notice.
iv. Obligation
Absolute; Partial Liquidated Damages. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of
this Note in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to
enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action
to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder
or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and
irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the
issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of
any such action the Company may have against the Holder. In the event the Holder of this Note shall elect to convert any or all of the
outstanding principal or accrued interest amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone
associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction
from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Note shall have been sought and obtained,
and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Note,
which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying
dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction,
the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason
to deliver to the Holder such certificate or certificates pursuant to Section 4(c)(ii) by the Share Delivery Date, the Company shall pay
to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading
Day (increasing to $20 per Trading Day on the fifth (5th) Trading Day after such liquidated damages begin to accrue) for each
Trading Day after such Share Delivery Date until such certificates are delivered or Holder rescinds such conversion. Notwithstanding the
foregoing, the maximum amount of liquidated damages that must be paid by the Company pursuant to this Section 4(c)(iv) shall be
an amount equal to ten percent (10%) of the aggregate principal amount being converted. Nothing herein shall limit a Holder’s
right to pursue actual damages or declare an Event of Default pursuant to Section 7 hereof for the Company’s failure to deliver
Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder,
at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such
rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.
v. Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if
the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section
4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction
or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by
the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date
(a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to
or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions)
for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled
to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation
was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Note in a
principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or
deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery
requirements under Section 4(c)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000
to cover a Buy-In with respect to an attempted conversion of this Note with respect to which the actual sale price of the Conversion Shares
(including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately
preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating
the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing
herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates
representing shares of Common Stock upon conversion of this Note as required pursuant to the terms hereof.
vi. Reservation
of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep available out of its authorized
and unissued shares of Common Stock a number of shares of Common Stock at least equal to 200% of the Required Minimum (to be adjusted
monthly) for the sole purpose of issuance upon conversion of this Note and payment of interest on this Note, each as herein provided,
free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and any other holders of
the Note), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in
the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion
of the then outstanding principal amount of this Note and payment of interest hereunder. The Company covenants that all shares of Common
Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable.
vii. Fractional
Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Note. As to any fraction
of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay
a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up
to the next whole share.
viii. Transfer
Taxes and Expenses. The issuance of certificates for shares of the Common Stock on conversion of this Note shall be made without charge
to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates,
provided that, the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance
and delivery of any such certificate upon conversion in a name other than that of the Holder of this Note so converted and the Company
shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall
have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.
The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion.
Section 5. Certain
Adjustments.
(a) Stock
Dividends and Stock Splits. If the Company, at any time while this Note is outstanding: (i) pays a stock dividend or otherwise makes
a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for
avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of interest on,
the Note), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse
stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of
shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately
before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event.
Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders
entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
(b) Reserved.
(c) Most
Favored Nation Status. So long as this Note remains outstanding or the Holder holds any Conversion Shares, in the event that the Company
issues or sells any notes, if the Holder then reasonably believes that the terms and conditions appurtenant to such issuance or sale provide
anti-dilution or other full-ratchet protective provisions to such investors that were not granted to the Holder hereunder, upon notice
to the Company by Holder within five (5) Trading Days after the Company’s disclosure of such issuance or sale, the Company shall
amend the terms of the Note, so as to give Holder the benefit of such anti-dilution or other full-ratchet protective provisions. Notwithstanding
the foregoing, no adjustments shall be made, paid or issued under this Section 5(c) with respect to an Exempt Issuance.
(d) Subsequent
Rights Offerings. In addition to any adjustments pursuant to Section 5(a) above, if at any time while the Note is outstanding
the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro
rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be
entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired
if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations
on exercise hereof) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or,
if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue
or sale of such Purchase Rights.
(e) Pro
Rata Distributions. During such time as this Note is outstanding, if the Company shall declare or make any dividend or other distribution
of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification,
corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after
the issuance of this Note, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent
that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise
of this Note (without regard to any limitations on exercise hereof, including without limitation) immediately before the date of which
a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock
are to be determined for the participation in such Distribution.
(f) Calculations.
All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may
be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given
date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.
(g) Notice
to the Holder.
i. Adjustment
to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company
shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement
of the facts requiring such adjustment.
ii. Notice
to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common
Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall
authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock
of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification
of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of
the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property
or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company,
then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Note,
and shall cause to be delivered to the Holder at its last address as it shall appear upon the Note Register, at least twenty (20) calendar
days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of
which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become
effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their
shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale,
transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not
affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder
constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously
file such notice with the SEC pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert this Note during the
20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise
be expressly set forth herein.
(h) Exchange
Cap. As set forth in the Purchase Agreement, under no circumstances shall the Company permit the conversion of this Note to the extent
after giving effect thereto, the aggregate number of shares of Common Stock that would be issued pursuant to such conversion would exceed
19.99% of the Company’s outstanding shares of Common Stock as of the date hereof.
Section 6. Reserved.
Section 7. Events
of Default.
(a) “Event
of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event
shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order,
rule or regulation of any administrative or governmental body):
i. any
default in the payment of (A) the principal amount of any Note or (B) interest, liquidated damages and other amounts owing to a Holder
on any Note, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or
otherwise) which default, solely in the case of an interest payment or other default under clause (B) above, is not cured within three
(3) Trading Days;
ii. the
Company shall fail to observe or perform any other covenant or agreement contained in the Note (other than a breach by the Company of
its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (ix) below) or in
any other Transaction Document, which failure is not cured, if possible to cure, within the earlier to occur of (A) five (5) Trading Days
after notice of such failure sent by the Holder or by any other Holder to the Company and (B) ten (10) Trading Days after the Company
has become or should have become aware of such failure;
iii. a
default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur
under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or
any Subsidiary is obligated (and not covered by clause (vi) below);
iv. any
representation or warranty made in this Note or any other Transaction Documents, any written statement pursuant hereto or thereto or any
other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any
material respect as of the date when made or deemed made;
v. any
provision of any Transaction Document (including, without limitation, the Security Agreement) shall at any time for any reason (other
than pursuant to the express terms thereof) cease to be valid and binding on or enforceable against the parties thereto, or the validity
or enforceability thereof shall be contested by any party thereto, or a proceeding shall be commenced by the Company or any Subsidiary
or any governmental authority having jurisdiction over any of them, seeking to establish the invalidity or unenforceability thereof, or
the Company or any Subsidiary shall deny in writing that it has any liability or obligation purported to be created under any Transaction
Document (including, without limitation, the Security Agreement);
vi. the
Security Agreement shall for any reason fail or cease to create a separate valid and perfected and, except to the extent permitted by
the terms hereof or thereof, first or second priority, as applicable, Lien (as defined in the Purchase Agreement) on the Collateral (as
defined in the Security Agreement) in favor of the Agent (as defined in the Security Agreement) or any material provision of the Security
Agreement shall at any time for any reason cease to be valid and binding on or enforceable against the Company or the validity or enforceability
thereof shall be contested by any party thereto, or a proceeding shall be commenced by the Company or any governmental authority having
jurisdiction over the Company, seeking to establish the invalidity or unenforceability thereof;
vii. the
Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;
viii. the
Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement,
factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness
for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $100,000,
whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due
and payable prior to the date on which it would otherwise become due and payable;
ix. the
transfer of shares of Common Stock through the DTC System is no longer available or “chilled” (“DTC Chill”)
and the Company has not cured such DTC Chill within thirty (30) Trading Days from receipt of notice that a DTC Chill has occurred;
x. the
Company shall be a party to any Change of Control Transaction or shall agree to sell or dispose of all or in excess of fifty percent (50%)
of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction;
xi. the
Company shall fail for any reason to deliver certificates representing the Conversion Shares via DWAC to the Holder prior to the second
(2nd) Trading Day after a Conversion Date pursuant to Section 4(c), or the Company shall provide at any time notice
to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversions of the
Note in accordance with the terms hereof;
xii. the
Company fails to file with the SEC any required reports under Section 13 or 15(d) of the Exchange Act such that it is not in compliance
with Rule 144(c)(1) (or Rule 144(i)(2), if applicable) after the Effective Date;
xiii. if
the Borrower or any Significant Subsidiary shall: (i) apply for or consent to the appointment of a receiver, trustee, custodian or liquidator
of it or any of its properties; (ii) admit in writing its inability to pay its debts as they mature; (iii) make a general assignment for
the benefit of creditors; (iv) be adjudicated bankrupt or insolvent or be the subject of an order for relief under Title 11 of the United
States Code or any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute of any other
jurisdiction or foreign country; or (v) file a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or
an arrangement with creditors or to take advantage or any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or
liquidation law or statute, or an answer admitting the material allegations of a petition filed against it in any proceeding under any
such law, or (vi) take or permit to be taken any action in furtherance of or for the purpose of effecting any of the foregoing;
xiv. if
any order, judgment or decree shall be entered, without the application, approval or consent of the Borrower or any Significant Subsidiary,
by any court of competent jurisdiction, approving a petition seeking liquidation or reorganization of the Borrower or any Subsidiary,
or appointing a receiver, trustee, custodian or liquidator of the Borrower or any Subsidiary, or of all or any substantial part of its
assets, and such order, judgment or decree shall continue unstayed and in effect for any period of sixty (60) days;
xv. the
occurrence of any levy upon or seizure or attachment of, or any uninsured loss of or damage to, any property of the Borrower or any Subsidiary
having an aggregate fair value or repair cost (as the case may be) in excess of $100,000 individually or in the aggregate, and any such
levy, seizure or attachment shall not be set aside, bonded or discharged within forty-five (45) days after the date thereof;
xvi. the
Company shall fail to maintain a sufficient number of reserved shares pursuant to Section 4(c)(vi) hereof and the Purchase
Agreement; or
xvii. any
monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective
property or other assets for more than $100,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or
unstayed for a period of forty-five (45) calendar days.
(b) Remedies
Upon Event of Default. If any Event of Default occurs, then the outstanding principal amount of this Note, plus accrued but unpaid
interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s
election, immediately due and payable in cash at the Mandatory Default Amount. After the occurrence of any Event of Default that results
in the eventual acceleration of this Note, the interest rate on this Note shall accrue at an interest rate equal to the lesser of 1.5%
per month (18% per annum) or the maximum rate permitted under applicable law. Upon the payment in full of the Mandatory Default Amount,
the Holder shall promptly surrender this Note to or as directed by the Company. In connection with such acceleration described herein,
the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder
may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies
available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder
and the Holder shall have all rights as a holder of the Note until such time, if any, as the Holder receives full payment pursuant to
this Section 7(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent
thereon. The Mandatory Default Amount, whether payable in cash or in shares, shall be due and payable or issuable, as the case may be,
within five (5) Trading Days of the date on which the notice for the payment therefor is provided by a Holder (the “Default Payment
Date”). If the Company fails to pay in full the Mandatory Default Amount hereunder on the date such amount is due in accordance
with this Section 7(b) (whether in cash or shares of Common Stock), the Company will pay interest thereon at a rate equal to the
lesser of 1.5% per month (18% per annum) or the maximum rate permitted by applicable law, accruing from such date until the Mandatory
Default Amount plus all such interest thereon, is paid in full.
Section 8. Miscellaneous.
(a) Notices.
Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice
of Conversion, shall be in writing and delivered personally, electronically, by facsimile, or sent by a nationally recognized overnight
courier service, addressed to the Company, at the address set forth above, or such other facsimile number, email address or address as
the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 8(a). Any and
all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally,
electronically, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number,
email address or address of the Holder appearing on the books of the Company, or if no such facsimile number, email address or address
appears on the books of the Company, at the principal place of business of such Holder, as set forth in the Purchase Agreement. Any notice
or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior
to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day
or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by
U.S. nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.
(b) Absolute
Obligation. Except as expressly provided herein, no provision of this Note shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of, liquidated damages and accrued but unpaid interest, as applicable, on this Note
at the time, place, and rate, and in the coin or currency, herein prescribed. This Note is a direct debt obligation of the Company.
(c) Lost
or Mutilated Note. If this Note shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange
and substitution for and upon cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed Note,
a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss,
theft or destruction of such Note, and of the ownership hereof, reasonably satisfactory to the Company.
(d) Governing
Law. All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof.
Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by
any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders,
employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New
York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication
of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect
to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper
or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence
of delivery) to such party at the address in effect for notices to it under this Note and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve
process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted
by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Note or the transactions
contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Note, then the prevailing party
in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred
in the investigation, preparation and prosecution of such action or proceeding.
(e) Waiver.
Any waiver by the Company or the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of this Note. The failure of the Company or the Holder to
insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party
of the right thereafter to insist upon strict adherence to that term or any other term of this Note on any other occasion. Any waiver
by the Company or the Holder must be in writing.
(f) Severability.
If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any provision
is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall
be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate
of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company
covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying
all or any portion of the principal of or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter
in force, or which may affect the covenants or the performance of this Note, and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or
impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such
law has been enacted.
(g) Remedies,
Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Note shall be cumulative
and in addition to all other remedies available under this Note and any of the other Transaction Documents at law or in equity (including
a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual
and consequential damages for any failure by the Company to comply with the terms of this Note. The Company covenants to the Holder
that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided
for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the
Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof).
The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy
at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach,
the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened
breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide
all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance
with the terms and conditions of this Note.
(h) Next
Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall
be made on the next succeeding Business Day.
(i) Headings.
The headings contained herein are for convenience only, do not constitute a part of this Note and shall not be deemed to limit or affect
any of the provisions hereof.
(j) Secured
Obligation. The obligations of the Company under this Note are secured by certain assets of the Company and each Subsidiary pursuant
to the Security Agreement, dated as of October 13, 2023 between the Company (the “Security Agreement”), the Subsidiaries
of the Company and the Secured Party (as defined therein).
(k) Subordination.
Notwithstanding anything herein to the contrary, the lien and security interest granted to the Noteholder pursuant to this Agreement and
the Security Agreement shall be second in priority to the lien created in favor of the Senior Agent, pursuant to the terms of the Senior
Loan Agreement and the other Loan Documents (as defined in the Senior Loan Agreement and such Loan Documents collectively with the Senior
Loan Agreement, the “Senior Loan Documents”) and the exercise of any right or remedy by the Noteholder or the Secured
Party hereunder or under the Security Agreement is subject to the provisions of the Subordination Agreement. In the event of any conflict
between the terms of the Subordination Agreement and this Note or the Security Agreement, the terms of the Subordination Agreement shall
govern and control.
*********************
(Signature Page Follows)
IN WITNESS WHEREOF,
the Company has caused this Note to be duly executed by a duly authorized officer as of the date first above indicated.
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AULT ALLIANCE, INC. |
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Name: William B. Horne |
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Title: Chief Executive Officer |
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Facsimile No. for delivery of Notices: |
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ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects
to convert principal under the 10% Senior Secured Convertible Promissory Note due October 12, 2028 of Ault Alliance, Inc., a Delaware
corporation (the “Company”), into shares of common stock, par value $0.001 per share, of the Company (the “Common
Stock”) according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the
name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the
holder for any conversion, except for such transfer taxes, if any.
The undersigned agrees to
comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid
shares of Common Stock.
Conversion Information
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DWAC Instructions |
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Exhibit 4.2
NEITHER THIS WARRANT NOR ANY OF THE SECURITIES
ISSUABLE HEREUNDER HAVE BEEN REGISTERED UNDER THE SECURITIES ACT (AS DEFINED BELOW), OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT
BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT (II)
UNLESS SOLD OR TRANSFERRED TO A “QUALIFIED INSTITUTIONAL BUYER” WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT OR
(III) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
AULT ALLIANCE, INC.
COMMON STOCK PURCHASE WARRANT
October 13, 2023
THIS CERTIFIES THAT, for value received, the Holder
is entitled to purchase, and AULT ALLIANCE, INC.., a Delaware corporation (the “Company”), promises and agrees
to sell and issue to the Holder, at any time, or from time to time, during the Exercise Period, an aggregate of 47,685,988 shares of the
Company’s Class A Common Stock, par value $0.001 per share (the “Common Stock”), of the Company, at the Exercise
Price, subject to the provisions and limitations and upon the terms and conditions hereinafter set forth. This Warrant is issued by the
Company pursuant to that certain Note Purchase Agreement dated as of October 13, 2023 (the “Purchase Agreement”) pursuant
to which the Company has offered and sold to the purchaser named therein its 10% Senior Secured Convertible Note.
1. Definitions
of Certain Terms. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in the Purchase Agreement.
In addition to the terms defined elsewhere in this Warrant, the following terms have the following meanings:
(a) “Business
Day” means a day on which banks are open for business in the city of New York.
(b) “Commission”
means the U.S. Securities and Exchange Commission.
(c) “Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
(d) “Exercise
Price” means the price at which the Holder may purchase one share of Common Stock upon exercise of this Warrant as determined
from time to time pursuant to the provisions hereof. The initial Exercise Price is $0.1837 per share, subject to adjustment as provided
herein.
(e)
“Expiration Date” means the 60-month anniversary of the Initial Exercise Date.
(f) “Holder”
means a record holder of the Warrant or shares of Common Stock obtained or obtainable upon exercise of the Warrant, as applicable. The
initial Holder is Ault & Company, Inc.
(g) “Initial
Exercise Date” means the first Business Day following the six-month anniversary of the Issue Date.
(h) “Issue
Date” means October 13, 2023.
(i) “Securities
Act” means the Securities Act of 1933, as amended.
(j) “Warrant”
means this Common Stock Purchase Warrant and any warrant or warrants hereafter issued as a consequence of the exercise or transfer of
this warrant in whole or in part.
2. Exercise
of Warrant.
(a) Manner
of Exercise. This Warrant may be exercised, in whole or in part, at any time or from time to time, during the period commencing as
of 9:30:01 a.m., New York time, on the Initial Exercise Date and ending as of 5:30 p.m., New York time, on the Expiration Date (the “Exercise
Period”), for 47,685,988 fully paid and non-assessable shares of Common Stock (the “Warrant Shares”), for
an exercise price per share equal to the Exercise Price, by delivery to the Company at its headquarters, or at such other place as is
designated in writing by the Company, of:
(1) a
duly executed Notice of Exercise, substantially in the form of Attachment I attached hereto and incorporated by reference herein;
and
(2) if
the Holder did not notify the Company in such Notice of Exercise that such exercise was made pursuant to a Cashless Exercise (as defined
in Section 2(b) below), payment of an amount in cash equal to the product of the Exercise Price multiplied by the number of Warrant Shares
being purchased upon such exercise, with such payment being in the form of a wire transfer of immediately available U.S. funds to an account
designated in writing by the Company.
The date on which the Company
receives the Notice of Exercise and the Exercise Price (or just the Notice of Exercise in the event of a Cashless Exercise) payable with
respect to the Warrant Shares being purchased shall be deemed to be the date of exercise (the “Date of Exercise”).
The Holder shall not be required to deliver the original of this Warrant in order to effect an exercise hereunder. Execution and delivery
of a Notice of Exercise with respect to less than all of the Warrant Shares shall have the same effect as cancellation of the original
of this Warrant and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant Shares. Execution and delivery
of a Notice of Exercise for all of the then-remaining Warrant Shares shall have the same effect as cancellation of the original of this
Warrant after delivery of the Warrant Shares in accordance with the terms hereof.
(b) Notwithstanding
the foregoing, if at the time of exercise hereof, there is no effective registration statement registering the issuance of the Warrant
Shares to the Holder (or the prospectus contained therein is not available for use), then this Warrant may also be exercised, in whole
or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant
Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A) (a “Cashless Exercise”), where:
(A) =
as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise
is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered
pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(64)
of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) the bid price of the Common Stock on the principal
Trading Market as reported by Bloomberg L.P. as of the time of the Holder’s execution of the applicable Notice of Exercise if such
Notice of Exercise is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter
pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise
is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of “regular
trading hours” on such Trading Day;
(B) = the Exercise Price, as adjusted hereunder;
and
(X) = the number of Warrant Shares that
would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash
exercise rather than a cashless exercise.
If the Warrant Shares are issued in a Cashless
Exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares take on
the registered characteristics of the Warrants being exercised. For purposes of Rule 144(d) promulgated under the Securities Act, as in
effect on the Issue Date, it is intended that the Warrant Shares issued in a Cashless Exercise shall be deemed to have been acquired by
the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued
pursuant to the Purchase Agreement.
(b) Delivery
of Certificates. Certificates for Warrant Shares purchased hereunder shall be transmitted by the transfer agent of the Company to
the Holder by crediting the account of the Holder’s prime broker with the Depository Trust Company (“DTC”) through
its Deposit/Withdrawal at Custodian system if the Company is a participant in such system and such Warrant Shares are eligible for delivery
in such a manner, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise within three Business
Days from the delivery to the Company of the Notice of Exercise, surrender of this Warrant and payment of the aggregate Exercise Price
as set forth above (the “Delivery Period”). This Warrant shall be deemed to have been exercised on the date on which
this Warrant is surrendered and payment of the Exercise Price is received by the Company. The Warrant Shares shall be deemed to have been
issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares
for all purposes, as of the date on which all of the criteria described in the immediately preceding sentence have occurred, irrespective
of the date of delivery of such certificate or certificates, except that, if the date of such surrender and payment is a date when the
stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the close of business
on the next succeeding date on which the stock transfer books are open. If fewer than all of the Warrant Shares purchasable under the
Warrant are purchased, the Company will, upon such partial exercise, execute and deliver to the Holder a new Warrant (dated as of the
Issue Date), in the same form and tenor as this Warrant, evidencing that portion of the Warrant not exercised.
(c) No
Fractional Shares. If a fractional share of Warrant Shares would, but for the provisions of this Section 2(c), be issuable
upon exercise of the rights represented by this Warrant, the Company shall round a fractional share to be delivered to Holder up to the
next whole share.
(d) Buy-In.
Notwithstanding anything else to the contrary contained herein, in addition to any other rights available to the Holder, if the Company
fails to cause its transfer agent to transmit to the Holder a certificate or certificates representing the applicable Warrant Shares purchased
upon exercise hereof or credit the Holder’s balance account with DTC, as applicable (a “Delivery Failure”), on
or before the end of the Delivery Period (other than a failure caused by any incorrect or incomplete information provided by Holder to
the Company hereunder), and if after such date the Holder purchases shares of Common Stock to deliver in satisfaction of a sale by the
Holder of Warrant Shares that the Holder anticipated receiving from the Company upon exercise of this Warrant (a “Buy-In”),
then the Company shall, within three Business Days after the Holder’s request, (1) pay cash to the Holder in the amount by which
(x) the Holder’s total purchase price (including commissions, if any) for the shares of Common Stock so purchased exceeds (y) the
amount obtained by multiplying (A) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with
the exercise at issue, by (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option
of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored,
or deliver to the Holder the number of Warrant Shares that would have been issued had the Company timely complied with its exercise and
delivery obligations hereunder. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect
of the Buy-In, together with applicable confirmations and other evidence reasonably requested by the Company. Nothing herein shall limit
the Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing
the Warrant Shares as required pursuant to the terms hereof.
(e) No
Charge to Holder upon Issuance. The issuance of Warrant Shares upon exercise of this Warrant shall be made without charge to Holder
for any issuance tax in respect thereof or other cost incurred by the Company in connection with such exercise and the related issuance
of Warrant Shares (other than any transfer taxes resulting from the issuance of Warrant Shares to any person other than Holder).
(f) Reservation
of Shares. During the Exercise Period, the Company shall reserve and keep available out of its authorized but unissued Common Stock
equal to 125% of the number of Warrant Shares issuable upon the full exercise of this Warrant. All Warrant Shares which are so issuable
shall, when issued and upon the payment of the applicable Exercise Price, be duly and validly issued, fully paid and non-assessable and
free from all taxes, liens and charges and not subject to the pre-emptive rights of any holder of Common Stock or any other class or series
of stock of the Company. During the Exercise Period, the Company shall not take any action which would cause the number of authorized
but unissued Common Stock to be less than the number of such shares required to be reserved hereunder for issuance upon exercise of this
Warrant.
3. Adjustments
in Certain Events. The number, class, and price of Warrant Shares for which this Warrant may be exercised are subject to adjustment
from time to time upon the happening of certain events as follows:
(a) Subdivisions,
Combinations and Other Issuances. If the outstanding shares of the Company’s Common Stock are divided into a greater number
of shares, by forward stock split or otherwise, or a dividend in stock is paid on the Common Stock, then the number of shares of Warrant
Shares for which the Warrant is then exercisable will be proportionately increased and the Exercise Price will be proportionately reduced.
Conversely, if the outstanding shares of Common Stock are combined into a smaller number of shares of Common Stock, by reverse stock split
or otherwise, then the number of Warrant Shares for which the Warrant is then exercisable will be proportionately reduced and the Exercise
Price will be proportionately increased. The increases and reductions provided for in this Section 3(a) will be made with the intent
and, as nearly as practicable, the effect that neither the percentage of the total equity of the Company obtainable on exercise of the
Warrants nor the price payable for such percentage upon such exercise will be affected by any event described in this Section 3(a).
(b) Merger,
Consolidation, Reclassification, Reorganization, Etc. In case of any change in the Common Stock through merger, consolidation, reclassification,
reorganization, partial or complete liquidation, purchase of all or substantially all the assets of the Company, or other change in the
capital structure of the Company, then, as a condition of such change, lawful and adequate provision will be made so that the Holder will
have the right thereafter to receive upon the exercise of the Warrant the kind and amount of shares of stock or other securities or property
to which he would have been entitled if, immediately prior to such event, he had held the number of Warrant Shares obtainable upon the
exercise of the Warrant. In any such case, appropriate adjustment will be made in the application of the provisions set forth herein with
respect to the rights and interest thereafter of the Holder, to the end that the provisions set forth herein will thereafter be applicable,
as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the exercise of the Warrant.
The Company will not permit any change in its capital structure to occur unless the issuer of the shares of stock or other securities
to be received by the Holder, if not the Company, agrees to be bound by and comply with the provisions of this Warrant.
(c) Pro
Rata Distributions. If securities of the Company or securities of any subsidiary of the Company are distributed pro rata to holders
of Common Stock, such number of securities will be distributed to the Holder or its assignee upon exercise of its rights hereunder as
such Holder or assignee would have been entitled to if this Warrant had been exercised prior to the record date for such distribution.
(d) Most
Favored Nation Status. So long as this Warrant remains outstanding or the Holder holds any Warrant Shares, in the event that the Company
issues or sells any equity or equity-linked securities, if the Holder then reasonably believes that the terms and conditions appurtenant
to such issuance or sale provide anti-dilution or other full-ratchet protective provisions to such investors that were not granted to
the Holder hereunder, upon notice to the Company by Holder within five (5) Trading Days after the Company’s disclosure of such issuance
or sale, the Company shall amend the terms of the Warrant, so as to give Holder the benefit of such anti-dilution or other full-ratchet
protective provisions.
4. No
Rights as a Stockholder. Nothing contained in this Agreement shall be construed as conferring upon the Holder any rights whatsoever
as a stockholder of the Company, either at law or in equity, including without limitation, the right to vote or to consent or to receive
notice as a stockholder in respect of any meetings of stockholders for the election of directors, the right to receive dividends or any
other matter.
5. Restrictions
on Transfer; Legends.
(a) Registration
or Exemption Required. Assuming the accuracy of the representations and warranties of the Holder contained herein, this Warrant has
been issued in a transaction exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) of the Securities
Act and Regulation D promulgated thereunder and exempt from state registration or qualification under applicable state laws. The Holder
acknowledges that it has been advised by the Company that this Warrant and the Warrant Shares issuable upon exercise thereof have not
been registered under the Securities Act. Neither this Warrant nor the Warrant Shares may be pledged, transferred, sold or assigned except
pursuant to an effective registration statement or an exemption from the registration requirements of the Securities Act and applicable
state laws. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant
shall not be registered pursuant to an effective registration statement under the Securities Act and under applicable state securities
or blue sky laws, the Company may require, as a condition of allowing such transfer (i) that the Holder or transferee of this Warrant,
as the case may be, furnish to the Company a written opinion of counsel (which opinion shall be in form, substance and scope customary
for opinions of counsel in comparable transactions) to the effect that such transfer may be made without registration under the Securities
Act and under applicable state securities or blue sky laws, (ii) that the Holder or transferee execute and deliver to the Company an investment
letter in form and substance acceptable to the Company and (iii) that the transferee be an “accredited investor” as defined
in Rule 501(a) promulgated under the Securities Act or a “qualified institutional buyer” as defined in Rule 144A(a) under
the Securities Act.
(b) Representations
of Holder. The Holder represents and warrants that it has acquired this Warrant and will acquire the Warrant Shares for its own account
for investment and not with a view to the sale or distribution thereof or the granting of any participation therein, and that it has no
present intention of distributing or selling to others any of such interest or granting any participation therein. The Holder acknowledges
that the Warrant and Warrant Shares must be held indefinitely unless a subsequent disposition thereof is registered under the Securities
Act or registered or qualified under any applicable state securities or “blue-sky” laws or is exempt from registration and/or
qualification. The Holder has no need for liquidity in its investment in the Company, and is able to bear the economic risk of such investment
for an indefinite period and to afford a complete loss thereof. The Holder is an “accredited investor” as such term is defined
in Rule 501 (the provisions of which are known to the Holder) promulgated under the Securities Act.
(c) Restrictive
Legend. The Holder understands that until such time as the Warrant Shares have been registered under the Securities Act, or otherwise
may be sold pursuant to Rule 144 under the Securities Act or an exemption from registration under the Securities Act without any restriction
as to the number of securities as of a particular date that can then be immediately sold, this Warrant and the Warrant Shares, as applicable,
shall bear a restrictive legend in substantially the form set forth on the cover page of this Warrant.
(d) Disposition
of Warrant or Warrant Shares. With respect to any offer, sale or other disposition of this Warrant or any Warrant Shares
prior to registration of such Warrant Shares, the Holder agrees to give written notice to the Company prior thereto, describing briefly
the manner thereof, together with evidence, reasonably satisfactory to the Company (which shall include such representation of the transferee
regarding investment intent as the Company may request, to the effect that such offer, sale or other disposition may be effected without
registration or qualification (under the Securities Act as then in effect or any federal or state securities law then in effect) of this
Warrant or such Warrant Shares and indicating whether or not under the Securities Act certificates for this Warrant or Warrant Shares
to be sold or otherwise disposed of require any restrictive legend as to applicable restrictions on transferability in order to ensure
compliance with such law. Upon receiving such written notice and reasonably satisfactory evidence, the Company, as promptly
as practicable but no later than three (3) days after receipt of the written notice, shall notify the Holder that the Holder may sell
or otherwise dispose of this Warrant or Warrant Shares, all in accordance with the terms of the notice delivered to the Company. If
the Company determines that the evidence is not reasonably satisfactory to the Company, the Company shall so notify the Holder promptly
with details thereof after such determination has been made. Notwithstanding the foregoing, any Warrant Shares may be offered, sold
or otherwise disposed of in accordance with Rule 144 under the Act and in compliance with the applicable statutory resale restrictions
imposed by state securities laws, provided that the Company shall have been furnished with such information as the Company may reasonably
request to provide a reasonable assurance that the provisions of Rule 144 and the applicable resale restrictions imposed by state
securities laws have been satisfied. Each certificate representing this Warrant or the Warrant Shares thus transferred shall
bear a legend as to the applicable restrictions on transferability in order to ensure compliance with such laws, unless pursuant to an
opinion of counsel for the Holder, such legend is not required in order to ensure compliance with such laws. The Company may
issue stop transfer instructions to its transfer agent in connection with such restrictions.
(e) Removal
of Restrictive Legends. The certificates evidencing the Warrant Shares shall not contain any legend restricting the transfer thereof:
(A) while a registration statement covering the sale or resale of the Warrant Shares is effective under the Securities Act and such legend
removal is permitted under applicable securities laws (including compliance with the prospectus delivery requirements of the Securities
Act), or (B) following any sale of such Warrant Shares pursuant to Rule 144, or (C) if such Warrant Shares are eligible for sale under
Rule 144(b)(1), or (D) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations
and pronouncements issued by the staff of the Commission) and the Company shall have received an opinion of counsel to the Holder in form
reasonably acceptable to the Company to such effect (collectively, the “Unrestricted Conditions”). The Company shall
cause its counsel to issue a legal opinion to its transfer agent if required by the transfer agent to effect the issuance of the Warrant
Shares, as applicable, without a restrictive legend or removal of the legend hereunder. The Company agrees that at such time as the Unrestricted
Conditions are met, it will, no later than three (3) Trading Days following the delivery by the Holder to the Company or the transfer
agent of a certificate representing Warrant Shares, issued with a restrictive legend, deliver or cause to be delivered to such Holder
a certificate (or electronic transfer) representing such Warrant Shares that is free from all restrictive and other legends.
6. Reserved.
7. Notices;
Adjustments.
(a) All
notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party
to be notified; (ii) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if
not, then on the next business day; (iii) two (2) Business Days after having been sent by registered or certified mail, return receipt
requested, postage prepaid; or (iv) one (1) Business Day after deposit with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt. All communications shall be sent to the Company or to Holder, as applicable, at the
respective addresses set forth on the signature page to the Purchase Agreement or at such other address(es) as they may designate, respectively,
by ten (10) days advance written notice to the other party hereto.
(b) Upon
the occurrence of any adjustments pursuant to Sections 3(a) or 3(b) hereof, the Company at its expense shall, as promptly as reasonably
practicable but in any event not later than 10 days thereafter, compute such adjustment in accordance with the terms hereof and furnish
to Holder a certificate setting forth such adjustment and showing in detail the facts upon which such adjustment is based. In the event
of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution, the Company shall mail to the Holder, at least ten (10) days prior to
the date on which any such record is to be taken for the purpose of such dividend or distribution, a notice specifying such date. In the
event of any voluntary dissolution, liquidation or winding up of the Company, the Company shall mail to the Holder, at least ten (10)
days prior to the date of the occurrence of any such event, a notice specifying such date. If the approval of any stockholders of the
Company shall be required in connection with any transaction contemplated by Section 3(b) above, then, the Company shall cause
to be mailed to the Holder at least 10 calendar days prior to the applicable record or effective date hereinafter specified, a notice
stating the date on which such transaction is expected to become effective or close, and the date as of which it is expected that holders
of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable
upon such transaction. Notwithstanding the immediately preceding sentences, however, if the date on which the Company is obliged to provide
notice hereunder to the Holder is prior to a public announcement relating to the events set forth and on such date the Company’s
securities are traded or quoted on any recognized national securities exchange or quotation system, then such notice shall be provided
to each Holder simultaneously with the notice provided to the Company’s common stockholders. Failure to give such notice, or any
defect therein, shall not, however, affect the legality or validity of any such action.
8. Non-Circumvention.
The Company hereby covenants and agrees that the Company will not, by amendment of its articles of incorporation, bylaws or through any
reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other
action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith
carry out all the provisions of this Warrant and take all action as may be reasonably required to protect the rights of the Holder.
9. Governing
Law. This Warrant shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflict
of law principles, and notwithstanding the fact that one or more counterparts hereof may be executed outside of the state, or one or more
of the obligations of the parties hereunder are to be performed outside of the state.
10. Loss,
Theft, Destruction or Mutilation of Warrant. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft, or destruction, of indemnity reasonably satisfactory to it,
and, if mutilated, upon surrender and cancellation of this Warrant, the Company will execute and deliver a new Warrant, having terms and
conditions identical to this Warrant, in lieu hereof.
11. Modification
and Waiver of Warrants. Any term of this Warrant may be amended, waived, discharged or terminated (either generally or in a particular
instance and either retroactively or prospectively) with the written consent of the Company and the holders of the Warrants representing
at least 51% of the number of shares of Common Stock then subject to outstanding Warrants issued pursuant to the Purchase Agreement. Notwithstanding
the foregoing, (a) this Warrant may be amended and the observance of any term hereunder may be waived without the written consent of the
Holder only in a manner which applies to all Warrants issued pursuant to the Purchase Agreement in the same fashion and (b) other than
in connection with a transaction contemplated by Section 3 of this Warrant, the number of Warrant Shares subject to this Warrant
and the Exercise Price of this Warrant may not be amended, and the right to exercise this Warrant may not be waived, without the written
consent of the Holder. The Company shall give prompt written notice to the Holder of any amendment hereof or waiver hereunder that was
effected without the Holder’s written consent. No waivers of any term, condition or provision of this Warrant, in any one or more
instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision.
12. Successors.
This Warrant shall be binding and inure to the benefit of the parties and their respective successors and assigns hereunder; provided
that this Warrant may be assigned by Holder only in compliance with the conditions specified in and in accordance with all of the terms
of this Warrant. This Warrant does not create and shall not be construed as creating any rights enforceable by any other person or corporation.
13. Headings.
The headings used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this
Warrant.
14. Saturdays,
Sundays, Holidays. If the last or appointed day for the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday in the State of New York, then such action may be taken or such
right may be exercised on the next succeeding day not a legal holiday.
15. Severability.
If any provision of this Warrant shall be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any
other provisions of this Warrant.
16. Acceptance.
Receipt of this Warrant by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein.
Signature page to Common Stock Purchase Warrant
follows.
IN WITNESS WHEREOF, the Company has caused
this Warrant to be executed and delivered as of the Issue Date by an officer thereunto duly authorized.
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AULT ALLIANCE, INC.
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Name: William B. Horne
Title: Chief Executive Officer |
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ATTACHMENT I
NOTICE OF EXERCISE
Attention: Chief Financial Officer
The undersigned hereby elects
to purchase, pursuant to the provisions of the Common Stock Warrant issued by Ault Alliance, Inc. as of October 13, 2023, and held by
the undersigned, the original of which is attached hereto, and tenders herewith payment of the Exercise Price in the form of cash, via
wire transfer of immediately available funds, in the amount of $____________ for _________ shares of Common Stock, or if permitted, by
the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in Section 2(b), to exercise
this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in
Section 2(b).
| ¨ | If this box is checked, as long as the Company’s transfer agent participates in the DTC Fast Automated
Securities Transfer program (“FAST”), and except as otherwise provided in the next following sentence, the Company
shall effect delivery of the shares of Common Stock to the Holder by crediting to the account of the Holder or its nominee at DTC (as
specified in this Exercise Notice) with the number of shares of Common Stock required to be delivered. In the event that the Company’s
transfer agent is not a participant in FAST, or if the shares of Common Stock are not otherwise eligible for delivery through FAST, the
Company shall effect delivery of the shares of Common Stock by delivering to Holder or its nominee physical certificates representing
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Information for Delivery of uncertificated Shares by DWAC:
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¨ If
this box is checked, the Holder requests delivery of physical certificates representing the Warrant Shares and requests that such certificates
be delivered to the following address:
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Tax I.D. No. or Social Security No.: |
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If such number of shares shall
not be all the shares purchasable upon the exercise of the Warrants evidenced by this Warrant, a new warrant certificate for the balance
of such Warrants remaining unexercised shall be registered in the name of and delivered to:
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Tax I.D. No. or Social Security No.: |
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HOLDER: |
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ATTACHMENT II
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such
holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED, the undersigned Holder of this
Warrant hereby sells, assigns and transfers the foregoing Warrant and all rights evidenced thereby to
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(Please Print) |
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Address: |
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(Please Print) |
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Tax ID No.: |
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and does hereby irrevocably constitute and appoint
______________________, Attorney, to transfer the within Warrant Certificate on the books of Ault Alliance, Inc., with full power of substitution.
NOTE: The signature to this Assignment Form must
correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatever. Officers
of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the
foregoing Warrant.
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(Signature) |
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STATE OF ___________)
COUNTY OF _________) ss:
On this __ day of ___________,
before me personally came ________, to me known, who being by me duly sworn, did depose and say that he resides at __________________,
that he is the holder of the foregoing instrument and that he executed such instrument and duly acknowledged to me that he executed the
same.
Exhibit 10.1
NOTE PURCHASE AGREEMENT
This Securities Purchase Agreement
(this “Agreement”) is dated as of October 13, 2023 (the “Effective Date”), between Ault Alliance,
Inc., a Delaware corporation (the “Company”), and Ault & Company, Inc., a Delaware corporation (the “Purchaser”).
PREAMBLE
WHEREAS, subject to
the terms and conditions set forth in this Agreement and pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities
Act”), the Company desires to issue and sell to the Purchaser, and the Purchaser desires to purchase from the Company, securities
of the Company as more fully described in this Agreement (the “Transaction”).
WHEREAS, subject to
the terms and conditions set forth in this Agreement, the Transaction will be conducted in reliance upon Section 4(a)(2) of the Securities
Act.
NOW, THEREFORE, IN CONSIDERATION
of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the Company and the Purchaser agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions.
In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings
set forth in this Section 1.1:
“Acquiring
Person” shall have the meaning ascribed to such term in Section 4.21.
“Action”
shall have the meaning ascribed to such term in Section 3.1(m).
“Affiliate”
means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control
with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.
“BHCA”
shall have the meaning ascribed to such term in Section 3.1(oo).
“Board
of Directors” means the board of directors of the Company.
“Business
Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day
on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
“Closing”
shall have the meaning ascribed to such term in Section 2.1.
“Closing
Date” shall mean the Trading Day on which the Closing is held, and is the Trading Day on which all of the Transaction Documents
have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchaser’s obligations
to pay the Subscription Amount at such Closing and (ii) the Company’s obligations to deliver the Securities to be issued and sold
at such Closing, in each case, have been satisfied or waived.
“Commission” means
the United States Securities and Exchange Commission.
“Common
Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such
securities may hereafter be reclassified or changed.
“Common
Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire
at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is
at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
“Contingent
Obligation” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect
to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such
liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or
discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in
whole or in part) against loss with respect thereto.
“Conversion
Price” shall have the meaning ascribed to such term in the Note.
“Conversion
Shares” shall have the meaning ascribed to such term in the Note.
“Copyrights”
shall have the meaning ascribed to such term in Section 3.1(y).
“COVID-19”
means the disease known as coronavirus or COVID-19.
“COVID-19
Measures” means any quarantine, “shelter in place,” “stay at home,” workforce reduction, social distancing,
shut down, closure, sequester or any other Law, order, or directive by any Governmental Entity.
“Disclosure
Schedules” shall have the meaning ascribed to such term in Section 3.1.
“Disqualification
Event” shall have the meaning ascribed to such term in Section 3.1(t).
“Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Exchange
Approval” means approval of the issuance of Common Stock contemplated by this Agreement by the Principal Market, which approval
shall be obtained (i) in the case of the initial Conversion Shares in an amount of up to 7,155,216 shares of Common Stock (as limited
by the Exchange Cap)and (ii) in the case of the remaining Conversion Shares, no later than five (5) calendar days after the Company shall
have obtained Stockholder Approval to issue such Conversion Shares.
“Exchange
Cap” shall mean that number of shares of Common Stock or Common Stock Equivalents pursuant to this
Agreement and the other Transaction Documents to the extent that after giving effect thereto, the aggregate number of shares of Common
Stock that would be issued as well as permitted to vote pursuant to this Agreement and such Transaction Documents would not exceed 19.99%
of the Company’s outstanding shares of Common Stock as of the date hereof.
“Exempt
Issuance” means the issuance of (i) shares of Common Stock, restricted stock units or stock options (and Common Stock issued
upon exercise of such securities) to employees, officers, consultants, advisors or directors of the Company in consideration of services
to the Company pursuant to any stock or option plan duly adopted for such purpose by a majority of the members of the Board of Directors
or a majority of the members of a committee of directors established for such purpose, not to exceed fifteen percent (15%) of the shares
of Common Stock issued and outstanding on the Effective Date, (ii) the Securities issued hereunder and any Common Stock or other securities
issued upon the conversion, exercise, or exchange of any Securities issued hereunder and/or other securities exercisable or exchangeable
for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have
not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise, exchange or conversion
price of such securities; (iii) shares of Common Stock issued upon any anti-dilution adjustment to Common Stock and Common Stock Equivalents
held by current unaffiliated security holders as of the date of this Agreement; (iv) securities issued to any underwriter, placement agent
or other registered broker-dealer as reasonable commissions or fees in connection with any financing transactions; (v) securities issued
pursuant to any merger, acquisition, asset purchase or similar transaction approved by the Board of Directors or a duly authorized committee
thereof, provided that any such issuance shall only be to a Person or Persons (or to the equity holders of a Person or Persons)
which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business
of the Company, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital
or to an entity whose primary business is investing in securities; and (vi) securities issued pursuant to any purchase money equipment
loan, capital leasing arrangement or debt financing from a commercial bank or similar financial institution.
“FCPA”
means the Foreign Corrupt Practices Act of 1977, as amended.
“Federal
Reserve” shall have the meaning ascribed to such term in Section 3.1(oo).
“GAAP”
shall have the meaning ascribed to such term in Section 3.1(p).
“Governmental
Entity” means any nation, state, county, city, town, village, district, or other political jurisdiction of any nature, federal,
state, local, municipal, foreign, or other government, governmental or quasi-governmental authority of any nature (including any governmental
agency, branch, department, official, or entity and any court or other tribunal), multi-national organization or body; or body exercising,
or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any
nature or instrumentality of any of the foregoing, including any entity or enterprise owned or controlled by a government or a public
international organization or any of the foregoing
“Indebtedness”
shall have the meaning ascribed to such term in Section 3.1(q).
“Indemnitee”
shall have the meaning ascribed to such term in Section 3.1(g).
“Indemnified
Liabilities” shall have the meaning ascribed to such term in Section 3.1(g).
“Intellectual
Property Rights” shall have the meaning ascribed to such term in Section 3.1(y).
“Issuable
Shares” means the Conversion Shares and the Warrant Shares.
“Issuer
Covered Person” shall have the meaning ascribed to such term in Section 3.1(t).
“Knowledge”
means, with respect to any Person, (x) such Person is actually aware of such fact or matter or (y) such Person should reasonably have
been expected to discover or otherwise become aware of such fact or matter after reasonable investigation, and for purposes hereof it
shall be assumed that such Person has conducted a reasonable investigation of the accuracy of the representations and warranties set forth
herein.
“Law”
means any federal, state, local, municipal, foreign, multi-national or other law, common law, statute, constitutions, ordinances, rules,
regulations, codes, Orders, or legally enforceable requirements enacted, issued, adopted, promulgated, enforced, ordered, or applied by
any Governmental Entity
“Legend
Removal Date” shall have the meaning ascribed to such term in Section 4.1(c).
“Liens”
means any security or other property interest or right, claim, lien, pledge, option, charge, security interest, contingent or conditional
sale, or other title claim or retention agreement, interest or other right or claim of third parties, whether perfected or not perfected,
voluntarily incurred or arising by operation of law, and including any agreement (other than this Agreement) to grant or submit to any
of the foregoing in the future.
“Listing
Default” shall have the meaning ascribed to such term in Section 4.13.
“Marks”
shall have the meaning ascribed to such term in Section 3.1(y).
“Material
Adverse Effect” shall have the meaning assigned to such term in Section 3.1(n).
“Material
Agreement” means any material loan agreement, financing agreement, equity investment agreement or securities instrument to which
Company is a party, any agreement or instrument to which Company and Purchaser or any Affiliate of Purchaser is a party, and any other
material agreement listed, or required to be listed, on any of Company’s reports filed or required to be filed with the SEC, including
without limitation Forms 10-K, 10-Q and 8-K.
“Material
Permits” shall have the meaning ascribed to such term in Section 3.1(w).
“Maximum
Rate” shall have the meaning ascribed to such term in Section 6.13.
“Note”
means the 10% Senior Secured Convertible Promissory Note due, subject to the terms therein, five (5) years from its date of issuance,
issued by the Company to the Purchaser hereunder, in the form of Exhibit A attached hereto.
“Money
Laundering Laws” shall have the meaning ascribed to such term in Section 3.1(bb).
“OFAC”
shall have the meaning ascribed to such term in Section 3.1(aa).
“Officer’s
Certificate” has the meaning set forth in the Section 2.3(b)(i) hereof.
“Order”
means any order, writ, assessment, decision, injunction, decree, ruling, or judgment of a Governmental Entity or arbitrator, whether temporary,
preliminary, or permanent.
“Patents”
shall have the meaning ascribed to such term in Section 3.1(y).
“Permitted
Liens” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental
charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and
by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established
in accordance with GAAP; (b) Liens imposed by law which were incurred in the ordinary course of the Company’s business, such as
carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in
the ordinary course of the Company’s business, and which (x) do not individually or in the aggregate materially detract from the
value of such property or assets or materially impair the use thereof in the operation of the business of the Company and its consolidated
Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for
the foreseeable future the forfeiture or sale of the property or asset subject to such Lien; (c) pledges and deposits made in the ordinary
course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations;
and (d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance
bonds and other obligations of a like nature that are not past due, in each case in the ordinary course of business, but excluding any
contract for the payment of money.
“Person”
means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company,
joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Principal
Market” shall mean the NYSE American, LLC.
“Principal
Market Rules” means the rules and regulations of the Principal Market.
“Proceeding”
means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding,
such as a deposition), whether commenced or threatened.
“Proxy
Failure” shall have the meaning ascribed to such term in Section 4.2(b).
“Proxy
Information Failure Payments” shall have the meaning ascribed to such term in Section 4.2(b).
“Removal
Date” means the date that all of the issued Issuable Shares have been sold pursuant to Rule 144 or may be sold pursuant to Rule
144 without the requirement for the Company to be in compliance with the current public information requirements under Rule 144 and without
volume or manner-of-sale restrictions.
“Required
Approvals” shall have the meaning ascribed to such term in Section 3.1(e).
“Required
Minimum” means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable in
the future pursuant to the conversion of the Note or exercise of the Warrants, ignoring any conversion or exercise limits set forth therein,
and assuming that the Conversion Price and Exercise Price is at all times on and after the date of determination 200% of the then Conversion
Price on the Trading Day immediately prior to the date of determination.
“Rights
in Mask Works” shall have the meaning ascribed to such term in Section 3.1(y).
“Rule 144”
means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time,
or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
“Rule 424”
means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended or interpreted from time to time,
or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such rule.
“SBA”
means the United States Small Business Administration.
“SEC Reports”
shall have the meaning ascribed to such term in Section 3.1(p).
“Securities”
means the Note, the Conversion Shares, the Warrant and the Warrant Shares.
“Securities
Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Security
Agreement” means the Security Agreement, dated the date hereof, among the Company and the Purchaser, in the form of Exhibit
B attached hereto.
“Security
Documents” shall mean the Security Agreement, the Subordination Agreement and any other documents and filing required thereunder
in order to grant the Purchaser a security interest in the assets of the Company and the Subsidiaries as provided in the Security Agreement,
including all UCC-1 filing receipts.
“Stockholder
Approval” means such approval as may be required by the applicable rules and regulations of the Principal Market Rules (or the
applicable rules and regulations of any successor entity) from the stockholders of the Company with respect to the transactions contemplated
by this Agreement and the other Transaction Documents, including the issuance of all of the Issuable Shares in excess of 19.99% of the
issued and outstanding Common Stock on the Closing Date.
“Short
Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be
deemed to include the location and/or reservation of borrowable shares of Common Stock).
“Subordination
Agreement” shall mean the Subordination Agreement, dated as of the date hereof, by and among the Company, the Secured Party
(as defined therein), the Purchaser and the other signatories thereto, in the form attached hereto as Exhibit C.
“Subscription
Amount” means $17,519,832, which will be comprised of the following: (i) cancellation of $4,625,000 of cash loaned by the Purchaser
to the Company since June 8, 2023 pursuant to a short-term loan agreement (the “Loan Agreement”); (ii) cancellation
of $11,644,832 of term loans made by the Company to the Purchaser in exchange for the Purchaser assuming liability for the payment of
$11,644,832 of secured notes (the “Secured Notes”); and (iii) the retirement of $1,250,000 stated value of 125,000
shares of the Company’s Series B Convertible Preferred Stock (representing all shares issued and outstanding of that series) being
transferred from the Purchaser to the Company.
“Subsidiary”
means any subsidiary of the Company as set forth on Schedule 3.1(a) and shall, where applicable and with regard to future events,
also include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.
“Termination
Date” shall have the meaning ascribed to such term in Section 2.1.
“Trade
Secrets” shall have the meaning ascribed to such term in Section 3.1(y).
“Trading
Day” means a day on which the Principal Market is open for trading; provided, that in the event that the Common Stock is not
listed or quoted for trading on a Trading Market on the date in question, then Trading Day shall mean a Business Day.
“Trading
Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date
in question: the NYSE American, the NASDAQ Capital Market, the NASDAQ Global Market, the NASDAQ Global Select Market, the New York Stock
Exchange, OTCQB, OTCQX, or the OTC Pink (or any successors to any of the foregoing). Notwithstanding the foregoing, term “Trading
Market” shall only include the OTC Pink for any interim period of time required upon the Company’s delisting from any other
Trading Market provided that the Company shall be required to list its Common Stock for trading or quotation on another Trading Market
(excluding the OTC Pink) promptly upon such delisting and the failure to do so shall constitute a default under the terms of this Agreement
and the other Transaction Documents.
“Transaction”
shall have the meaning ascribed to such term in the Preamble.
“Transaction
Documents” means this Agreement, the Note, the Warrant, the Security Agreement, the Subordination Agreement and all exhibits
and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.
“Transfer
Agent” means Computershare, N.A., and any successor transfer agent of the Company or, if the Company has not appointed a Transfer
Agent, the Company.
“Transfer
Agent Instruction Letter” means the letter from the Company to the Transfer Agent which instructs the Transfer Agent to reserve
the Issuable Shares pursuant to the Transaction Documents in the form attached hereto as Exhibit E.
“VWAP”
means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30
a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if the Common Stock is not then listed or quoted for trading on
a Trading Market and if prices for the Common Stock are then reported on the OTC Pink Marketplace maintained by OTC Markets Group Inc.
(or a similar organization or agency succeeding to its functions of reporting prices), the most recent closing price per share of the
Common Stock so reported, or (c) in all other cases, the fair market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Purchaser of a majority in interest of the Securities then outstanding and reasonably acceptable
to the Company, the fees and expenses of which shall be paid by the Company.
“Warrant”
means the Warrant in the form attached hereto as Exhibit D.
“Warrant
Shares” means the shares of Common Stock issued or issuable upon exercise of the Warrant.
ARTICLE II
PURCHASE AND SALE
2.1 Closing.
On the Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution and delivery
of this Agreement by the parties hereto, the Company agrees to sell, and the Purchaser agrees to purchase, the Securities for the
Subscription Amount (such purchase and sale being the “Closing”). Contemporaneously with or promptly following the
Closing, the Purchaser shall deliver to the Company the Purchaser’s Subscription Amount as set forth on the signature page hereto
executed by the Purchaser and the Company shall, on the Closing Date, deliver to the Purchaser a certificate representing the Note and
the Warrant purchased by the Purchaser at the Closing as determined pursuant to Section 2.2(a). The Company and the Purchaser shall also
deliver the other items set forth in Section 2.2 deliverable at the Closing. Upon satisfaction of the covenants and conditions set forth
in Sections 2.2 and 2.3 and receipt of the Subscription Amount by the Company, the Closing shall occur at the principal offices of the
Company or such other location as the parties shall mutually agree. Notwithstanding anything herein to the contrary, the Closing Date
shall occur on or before October 20, 2023, provided, however, that the Purchaser may extend such Closing Date up to two times, by up to
30 days each extension, by notice to the Company (such outside date, “Termination Date”). If the Closing is not held
on or before the Termination Date, the Company shall cause the Subscription Amount to be returned, without interest thereon or deduction
therefrom to the Purchaser.
2.2 Deliveries.
(a) On
or prior to the Closing Date, the Company shall deliver or cause to be delivered to the Purchaser the following:
(i) this
Agreement duly executed by the Company;
(ii) the
Note in the principal amount of $17,519,832.00
(iii) the
Security Agreement;
(iv) the
Subordination Agreement;
(v) the
Warrant;
(vi) the
Transfer Agent Instruction Letter;
(vii) an
Officer’s Certificate (as hereinafter defined), executed by an officer of the Company;
(viii) all
documents, instruments and other writings required to be delivered by the Company to the Purchaser on or before the applicable Closing
Date pursuant to any provision of this Agreement or in order to implement and effect the transactions contemplated hereby.
The purchase of
the Note will be completed in a single tranche as provided herein.
(b) On
or prior to the Closing Date, the Purchaser shall deliver or cause to be delivered to the Company the following:
(i) this
Agreement duly executed by the Purchaser; and
(ii) the
Subscription Amount, consisting of (A) the evidence of the cancellation of the amount owed under the Loan Agreement as of the date of
this Agreement, (B) the surrender for cancellation of the Secured Notes, and (C) the surrender for elimination of the Certificate of Designations
of the Series B Convertible Preferred Stock.
2.3 Closing
Conditions.
(a) The
obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:
(i) the
accuracy in all material respects on the Closing Date of the representations and warranties of the Purchaser contained herein (unless
as of a specific date therein in which case they shall be accurate as of such date);
(ii) all
obligations, covenants and agreements of the Purchaser under this Agreement required to be performed at or prior to the Closing Date shall
have been performed in all material respects;
(iii) the
delivery by the Purchaser of the items set forth in Section 2.2(b) of this Agreement; and
(iv) the
Company shall have received the executed signature page to this Agreement from the Purchaser and the Company shall have received payment
representing the Subscription Amount from the Purchaser.
(b) The
obligations of the Purchaser hereunder in connection with the Closing are subject to the following conditions being met:
(i) each
and every representation and warranty of the Company shall be true and correct in all material respects as of the date when made and as
of the applicable Closing Date as though originally made at that time (except for representations and warranties that speak as of a specific
date, which shall be true and correct as of such date) and the Company shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required to be performed, satisfied or complied with by the Company at or prior to the applicable
Closing Date, including, without limitation the issuance of all Securities on the Closing Date as required by the Transaction Documents
and the Company has a sufficient number of duly authorized shares of Common Stock reserved for issuance as may be required to fulfill
its obligations pursuant to the Transaction Documents and the Purchaser shall have received a certificate, executed by the Chief Executive
Officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested
by the Purchaser in the form acceptable to Purchaser (the “Officer’s Certificate”);
(ii) the
delivery by the Company of the items set forth in Section 2.2(a) of this Agreement;
(iii) All
necessary actions to be taken by the Company in connection with the Transaction and all documents incident thereto shall be satisfactory
in form and substance to the Purchaser, and the Purchaser shall have received all such counterpart originals or certified or other copies
of such documents as it or they may request;
(iv) there
is no breach of any obligations, covenants and agreements under the Transaction Documents and no existing event which, with the passage
of time or the giving of notice, would constitute a breach under the Transaction Documents;
(v) there
shall have been no Material Adverse Effect with respect to the Company since the date hereof;
(v) All
consents, authorizations, orders and approvals of, and filings and registrations with, any Governmental Authority which are required for
or in connection with the execution and delivery of this Agreement and the consummation by each Party hereto of the Transactions shall
have been obtained or made;
(vii) from
the date hereof to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited,
or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor
shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred
any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or
any material adverse change in, any financial market which, in each case, in the reasonable judgment of the Purchaser, makes it impracticable
or inadvisable to purchase the Securities at the Closing; and
(viii) the
Company shall have received the executed signature page to this Agreement from the Purchaser and the Company shall have received payment
representing the Subscription Amount from the Purchaser.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations
and Warranties of the Company. Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part
hereof and shall qualify any representation or warranty made herein only to the extent of the disclosure contained in the corresponding
section of the Disclosure Schedules, the Company hereby represents and warrants to the Purchaser that the following representations and
warranties are true and correct as of the date of this Agreement and the Closing Date:
(a) Organization
and Qualification. The Company and each of the direct and indirect subsidiaries of the Company listed on Schedule 3.1(a) (the
“Subsidiaries”) is an entity duly organized, validly existing and in good standing
under the laws of its state of incorporation or formation. The Company and each of its Subsidiaries is duly qualified to do business,
and is in good standing in the states required due to (i) the ownership or lease of real or personal property for use in the operation
of the Company’s business or (ii) the nature of the business conducted by the Company, except where the failure to so qualify would
not, individually or in the aggregate, have a Material Adverse Effect. The Company and each of its Subsidiaries has all requisite power,
right and authority to own, operate and lease its properties and assets, to carry on its business as now conducted, to execute, deliver
and perform its obligations under this Agreement and the other Transaction Documents to which it is a party, and to carry out the transactions
contemplated hereby and thereby, subject to the Required Approvals. All actions on the part of the Company and its officers and directors
necessary for the authorization, execution, delivery and performance of this Agreement and the other Transaction Documents, the consummation
of the transactions contemplated hereby and thereby, and the performance of all of the Company’s obligations under this Agreement
and the other Transaction Documents have been taken or will be taken prior to the Closing. This Agreement has been, and the other Transaction
Documents to which the Company is a party on the Closing will be, duly executed and delivered by the Company, and this Agreement is, and
each of the other Transaction Documents to which it is a party on the Closing will be, a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as may be limited by bankruptcy, reorganization, insolvency, moratorium
and similar laws of general application relating to or affecting the enforcement of rights of creditors, and except as enforceability
of the obligations hereunder are subject to general principles of equity (regardless of whether such enforceability is considered in a
proceeding in equity or law). All of the Subsidiaries and the Company’s ownership interests therein are set forth on Schedule
3.1(a). The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear
of any Liens except Permitted Liens, and subject to the Required Approvals, and all of the issued and outstanding shares of capital stock
of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or
purchase securities.
(b) Issuance
of Securities. The issuance of each of the Note, Warrant, Conversion Shares and Warrant Shares have been duly authorized and, upon
issuance in accordance with the terms of this Agreement, the Note and the Warrant, as applicable, will be validly issued, fully paid and
non-assessable and free and clear of all liens, Encumbrances and rights of refusal of any kind and, if applicable at the time, subject
to the Required Approvals. The issuance of the Warrant is duly authorized by the Company and, when executed and delivered by the Company,
will be a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as the enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights
and remedies of creditors or by general equitable principles.
(c) Authorization;
Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated
by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder, subject
to the Required Approvals. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and
the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part
of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection
herewith or therewith other than in connection with the Required Approvals, a Form 8-K and the applicable stockholder approval and notification
regarding the listing of additional shares. This Agreement and each other Transaction Documents to which it is a party has been (or upon
delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute
the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except: (i) as limited by
general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally; (ii) as limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies; and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
(d) No
Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which it
is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby and thereby do
not and will not, except as set forth on Schedule 3.1(d): (i) conflict with or violate any provision of the Company’s or
any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents; (ii) conflict with,
or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of
any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or affected; or (iii) subject to the Required Approvals, conflict
with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any
property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could
not have or reasonably be expected to result in a Material Adverse Effect.
(e) Filings,
Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to,
or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection
with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required pursuant
to Sections 4.2, 4.7 and 4.20 of this Agreement; (ii) the notice and/or application(s) to the Principal Market, and the receipt of Stockholder
Approval required for the conversion of the Note and the listing of the Issuable Shares for trading thereon in the time and manner required
thereby; and (iii) the filing of Form D with the Commission and such filings as are required to be made under applicable state securities
laws (collectively, the “Required Approvals”).
(f) No
Financial Advisor. The Company acknowledges and agrees that the Purchaser is acting solely in the capacity of an arm’s length
purchaser with respect to the Securities and the transactions contemplated hereby. The Company further acknowledges that Purchaser is
not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any advice given by the Purchaser or any of its representatives or agents in connection with this Agreement and
the transactions contemplated hereby is merely incidental to the Purchaser’s purchase of the Securities. The Company further represents
to the Purchaser that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation of
the transactions contemplated hereby by the Company and its representatives.
(g) Seniority.
Other than as set forth on Schedule 3.1(g), as of the Closing Date, no Indebtedness or other claim against the Company is senior
to the Note in right of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise, other than indebtedness
secured by purchase money security interests (which is senior only as to underlying assets covered thereby) and capital lease obligations
(which is senior only as to the property covered thereby).
(h) Capitalization
and Additional Issuances. The capitalization of the Company is as set forth in Schedule 3.1(h). Except as disclosed on
Schedule 3.1(h), no Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate
in the transactions contemplated by the Transaction Documents. Except as disclosed on Schedule 3.1(h), there are no outstanding
options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire any shares
of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound
to issue additional shares of Common Stock or Common Stock Equivalents. Except as set forth on Schedule 3.1(h), the issuance and
sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the
Purchaser) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price
under any of such securities. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully
paid and nonassessable, have been issued in material compliance with all federal and state securities laws, and none of such outstanding
shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval
or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are
no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the
Company is a party or, to the Knowledge of the Company, between or among any of the Company’s stockholders.
(i) Private
Placements. Assuming the accuracy of the Purchaser’s representations and warranties set forth in Section 3.2, no registration
under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchaser as contemplated hereby.
(j) Investment
Company. The Company is not, and is not an affiliate of, and immediately after receipt of payment for the Note will neither be nor
be an affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company
shall conduct its business in a manner so that it will not become subject to the Investment Company Act.
(k) Listing
and Maintenance Requirements; Principal Market Regulation.
(i) The
Common Stock is registered pursuant to Section 12(b) of the Exchange Act, and the Company has taken no action designed to, or which to
its Knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company
received any notification that the Commission is contemplating terminating such registration. Except as disclosed in the SEC Reports,
the Company has not, in the twelve (12) months preceding the date hereof, received notice from any Principal Market on which the Common
Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements
of such Principal Market. Except as disclosed on Schedule 3.1(k), the Company is, and has no reason to believe that it will not
in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements.
(ii) The
Company shall not issue or sell any shares of Common Stock or Common Stock Equivalents pursuant to this Agreement and the other Transaction
Documents to the extent that after giving effect thereto, the aggregate number of shares of Common Stock that would be issued pursuant
to this Agreement and such Transaction Documents would exceed the Exchange Cap, unless and until the Company obtains Stockholder Approval
of the transactions contemplated by this Agreement and such Transaction Documents and the stockholders of the Company as well as, subsequently,
the Principal Market have in fact approved the transactions contemplated by this Agreement and such Transaction Documents in accordance
with the applicable rules and regulations of the applicable Principal Market, and the Certificate of Incorporation and bylaws of the Company.
The Company agrees to submit the application to the Principal Market to obtain Exchange Approval within three (3) days of the Closing
Date. The Company shall file a preliminary proxy statement on Schedule 14A (the “PRE 14A”) with the Commission no later
than thirty (30) days following the Closing Date for a special meeting of its stockholders (or its annual meeting of its stockholders)
in order to obtain all necessary approvals of the sale and issuance of the remaining Conversion Shares not subject to the Exchange Cap
and the Warrant Shares consistent with the rules and regulations of the Principal Market, including but not limited to Section 713 of
the NYSE American LLC Company Guide. In addition, the PRE 14A shall include the unanimous recommendation of the Board of Directors that
such proposal be approved, and the Company shall solicit proxies from its stockholders in connection therewith in the same manner as all
other management proposals in such proxy statement and all management-appointed proxyholders shall vote their proxies in favor of such
proposal including, if requested by the Purchaser, the retention and utilization of a nationally known proxy solicitation firm. The Company
shall use its reasonable best efforts to: (i) promptly clear any comments received by the Commission on the PRE 14A and thereafter file
a definitive proxy statement on Schedule 14A related to the meeting of its stockholders, and (ii) obtain such Stockholder Approval. If
the Company does not obtain Stockholder Approval at the first such meeting, and in any event within 75 days of the Closing Date, the Company
shall call a meeting every two (2) months thereafter to seek Stockholder Approval until the earlier of the date on which Stockholder Approval
is obtained or the Securities are no longer outstanding. In the event that the Company has not been able to clear comments with the Commission
on the PRE 14A within 60 days of the Closing Date, unless waived by the Purchaser (a “Proxy Failure”), the Company
will provide prompt written notification to the Purchaser regarding the status of the comments with the Commission and the parties will,
in good faith, attempt to achieve a mutually satisfactory plan to address such comments, and the Company shall make Proxy Failure Payments
until it has cleared such comments. In the event of a Proxy Failure, in addition to the Purchaser’s other available remedies, the
Company shall pay to the Purchaser, in cash, as partial liquidated damages and not as a penalty, by reason of any such delay, an amount
in cash equal to one percent (1.0%) of the Subscription Amount of the Purchaser’s Securities held by the Purchaser on the day of
a Proxy Failure and on every thirtieth (30th) day (pro-rated for periods totaling less than thirty (30) days) thereafter until
the date such Proxy Failure is cured by the clearing Commission comments. The payments to which the Purchaser shall be entitled pursuant
to this Section 3.1(k)(ii) are referred to herein as “Proxy Failure Payments.” Proxy Failure Payments shall be paid
on the earlier of (i) the last day of the calendar month during which such Proxy Failure Payments are incurred and (ii) the third (3rd)
Business Day after the event or failure giving rise to the Proxy Failure Payments is cured. In the event the Company fails to make Proxy
Failure Payments in a timely manner, such Proxy Failure Payments shall bear interest at the rate of 1.5% per month (pro-rated for partial
months) until paid in full.
(l) Shell
Company Status. The Company is not and has not been a “shell company,” as such term is defined in Rule 144 under the Securities
Act, since January 1, 2021.
(m) Litigation.
There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the Knowledge of the Company, threatened
against or affecting the Company, any Subsidiary or any of their respective properties except as set forth in Schedule 3.1(m),
or against or affecting the Company’s current or former officers or directors in their capacity as such, before or by any court,
arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an
“Action”) which (i) adversely affects or challenges the legality, validity or enforceability
of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected
to result in a Material Adverse Effect, and neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been
the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of
fiduciary duty. There has not been, and to the Knowledge of the Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer of the Company that is likely to lead to action that can
reasonably be expected to result in a Material Adverse Effect. There has not been, and to the Knowledge of the Company, there is not pending
or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company.
The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company
or any Subsidiary under the Exchange Act or the Securities Act.
(n) Employee
Relations. Neither the Company nor any of its Subsidiaries is a party to any collective bargaining agreement or employs any member
of a union. The Company believes that its and its Subsidiaries’ relations with their respective employees are good.
The Company and its Subsidiaries are in compliance with all federal, state, local and foreign laws and regulations respecting labor, employment
and employment practices and benefits, terms and conditions of employment and wages and hours, except as disclosed in Schedule 3.1(n)
or where failure to be in compliance would not, either individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect. “Material Adverse Effect” means any material adverse effect on (i)
the business, properties, assets, liabilities, operations (including results thereof), condition (financial or otherwise) or prospects
of the Company or any Subsidiary, taken as a whole, (ii) the transactions contemplated hereby or in any of the other Transaction Documents
or (iii) the authority or ability of the Company or any of its Subsidiaries to perform any of their respective obligations under any of
the Transaction Documents.
(o) Tax
Status. The Company and each of its Subsidiaries (i) has timely made or filed all foreign, federal and state income and all other
tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has timely paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those
being contested in good faith and (iii) has set aside on its books provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount
claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company and its Subsidiaries know of no basis for
any such claim. The Company is not operated in such a manner as to qualify as a passive foreign investment company, as defined in
Section 1297 of the U.S. Internal Revenue Code of 1986, as amended.
(p) SEC
Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required to be
filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the
two (2) years preceding the date hereof (the foregoing materials, including the exhibits thereto and documents incorporated by reference
therein, being collectively referred to herein as the “SEC Reports”).
Except as disclosed on Schedule 3.1(p), as of their respective dates, the SEC Reports complied in all material respects with the
requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not misleading. The financial statements of the Company included
in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission
with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”),
except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements
may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and
its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.
(q) Indebtedness
and Other Contracts. Except as set forth on Schedule 3.1(q), neither the Company nor any of its Subsidiaries (i) has any outstanding
Indebtedness (as defined below), (ii) is a party to any contract, agreement or instrument, the violation of which, or default under which,
by the other party(ies) to such contract, agreement or instrument could reasonably be expected to result in a Material Adverse Effect,
(iii) is in violation of any term of, or in default under, any contract, agreement or instrument relating to any Indebtedness, except
where such violations and defaults would not result, individually or in the aggregate, in a Material Adverse Effect, or (iv) is a party
to any contract, agreement or instrument relating to any Indebtedness, the performance of which, in the judgment of the Company’s
officers, has or is expected to have a Material Adverse Effect. For purposes of this Agreement: (x) “Indebtedness”
of any Person means, without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed as
the deferred purchase price of property or services (including, without limitation, “capital leases” in accordance with generally
accepted accounting principles) (other than trade payables entered into in the ordinary course of business), (C) all reimbursement or
payment obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property,
assets or businesses, (E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred
as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights
and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property),
(F) all monetary obligations under any leasing or similar arrangement which, in connection with generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness referred to in clauses (A)
through (F) above secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured
by) any mortgage, claim, lien, tax, right of first refusal, pledge, charge, security interest or other encumbrance upon or in any property
or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has
not assumed or become liable for the payment of such indebtedness, and (H) all Contingent Obligations in respect of indebtedness or obligations
of others of the kinds referred to in clauses (A) through (G) above.
(r) No
Undisclosed Events, Liabilities, Developments or Circumstances. Since January 1, 2021, except as set forth in the SEC Reports: (i)
there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect,
(ii) the Company has not incurred any material liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s
financial statements pursuant to GAAP or disclosed in the SEC Reports, (iii) the Company has not altered its method of accounting, (iv) the
Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or
made any agreements to purchase or redeem any shares of its capital stock and (v) except as set forth on Schedule 3.1(r), the Company
has not issued any equity securities to any officer, director or Affiliate. The Company does not have pending before the Commission any
request for confidential treatment of information. Except for the issuance of the Securities contemplated by this Agreement or as set
forth on Schedule 3.1(r), no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably
expected to occur or exist with respect to the Company or its Subsidiaries or their respective businesses, properties, operations, assets
or financial condition, that would be required to be disclosed by the Company under applicable securities laws at the time this representation
is made or deemed made that has not been publicly disclosed at least two Trading Days prior to the date that this representation is made.
(s) No
Additional Agreements. Neither the Company nor any of its Subsidiaries has any agreement or understanding with the Purchaser with
respect to the transactions contemplated by the Transaction Documents other than pursuant to documents substantially identical to the
Transaction Documents.
(t) No
Disqualification Events. None of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other
officer of the Company participating in the Transaction contemplated hereby, any beneficial owner of 20% or more of the Company’s
outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under
the Securities Act) connected with the Company in any capacity at the time of sale (each, an “Issuer Covered Person”)
is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a
“Disqualification Event”), except for a Disqualification Event covered by Rule 506(d)(2)
or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event.
(u) General
Solicitation. None of the Company, any of its Affiliates or any person acting on behalf of the Company or such Affiliate will solicit
any offer to buy or offer or sell the Securities by means of any form of general solicitation or general advertising within the meaning
of Regulation D, including: (i) any advertisement, article, notice or other communication published in any newspaper, magazine or
similar medium or broadcast over television or radio; and (ii) any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
(v) Compliance.
Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived
that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or
any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement
or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default
or violation has been waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator or other governmental authority
or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation
all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality
and safety and employment and labor matters, except in each case as could not have or reasonably be expected to result in a Material Adverse
Effect.
(w) Regulatory
Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except
where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material
Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating
to the revocation or modification of any Material Permit.
(x) Title
to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property (if any) owned by them
and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries,
in each case free and clear of all Liens, except as set forth on Schedule 3.1(x) and except for (i) Liens as do not materially
affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company
and the Subsidiaries and (ii) Liens for the payment of federal, state or other taxes, for which appropriate reserves have been made in
accordance with GAAP and the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under
lease by the Company and the Subsidiaries is held by them under valid, subsisting and enforceable leases with which the Company and the
Subsidiaries are in compliance, or where the failure of a lease to be enforceable would not result in a Material Adverse Effect.
(y) Intellectual
Property.
(i) The
term “Intellectual Property Rights” includes:
(A) the
name of the Company and each Subsidiary, all fictional business names, trading names, registered and unregistered trademarks, service
marks, and applications of the Company and each Subsidiary (collectively, “Marks”);
(B) all
patents, patent applications, and inventions and discoveries that may be patentable of the Company and each Subsidiary (collectively,
“Patents”);
(C) all
copyrights in both unpublished works and published works of the Company and each Subsidiary (collectively, “Copyrights”);
(D) all
rights in mask works of the Company and each Subsidiary (collectively, “Rights in Mask Works”); and
(E) all
know-how, trade secrets, confidential information, customer lists, software, technical information, data, process technology, plans, drawings,
and blue prints (collectively, “Trade Secrets”); owned, used, or licensed by the Company and each Subsidiary as licensee
or licensor.
(ii) Agreements.
Except as set forth on Schedule 3.1(y), there are no outstanding and, to the Company’s Knowledge, no threatened disputes
or disagreements with respect to any agreements relating to any Intellectual Property Rights to which the Company is a party or by which
the Company is bound.
(iii) Know-How
Necessary for the Business. The Intellectual Property Rights are all those necessary for the operation of the Company’s businesses
as it is currently conducted. The Company is the owner of all right, title, and interest in and to each of the Intellectual Property Rights,
except as set forth on Schedule 3.1(y), free and clear of all liens, security interests, charges, encumbrances, equities, and other
adverse claims, and has the right to use all of the Intellectual Property Rights. To the Company’s Knowledge, no employee of the
Company has entered into any contract that restricts or limits in any way the scope or type of work in which the employee may be engaged
or requires the employee to transfer, assign, or disclose information concerning his work to anyone other than of the Company.
(iv) Patents.
The Company is the owner of all right, title and interest in and to each of the Patents, free and clear of all Liens and other adverse
claims. All of the issued Patents are currently in compliance with formal legal requirements (including payment of filing, examination,
and maintenance fees and proofs of working or use), are valid and enforceable, and are not subject to any maintenance fees or taxes or
actions falling due within ninety days after the Closing Date. No Patent has been or is now involved in any interference, reissue, reexamination,
or opposition proceeding. To the Company’s Knowledge except as set forth in Schedule 3.1(y): (1) there is no potentially
interfering patent or patent application of any third party, and (2) no Patent is infringed or has been challenged or threatened in any
way. To the Company’s Knowledge, none of the products manufactured and sold, nor any process or know-how used, by the Company infringes
or is alleged to infringe any patent or other proprietary right of any other Person.
(v) Trademarks.
The Company is the owner of all right, title, and interest in and to each of the Marks, free and clear of all Liens and other adverse
claims. All Marks that have been registered with the United States Patent and Trademark Office are currently in compliance with all formal
legal requirements (including the timely post-registration filing of affidavits of use and incontestability and renewal applications),
are valid and enforceable, and except as set forth on Schedule 3.1(y) are not subject to any maintenance fees or taxes or actions
falling due within ninety days after the Closing Date. Except as set forth in Schedule 3.1(y), no Mark has been or is now involved
in any opposition, invalidation, or cancellation and, to the Company’s Knowledge, no such action is threatened with respect to any
of the Marks. To the Company’s Knowledge: (1) there is no potentially interfering trademark or trademark application of any third
party, and (2) no Mark is infringed or has been challenged or threatened in any way. To the Company’s Knowledge, none of the Marks
used by the Company infringes or is alleged to infringe any trade name, trademark, or service mark of any third party.
(vi) Copyrights.
The Company is the owner of all right, title, and interest in and to each of the Copyrights, free and clear of all Liens and other adverse
claims. All the Copyrights have been registered and are currently in compliance with formal requirements, are valid and enforceable, and
are not subject to any maintenance fees or taxes or actions falling due within ninety days after the date of the Closing. To the Company’s
Knowledge, no Copyright is infringed or has been challenged or threatened in any way. To the Company’s Knowledge, none of the subject
matter of any of the Copyrights infringes or is alleged to infringe any copyright of any third party or is a derivative work based on
the work of a third party. All works encompassed by the Copyrights have been marked with the proper copyright notice.
(vii) Trade
Secrets. With respect to each Trade Secret, the documentation relating to such Trade Secret is current, accurate, and sufficient in
detail and content to identify and explain it and to allow its full and proper use without reliance on the Knowledge or memory of any
individual. The Company has taken all reasonable precautions to protect the secrecy, confidentiality, and value of its Trade Secrets.
The Company has good title and an absolute and exclusive right to use the Trade Secrets. The Trade Secrets are not part of the public
knowledge or literature, and, to the Company’s Knowledge, have not been used, divulged, or appropriated either for the benefit of
any Person (other the Company) or to the detriment of the Company, except as disclosed on Schedule 3.1(y). No Trade Secret is subject
to any adverse claim or has been challenged or threatened in any way.
(z) Stock
Option Plans. Each stock option granted by the Company under the stock option plan was granted (i) in accordance with the terms of
such stock option plan and (ii) with an exercise price at least equal to the fair market value of the Common Stock on the date such stock
option would be considered granted under GAAP and applicable law. No stock option granted under any stock option plan has been backdated.
The Company has not knowingly granted, and there is no and has been no Company policy or practice to knowingly grant, stock options prior
to, or otherwise knowingly coordinate the grant of stock options with, the release or other public announcement of material information
regarding the Company or its Subsidiaries or their financial results or prospects.
(aa) Office
of Foreign Assets Control. Neither the Company nor any Subsidiary nor, to the Company’s Knowledge, any director, officer, agent,
employee or affiliate of the Company is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of
the U.S. Treasury Department (“OFAC”).
(bb) Money
Laundering. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance in all material
respects with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of
1970, as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money
Laundering Laws”), and no action, suit or proceeding by or before any court or governmental agency,
authority or body or any arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to
the Knowledge of the Company or any Subsidiary, threatened.
(cc) Reserved.
(dd) Acknowledgment
Regarding Purchaser’s Purchase of Securities. The Company acknowledges and agrees that the Purchaser is acting solely in the
capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company
further represents to the Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents
has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.
(ee) No
Integrated Transaction. Assuming the accuracy of the Purchaser’s representations and warranties set forth in Section 3.2, neither
the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales
of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of: (i) the Securities Act which would require the registration of any such
securities under the Securities Act, or (ii) any applicable stockholder approval provisions of the Principal Market on which any of the
securities of the Company are listed or designated.
(ff) Application
of Takeover Protections. The Company and the Board of Directors will, no later than five (5) Business Days prior to the Closing Date,
have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s Certificate of
Incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchaser
as a result of the Purchaser and the Company fulfilling their obligations or exercising their rights under the Transaction Documents,
including without limitation as a result of the Company’s issuance of the Securities and the Purchaser’s ownership of the
Securities.
(gg) Registration
Rights. Except as set forth on Schedule 3.1(gg), no Person has any right to cause the Company or any Subsidiary to effect the
registration under the Securities Act of any securities of the Company or any Subsidiary.
(hh) Certain
Fees. Except as disclosed on Schedule 3.1(hh), no brokerage, finder’s fees, commissions or due diligence fees are or
will be payable by the Company or any Subsidiary to any broker, financial advisor or consultant, finder, placement agent, investment banker,
bank or other Person with respect to the transactions contemplated by the Transaction Documents. The Purchaser shall have no obligation
with respect to any such fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this
Section 3.1(hh) that may be due in connection with the transactions contemplated by the Transaction Documents.
(ii) Sarbanes-Oxley;
Internal Accounting Controls. The Company and the Subsidiaries are in material compliance with any and all applicable requirements
of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated
by the Commission thereunder that are effective as of the date hereof and as of the Closing Date. The Company and the Subsidiaries maintain
a system of internal accounting controls sufficient to provide reasonable assurance that, except as set forth in the SEC Reports: (i)
transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
The Company and the Subsidiaries have established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
for the Company and the Subsidiaries and designed such disclosure controls and procedures to ensure that information required to be disclosed
by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Commission’s rules and forms.
(jj) Transactions
With Affiliates and Employees. Except as set forth on Schedule 3.1(jj), none of the officers or directors of the Company or
any Subsidiary and, to the Knowledge of the Company, none of the employees of the Company or any Subsidiary is presently a party to any
transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to
or from, providing for the borrowing of money from or lending of money to or otherwise requiring payments to or from any officer, director
or such employee or, to the Knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee, stockholder, member or partner, in each case in excess of $100,000 other than for: (i) payment
of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other
employee benefits, including stock option agreements under any stock option plan of the Company except as disclosed on Schedule 3.1(jj).
(kk) Insurance.
The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited
to, directors and officers insurance coverage at least equal to the Subscription Amount, except as set forth on Schedule 3.1(kk).
Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without
a significant increase in cost.
(ll) Disclosure.
All of the disclosure furnished by or on behalf of the Company to the Purchaser regarding the Company and its Subsidiaries, their respective
businesses and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, when taken together as a whole,
is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order
to make the statements made therein, in light of the circumstances under which they were made, not misleading. The press releases disseminated
by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees that the Purchaser
neither makes nor has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically
set forth herein.
(mm) Solvency.
Based on the consolidated financial condition of the Company as of the Closing Date, and the Company’s good faith estimate of the
fair market value of its assets, after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder:
(i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the
Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s
assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including
its capital needs taking into account the particular capital requirements of the business conducted by the Company, consolidated and projected
capital requirements and capital availability thereof, and (iii) the current cash flow of the Company, together with the proceeds the
Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient
to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur
debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect
of its debt). The Company has no Knowledge of any facts or circumstances which lead it to believe that it will file for reorganization
or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. Schedule 3.1(mm)
sets forth as of the date hereof all outstanding liens and secured and unsecured Indebtedness of the Company or any Subsidiary, or for
which the Company or any Subsidiary has commitments. Except as disclosed on Schedule 3.1(mm), neither the Company nor any Subsidiary
is in default with respect to any Indebtedness.
(nn) Foreign
Corrupt Practices. Neither the Company nor any Subsidiary, nor to the Knowledge of the Company or any Subsidiary, any agent or other
person acting on behalf of the Company or any Subsidiary, has: (i) directly or indirectly, used any funds for unlawful contributions,
gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign
or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii)
failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any person acting on its behalf of which the
Company is aware) which is in violation of law or (iv) violated in any material respect any provision of FCPA.
(oo) Bank
Holding Company Act. Neither the Company nor any of its Subsidiaries or Affiliates is subject to the Bank Holding Company Act of 1956,
as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the “Federal
Reserve”). Neither the Company nor any of its Subsidiaries or Affiliates owns or controls, directly or indirectly, five percent
(5%) or more of the outstanding shares of any class of voting securities or twenty-five percent (25%) or more of the total equity of a
bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any of its Subsidiaries
or Affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and
to regulation by the Federal Reserve.
(pp) Reserved.
(qq) Accountants
and Lawyers. The Company’s independent registered public accounting firm is set forth on Schedule 3.1(qq). To the Knowledge
and belief of the Company, such accounting firm: (i) is an independent registered public accounting firm and (ii) has expressed its opinion
with respect to the financial statements included in the Company’s Annual Report for the fiscal year ended December 31, 2022. There
are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants
and lawyers formerly or presently employed by the Company and the Company is current with respect to any fees owed to its accountants
and lawyers which could affect the Company’s ability to perform any of its obligations under any of the Transaction Documents.
(pp) Material
Agreements. Except for the Transaction Documents (with respect to clause (i) only) or as set forth on Schedule 3.1(pp) hereto,
or as would not be reasonably likely to have a Material Adverse Effect, (i) the Company and each of its Subsidiaries have performed all
obligations required to be performed by them to date under any Material Agreement, (ii) neither the Company nor any of its Subsidiaries
has received any notice of default under any Material Agreement and, (iii) to the best of the Company’s Knowledge, neither the Company
nor any of its Subsidiaries is in default under any Material Agreement now in effect.
(qq) Promotional
Stock Activities. Neither the Company, its officers, its directors, nor any Affiliates or agents of the Company have engaged in any
stock promotional activity that could give rise to a complaint, inquiry, or trading suspension by the Commission alleging (i) a violation
of the anti-fraud provisions of the federal securities laws, (ii) violations of the anti-touting provisions, (iii) improper “gun-jumping;
or (iv) promotion without proper disclosure of compensation.
(rr) No “Off-balance
Sheet Arrangements.” Other than as set forth in Schedule 3.1(rr), neither the Company nor any of its Affiliates is involved
in any “Off-balance Sheet Arrangements”. For purposes hereof an “Off-balance Sheet Arrangement” means any
transaction or contract to which an entity unconsolidated with the Company or any of its Affiliates is a party and under which either
the Company or any such Affiliate has: (i) any obligation under a guarantee contract pursuant to which the Company or any of its Affiliates
could be required to make payments to the guaranteed party, including any standby letter of credit, market value guarantee, performance
guarantee, indemnification agreement, keep-well or other support agreement; (ii) any retained or contingent interest in assets transferred
to such unconsolidated entity that serves as credit, liquidity or market risk support to the entity in respect of such assets; (iii) any
variable interest held in such unconsolidated entity where such entity provides financing, liquidity, market risk or credit risk support
to, or engages in leasing, hedging or research and development services with the Company of any of its Affiliates; and (iv) any liability
or obligation of the same nature as those described in clauses (i) through (iii) of this sentence even if of a different name (whether
absolute, accrued, contingent or otherwise) that would not be required to be reflected in the Company or any of its Affiliates’
financial statements.
(ss) Transfer
Taxes. On each date the Company issues Securities to the Purchaser, all share transfer or other taxes (other than income or similar
taxes) which are required to be paid in connection with the issuance of the Securities hereunder on such date will be, or will have been,
fully paid or provided for by the Company, and all laws imposing such taxes will be or will have been complied with.
(tt) Cybersecurity.
The Company and its Subsidiaries’ information technology assets and equipment, computers, systems, networks, hardware, software,
websites, applications, and databases (collectively, “IT Systems”) are adequate for, and operate and perform in all
material respects as required in connection with the operation of the business of the Company and its Subsidiaries as currently conducted,
free and clear of all material bugs, errors, defects, Trojan horses, time bombs, malware and other corruptants. The Company and its Subsidiaries
have implemented and maintained commercially reasonable physical, technical and administrative controls, policies, procedures, and safeguards
to maintain and protect their material confidential information and the integrity, continuous operation, redundancy and security of all
IT Systems and data, including “Personal Data,” used in connection with their businesses. “Personal Data”
means (i) a natural person’s name, street address, telephone number, e-mail address, photograph, social security number or tax identification
number, driver’s license number, passport number, credit card number, bank information, or customer or account number; (ii) any
information which would qualify as “personally identifying information” under the Federal Trade Commission Act, as amended;
(iii) any information which would qualify as “protected health information” under HIPAA; and (iv) any other piece of information
that allows the identification of such natural person, or his or her family, or permits the collection or analysis of any data related
to an identified person’s health or sexual orientation. There have been no breaches, violations, outages or unauthorized uses of
or accesses to same, except for those that have been remedied without material cost or liability or the duty to notify any other person,
nor any incidents under internal review or investigations relating to the same. The Company and its Subsidiaries are presently in material
compliance with all applicable laws or statutes and all judgments, orders, rules and regulations of any court or arbitrator or governmental
or regulatory authority, internal policies and contractual obligations relating to the privacy and security of IT Systems and Personal
Data and to the protection of such IT Systems and Personal Data from unauthorized use, access, misappropriation or modification.
(uu) Compliance
with Data Privacy Laws. To the Knowledge of the Company, the Company and its Subsidiaries are, and at all prior times were, in material
compliance with all applicable state and federal data privacy and security laws and regulations (collectively, the “Privacy Laws”).
To ensure compliance with the Privacy Laws, the Company and its Subsidiaries have in place, comply with, and take appropriate steps reasonably
designed to ensure compliance in all material respects with their policies and procedures relating to data privacy and security and the
collection, storage, use, disclosure, handling, and analysis of Personal Data (the “Policies”), if applicable. To the
Company’s Knowledge, the Company and its Subsidiaries have at all times made all disclosures to users or customers required by applicable
laws and regulatory rules or requirements in all material respects, and none of such disclosures made or contained in any Policy have,
to the Knowledge of the Company, been inaccurate or in violation of any applicable laws and regulatory rules or requirements in any material
respect. The Company further certifies that neither it nor any Subsidiary: (i) has received notice of any actual or potential liability
under or relating to, or actual or potential violation of, any of the Privacy Laws, and has no Knowledge of any event or condition that
would reasonably be expected to result in any such notice to the extent that it would result in a Material Adverse Effect; (ii) is currently
conducting or paying for, in whole or in part, any investigation, remediation, or other corrective action pursuant to any Privacy Law;
or (iii) is a party to any order, decree, or agreement that imposes any obligation or liability under any Privacy Law.
(vv) COVID-19; COVID-19 Measures.
(i) the
Company is not subject to (or has received an exclusion from the applicable Governmental Entity) COVID-19 Measures, such that the Company
may not continue to operate in the ordinary course of business as of the Effective Date and the reasonably foreseeable future.
(ii) Schedule
3.1(vv) sets forth a list of each loan or other financial grant for which the Company has applied or which it has received pursuant
to any COVID-19 Measure, including any “Paycheck Protection Program” loan, “Economic Stabilization Fund” loan,
or other SBA loan.
(iii) the
Company has in place and maintains in effect business continuity, risk management, emergency and disaster plans, procedures, protocols
and facilities appropriate for the nature of the risks associated with the business of the Company.
(iv) the
Company has taken reasonable actions to (i) reduce the potentially adverse effects of COVID-19 and COVID-19 Measures on the Company, and
(ii) assess and monitor risks which may arise from the continuation of the COVID-19 pandemic.
(v) Except
as set forth on Schedule 3.1(vv), as of the date hereof, the Company has not had, nor to the Knowledge of the Company are there
any facts that would give rise to, any workforce changes resulting from disruptions due to COVID-19 or COVID-19 Measures, whether directly
or indirectly, including any actual or expected terminations, layoffs, furlough, shutdowns (whether voluntary or by Order), or any changes
to benefit or compensation programs, nor are any such changes currently contemplated.
(vi) The
Company has no Knowledge that any of the Company’s personnel has any plans to terminate his, her or its status as an employee or
independent contractor of the Company or any of its Subsidiaries, including upon or in connection with the consummation of the transactions
contemplated by this Agreement or as a result of COVID-19 or COVID-19 Measures.
(xx) Reporting
Requirements. The Company is subject to and in compliance in all material respects with the reporting requirements of Section 13 or
Section 15(d), as applicable, of the Exchange Act.
(yy) Full
Disclosure. No representation or warranty by the Company in this Agreement and no statement contained in the Disclosure Schedules
to this Agreement or any certificate or other document furnished or to be furnished to the Purchaser pursuant to this Agreement contains
any untrue statement of a material fact, or omits to state a material fact necessary to make the statements contained therein, in light
of the circumstances in which they are made, not misleading.
(zz) Survival. The foregoing
representations and warranties shall not survive the Closing Date.
3.2 Representations
and Warranties of the Purchaser. The Purchaser hereby represents and warrants to the Company that the following representations and
warranties are true and correct as of the date of this Agreement and the Closing Date:
(a) The
Purchaser has full power and authority to enter into this Agreement, the execution and delivery of which has been duly authorized, if
applicable, and this Agreement constitutes a valid and legally binding obligation of the Purchaser, except as may be limited by bankruptcy,
reorganization, insolvency, moratorium and similar laws of general application relating to or affecting the enforcement of rights of creditors,
and except as enforceability of the obligations hereunder are subject to general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or law).
(b) The
Purchaser acknowledges its understanding that the Transaction and sale of the Securities is intended to be exempt from registration under
the Securities Act, by virtue of Section 4(a)(2) of the Securities Act. In furtherance thereof, the Purchaser represents and warrants
to the Company as follows:
(i) The
Purchaser realizes that the basis for the exemption from registration may not be available if, notwithstanding the Purchaser’s representations
contained herein, the Purchaser is merely acquiring the Securities for a fixed or determinable period in the future, or for a market rise,
or for sale if the market does not rise. The Purchaser does not have any such intention.
(ii) The
Purchaser realizes that the basis for exemption would not be available if the Transaction is part of a plan or scheme to evade registration
provisions of the Securities Act or any applicable state or federal securities laws, except sales pursuant to a registration statement
or sales that are exempted under the Securities Act.
(iii) The
Purchaser is acquiring the Securities solely for the Purchaser’s own beneficial account, for investment purposes, and not with a
view towards, or resale in connection with, any distribution of the Securities.
(iv) The
Purchaser has the financial ability to bear the economic risk of the Purchaser’s investment, has adequate means for providing for
its current needs and contingencies, and has no need for liquidity with respect to an investment in the Company.
(v) The
Purchaser and the Purchaser’s attorney, accountant, purchaser representative and/or tax advisor, if any (collectively, the “Advisors”)
has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of a prospective
investment in the Securities. The Purchaser has not been organized solely for the purpose of acquiring the Securities.
(vi) The
Purchaser (together with its Advisors, if any) has received all documents requested by the Purchaser, if any, and has carefully reviewed
them and understands the information contained therein, prior to the execution of this Agreement.
(c) The
Purchaser is not relying on the Company or any of its employees, agents, sub-agents or advisors with respect to the legal, tax, economic
and related considerations involved in this investment. The Purchaser has relied on the advice of, or has consulted with, only its Advisors.
(d) The
Purchaser has carefully considered the potential risks relating to the Company and a purchase of the Securities, and fully understands
that the Securities are a speculative investment that involves a high degree of risk of loss of the Purchaser’s entire investment.
(e) The
Purchaser will not sell or otherwise transfer any Securities without registration under the Securities Act or an exemption therefrom,
and fully understands and agrees that the Purchaser must bear the economic risk of its purchase because, among other reasons, the Securities
have not been registered under the Securities Act or under the securities laws of any state and, therefore, cannot be resold, pledged,
assigned or otherwise disposed of unless they are subsequently registered under the Securities Act and under the applicable securities
laws of such states, or an exemption from such registration is available. In particular, the Purchaser is aware that the Securities are
“restricted securities,” as such term is defined in Rule 144, and may not be sold pursuant to Rule 144 unless all of the conditions
of Rule 144 are met. The Purchaser understands that any sales or transfers of the Securities are further restricted by state securities
laws and the provisions of this Agreement.
(f) No
oral or written representations or warranties have been made, or information furnished, to the Purchaser or its Advisors, if any, by the
Company or any of its officers, employees, agents, sub-agents, affiliates, advisors or subsidiaries in connection with the Transaction,
other than any representations of the Company contained herein, and in subscribing for the Securities, the Purchaser is not relying upon
any representations other than those contained herein.
(g) The
Purchaser’s overall commitment to investments that are not readily marketable is not disproportionate to the Purchaser’s net
worth, and an investment in the Securities will not cause such overall commitment to become excessive.
(h) The
Purchaser understands and agrees that the certificates for the Securities shall bear substantially the following legend:
“NEITHER THE ISSUANCE
AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE OR EXERCISABLE
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO
THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
(i) Certificates
evidencing Securities shall not be required to contain the legend set forth in Section 3.2 (h) above or any other legend (i) while
a registration statement covering the resale of such Securities is effective under the Securities Act, (ii) following any sale of such
Securities pursuant to Rule 144 (assuming the transferor is not an affiliate of the Company), (iii) if such Securities are eligible to
be sold, assigned or transferred under Rule 144 (provided that the Purchaser provides the Company with reasonable assurances that such
Securities are eligible for sale, assignment or transfer under Rule 144 which shall not include an opinion of the Purchaser’s counsel),
(iv) in connection with a sale, assignment or other transfer (other than under Rule 144), provided that the Purchaser provides the Company
with an opinion of counsel, in a generally acceptable form, to the effect that such sale, assignment or transfer of the Securities may
be made without registration under the applicable requirements of the Securities Act or (v) if such legend is not required under applicable
requirements of the Securities Act (including, without limitation, controlling judicial interpretations and pronouncements issued by the
Commission). If a legend is not required pursuant to the foregoing, the Company shall no later than three (3) business days following
the delivery by the Purchaser to the Company or the transfer agent (with notice to the Company) of a legended certificate representing
such Securities (endorsed or with stock powers attached, signatures guaranteed, and otherwise in form necessary to affect the reissuance
and/or transfer, if applicable), together with any other deliveries from the Purchaser as may be required above in this Section 3.2
(i), as directed by the Purchaser, either: (A) provided that the Company’s transfer agent is participating in the DTC Fast Automated
Securities Transfer Program and the Securities are Conversion Shares or Warrant Shares, credit the aggregate number of Conversion Shares
or Warrant Shares to which the Purchaser shall be entitled to the Purchaser’s or its designee’s balance account with DTC through
its Deposit and Withdrawal at Custodian system or (B) if the Company’s transfer agent is not participating in the DTC Fast Automated
Securities Transfer Program, issue and deliver (via reputable overnight courier) to the Purchaser, a certificate representing such Securities
that is free from all restrictive and other legends, registered in the name of the Purchaser or its designee. The Company shall be responsible
for any transfer agent fees, fees of legal counsel to the Company or DTC fees with respect to any issuance of Securities or the removal
of any legends with respect to any Securities in accordance herewith.
(j) Neither
the Commission nor any state securities commission has approved the Securities or passed upon or endorsed the merits of the Transaction.
There is no government or other insurance covering any of the Securities.
(k) The
Purchaser has taken no action that would give rise to any claim by any person for brokerage commissions, finders’ fees or the like
relating to this Agreement or the transactions contemplated hereby.
(l) The
Purchaser is not relying on the Company or any of its employees, agents, or advisors with respect to the legal, tax, economic and related
considerations of an investment in the Securities, and the Purchaser has relied on the advice of, or has consulted with, only its own
Advisors.
(m) No
oral or written representations have been made, or oral or written information furnished, to the Purchaser or its Advisors, if any, in
connection with the Transaction that are in any way inconsistent with the information contained herein.
(n) The
Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial
matters so as to be capable of evaluating the merits and risks of the Transaction, and has so evaluated the merits and risks of such investment.
The Purchaser has not authorized any person or entity to act as its Purchaser Representative (as that term is defined in Regulation D
of the General Rules and Regulations under the Securities Act) in connection with the Transaction. The Purchaser is able to bear the economic
risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.
ARTICLE IV
OTHER AGREEMENTS
OF THE PARTIES
4.1 Transfer
Restrictions.
(a) The
Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of the Purchaser or in connection
with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities
Act. As a condition of such transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and
the other applicable Transaction Documents and shall have the rights and obligations of the Purchaser under this Agreement.
(b) The
Purchaser agrees to the imprinting, so long as is required by this Section 4.1, of a legend on the Securities in the following form:
“NEITHER THE ISSUANCE AND SALE
OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE OR EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A
UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
The Company acknowledges and agrees
that, the Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security
interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a)
under the Securities Act and who agrees to be bound by the provisions of this Agreement and the other applicable Transaction Documents
and, if required under the terms of such arrangement, the Purchaser may transfer pledged or secured Securities into the name of the pledgees
or secured parties, in their respective capacities as such. Such a pledge or transfer would not be subject to approval of the Company
and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further,
no notice shall be required of such pledge. At the appropriate Purchaser’s expense, the Company will execute and deliver such
reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of
the Securities.
(c) Certificates
evidencing the Conversion Shares and Warrant Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof):
(i) while a registration statement covering the resale of any such securities are effective under the Securities Act; (ii) following any
sale of such Conversion Shares or Warrant Shares pursuant to Rule 144; if such legend is not required under applicable requirements of
the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company shall upon
request of the Purchaser and at the Company’s sole expense cause its counsel (or at the Purchaser’s option, counsel selected
by the Purchaser) to issue a legal opinion reasonably satisfactory to the Company to the Transfer Agent promptly after any of the events
described in (i)-(ii) in the preceding sentence if required by the Transfer Agent to effect the removal of the legend hereunder (with
a copy to the applicable Purchaser and its broker). If all or any portion of either the Note or Warrant is converted or exercised, respectively,
at a time when there is an effective registration statement to cover the resale of the Conversion Shares or Warrant Shares, or if such
Conversion Shares or Warrant Shares may be sold under Rule 144 or if such legend is not otherwise required under applicable requirements
of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then such Conversion
Shares or Warrant Shares shall be issued free of all legends. The Company agrees that following such time as such legend is no longer
required under this Section 4.1(c), it will, no later than 9:00 AM the next Trading Day following the delivery by a Purchaser to the Company
or the Transfer Agent of a certificate representing Conversion Shares or Warrant Shares issued with a restrictive legend (such Trading
Day, the “Legend Removal Date”), instruct the Transfer Agent to deliver or cause to be delivered to the Purchaser a
certificate representing such shares of Common Stock that is free from all restrictive and other legends. The Company may not make any
notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section
4. Certificates for the Conversion Shares and Warrant Shares that are subject to legend removal hereunder shall be transmitted by the
Transfer Agent to the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System
as directed by the Purchaser.
(d) In
lieu of delivering physical certificates representing the unlegended shares, upon request of the Purchaser, so long as the certificates
therefor do not bear a legend and the Purchaser is not obligated to return such certificate for the placement of a legend thereon and
provided it is commercially reasonable for the Company to do so, the Company shall cause its transfer agent to electronically transmit
the unlegended shares by crediting the account of Purchaser’s prime broker with the Depository Trust Company through its DWAC system,
provided that the Company’s Common Stock is DTC eligible and the Company’s transfer agent participates in the Deposit Withdrawal
at Custodian system and such Securities are Conversion Shares or Warrant Shares. Such delivery must be made on or before the Legend Removal
Date.
(e) In
the event the Purchaser shall request delivery of unlegended shares as described in this Section 4.1 and the Company is required to deliver
such unlegended shares, the Company may not refuse to deliver unlegended shares based on any claim that the Purchaser or anyone associated
or affiliated with the Purchaser has not complied with Purchaser’s obligations under the Transaction Documents, or for any other
reason, unless, an injunction or temporary restraining order from a court, on notice, restraining and or enjoining delivery of such unlegended
shares shall have been sought and obtained by the Company and the Company has posted a surety bond for the benefit of the Purchaser in
the amount of the greater of (i) 120% of the amount of the aggregate stated value of the Conversion Shares or the Warrant Shares which
is subject to the injunction or temporary restraining order, or (ii) the VWAP of the Common Stock on the trading day before the issue
date of the injunction multiplied by the number of unlegended shares to be subject to the injunction, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to the Purchaser to the extent
Purchaser obtains judgment in Purchaser’s favor.
4.2 Furnishing
of Information; Public Information.
(a) From
the Closing Date until no Purchaser holds any Securities, the Company covenants to maintain the registration of the Common Stock under
Section 12(b) or 12(g) of the Exchange Act and to timely file (or obtain extensions in respect thereof and file within the applicable
grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act even if the Company is
not then subject to the reporting requirements of the Exchange Act.
(b) At
any time commencing on the Closing Date and ending at such time that all of the Securities may be sold without the requirement for the
Company to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144, if the Company shall
fail for any reason to satisfy the current public information requirement under Rule 144(c) (a “Public Information Failure”)
then, in addition to the Purchaser’s other available remedies, the Company shall pay to the Purchaser, in cash, as partial liquidated
damages and not as a penalty, by reason of any such delay in or reduction of its ability to sell the Securities, an amount in cash equal
to one percent (1.0%) of the Subscription Amount of the Purchaser’s Securities held by the Purchaser on the day of a Public Information
Failure and on every thirtieth (30th) day (pro-rated for periods totaling less than thirty days) thereafter until the earlier
of (a) the date such Public Information Failure is cured and (b) such time that such public information is no longer required for the
Purchaser to transfer the Conversion Shares or Warrant Shares pursuant to Rule 144. The payments to which the Purchaser shall be entitled
pursuant to this Section 4.2(b) are referred to herein as “Public Information Failure Payments.” Public Information
Failure Payments shall be paid on the earlier of (i) the last day of the calendar month during which such Public Information Failure Payments
are incurred and (ii) the third (3rd) Business Day after the event or failure giving rise to the Public Information Failure Payments is
cured. In the event the Company fails to make Public Information Failure Payments in a timely manner, such Public Information Failure
Payments shall bear interest at the rate of 1.5% per month (pro-rated for partial months) until paid in full. Nothing herein shall limit
the Purchaser’s right to pursue actual damages for the Public Information Failure, and the Purchaser shall have the right to pursue
all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.
4.3 Integration.
The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section
2 of the Securities Act) that would be integrated with the offer or sale of the Securities by the Company in a manner that would require
the registration under the Securities Act of the sale of the Securities or that would be integrated with the offer or sale of the Securities
for purposes of the rules and regulations of any Trading Market such that it would require stockholder approval prior to the closing of
such other transaction unless stockholder approval is obtained before the closing of such subsequent transaction.
4.4 Publicity.
The Company and the Purchaser shall consult with each other in issuing any other press releases with respect to the transactions contemplated
hereby, and neither the Company nor the Purchaser shall issue any such press release nor otherwise make any such public statement without
the prior consent of the Company, with respect to any press release of the Purchaser, or without the prior consent of the Purchaser, with
respect to any press release of the Company, which consent shall not unreasonably be withheld, delayed, denied or conditioned, except
if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of
such public statement or communication. Notwithstanding the foregoing, the Company shall not publicly disclose the name of the Purchaser,
or include the name of the Purchaser in any filing with the Commission or any regulatory agency or Trading Market unless the name of the
Purchaser is already included in the body of the Transaction Documents, without the prior written consent of the Purchaser, except: (a)
as required by federal or state securities law in connection with the filing of final Transaction Documents with the Commission, or (b)
to the extent such disclosure is required by law or Principal Market regulations, in which case the Company shall provide the Purchaser
with prior notice of such disclosure permitted under this clause (b).
4.5 Subsequent
Equity Sales.
(a) From
the date hereof until the 24-month anniversary thereof, if the Company or any Subsidiary, as applicable, sells or grants any option to
purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase
or other disposition), any Common Stock or Common Stock Equivalents entitling any Person (except as to any Person set forth on Schedule
4.5 hereto) to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price or Exercise
Price (such lower price, the “Base Price” and such issuances, collectively, a “Dilutive Issuance”)
(if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments,
reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which
are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower
than the Conversion Price or Exercise Price, such issuance shall be deemed to have occurred for less than the Conversion Price or Exercise
Price on such date of the Dilutive Issuance), then the Conversion Price or Exercise Price shall be reduced to equal the Base Price. Such
adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. The Company shall notify the Purchaser in
writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section
4.5(a), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing
terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides
a Dilutive Issuance Notice pursuant to this Section 4.5(a), upon the occurrence of any Dilutive Issuance, the Purchaser is entitled to
receive a number of Conversion Shares or Warrant Shares based upon the Base Price on or after the date of such Dilutive Issuance, regardless
of whether the Purchaser accurately refers to the Base Price in the Notice of Conversion or Notice of Exercise. For the avoidance of doubt,
this Section 4.5(a) shall apply only so long as the Note has not been repaid
(b) From
the date hereof until the 24-month anniversary thereof, the Company shall be prohibited from effecting or entering into an agreement to
effect any issuance by the Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents (or a combination of units thereof)
involving a Variable Rate Transaction. “Variable Rate Transaction” means a transaction in which the Company (i) issues
or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional
shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies
with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity
securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance
of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business
of the Company or the market for the Common Stock or (ii) enters into, or effects a transaction under, any agreement, including, but not
limited to, an equity line of credit, whereby the Company may issue securities at a future determined price. The Purchaser shall be entitled
to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect
damages. For the avoidance of doubt, the 24-month sunset on this Section 4.5(b) shall apply only so long as the Note is not in default
or has otherwise been repaid; provided, however, that in the event that the proceeds of such Variable Rate Transaction are being used
in whole or in part to defease any remaining balance due on the Note, then this provision shall not operate to prevent such Variable Rate
Transaction.
(c) Notwithstanding
the foregoing, this Section 4.5 shall not apply in respect of an Exempt Issuance, except that no Variable Rate Transaction shall be an
Exempt Issuance.
4.6 Exchange
Transactions. From the date hereof until the 24-month anniversary thereof, neither the Company nor any of its affiliates or Subsidiaries,
nor any of its or their respective officers, employees, directors, agents or other representatives, will, without the prior written consent
of the Purchaser (which consent may be withheld, delayed or conditioned in the Purchaser’s sole discretion), directly or indirectly:
(a) solicit, initiate, encourage or accept any other inquiries, proposals or offers from any Person (other than the Purchaser) relating
to any exchange (i) of any security of the Company or any of its Subsidiaries for any other security of the Company or any of its Subsidiaries;
or (ii) of any indebtedness or other securities of, or claim against, the Company or any of its Subsidiaries relying on the exemption
provided by Section 3(a)(10) of the Securities Act (any such transaction described in clauses (i) or (ii), an “Exchange Transaction”);
(b) enter into, effect, alter, amend, announce or recommend to its stockholders any Exchange Transaction with any Person (other than the
Purchaser); or (c) participate in any discussions, conversations, negotiations or other communications with any Person (other than the
Purchaser) regarding any Exchange Transaction, or furnish to any Person (other than the Purchaser) any information with respect to any
Exchange Transaction, or otherwise cooperate in any way, assist or participate in, facilitate or encourage any effort or attempt by any
Person (other than the Purchaser) to seek an Exchange Transaction involving the Company or any of its Subsidiaries. In addition, for so
long as any of the Securities remain outstanding, neither the Company nor any of its affiliates or Subsidiaries, nor any of its or their
respective officers, employees, directors, agents or other representatives, will, without the prior written consent of the Purchaser (which
consent may be withheld, delayed or conditioned in the Purchaser’s sole discretion), directly or indirectly, cooperate in any way,
assist or participate in, facilitate or encourage any effort or attempt by any Person (other than the Purchaser) to effect any acquisition
of securities or indebtedness of, or claim against, the Company by such Person from an existing Purchaser of such securities, indebtedness
or claim in connection with a proposed exchange of such securities or indebtedness of, or claim against, the Company (whether pursuant
to Section 3(a)(9) or 3(a)(10) of the Securities Act or otherwise) (a “Third Party Exchange Transfer”). The Company,
its affiliates and Subsidiaries, and each of its and their respective officers, employees, directors, agents or other representatives
shall immediately cease and cause to be terminated all existing discussions, conversations, negotiations and other communications with
any Persons (other than the Purchaser) with respect to any of the foregoing. The Company shall promptly (and in no event later than 24
hours after receipt) notify (which notice shall be provided orally and in writing and shall identify the Person making the inquiry, request,
proposal or offer and set forth the material terms thereof) the Purchaser after receipt of any inquiry, request, proposal or offer relating
to any Exchange Transaction or Third Party Exchange Transfer, and shall promptly (and in no event later than 24 hours after receipt) provide
copies to the Purchaser of any written inquiries, requests, proposals or offers relating thereto. The Company agrees that it and its affiliates
and Subsidiaries, and each of its and their respective officers, employees, directors, agents or other representatives Subsidiaries will
not enter into any agreement with any Person subsequent to the date hereof which prohibits the Company from providing any information
to the Purchaser in accordance with this provision. For all purposes of this Agreement, violations of the restrictions set forth in this
Section 3(h) by any Subsidiary or affiliate of the Company, or any officer, employee, director, agent or other representative of the Company
or any of its Subsidiaries or affiliates shall be deemed a direct breach of this Section 4.6 by the Company.
4.7 Securities
Laws Disclosure. The Company shall file a Current Report on Form 8-K, including the Transaction Documents and a press release as exhibits
thereto, with the Commission within the time required by the Exchange Act. From and after the issuance of such Form 8-K, the Company represents
to the Purchaser that it shall have publicly disclosed all material, non-public information delivered to the Purchaser by the Company
or any of its Subsidiaries, or any of their respective officers, directors, employees or agents in connection with the transactions contemplated
by the Transaction Documents.
4.8 Reserved.
4.9 Reserved.
4.10 Certain
Limitations. Notwithstanding anything contained in any Transaction Document to the contrary, the parties covenant and agree that the
Purchaser shall not convert any portion of the Note or exercise any of the Warrant into shares of Common Stock, or to sell any Conversion
Shares or Warrant Shares, unless and until the Company obtains Exchange Approval and, if applicable, Stockholder Approval of the Transaction
in accordance with the Principal Market Rules. The Purchaser further covenants and agrees not to vote any of its Securities at the meeting
of the stockholders held for the purpose of obtaining such Stockholder Approval.
4.11 Primary
Market Compliance. Notwithstanding anything in this Agreement or any other Transaction Document to the contrary, the parties shall
use commercially reasonable efforts to comply with the Principal Market Rules, including the listing requirements, and as long as the
Common Stock remains listed on the Principal Market the parties shall not enforce any provision of any Transaction Document which does
not comply with the Principal Market Rules.
4.12 Reservation
of Common Stock. The Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the
Transaction Documents in amount equal to the Required Minimum. If, on any date including the Effective Date, the number of authorized
but unissued (and otherwise unreserved) shares of Common Stock is less than the Required Minimum on such date, then the Board of Directors
shall use commercially reasonable efforts to amend the Company’s Certificate of Incorporation to increase the number of authorized
but unissued shares of Common Stock to at least the Required Minimum at such time, as soon as possible and in any event not later than
the 75th day after such date; provided that the Company will not be required at any time to authorize a number of shares of
Common Stock greater than the maximum remaining number of shares of Common Stock that could possibly be issued after such time pursuant
to the Transaction Documents.
4.13 Listing
of Common Stock. At all times subsequent to the Closing Date, the Company hereby agrees to maintain the listing of the Common Stock
on the Trading Market on which it is listed, and following the Closing, Stockholder and final Exchange Approval, the Company, shall apply
to list all of the Conversion Shares and the Warrant Shares on such Trading Market and promptly secure the listing of all of the Conversion
Shares and the Warrant Shares on such Trading Market. The Company further agrees, if the Company applies to have the Common Stock traded
on any other Trading Market, it will then include in such application all of the Conversion Shares and the Warrant Shares, and will take
such other action as is necessary to cause all of the Conversion Shares and Warrant Shares to be listed or quoted on such other Trading
Market as promptly as possible. The Company will then take all action necessary to continue the listing or quotation and trading of its
Common Stock on a Trading Market until five years after the Closing Date and will comply in all respects with the Company’s reporting,
filing and other obligations under the bylaws or rules of the Trading Market until at least five years after the Closing Date. In the
event the afore-described listing is not continuously maintained for five years after the date of such listing (a “Listing Default”),
then in addition to any other rights the Purchaser may have hereunder or under applicable law, on the first day of a Listing Default and
on each monthly anniversary of each such Listing Default date (if the applicable Listing Default shall not have been cured by such date)
until the applicable Listing Default is cured, the Company shall pay to the Purchaser an amount in cash, as partial liquidated damages
and not as a penalty, equal to 2% of the Subscription Amount of the Securities then held by the Purchaser on the day of a Listing Default
and on every thirtieth (30th) day (pro-rated for periods less than thirty days) thereafter until the date such Listing Default
is cured. If the Company fails to pay any liquidated damages pursuant to this Section in a timely manner, the Company will pay interest
thereon at a rate of 1.5% per month (pro-rated for partial months) to the Purchaser.
4.14 Reserved.
4.15 Notice
of Disqualification Events. The Company will notify the Purchaser in writing, prior to the Closing Date of (i) any Disqualification
Event relating to any Issuer Covered Person and (ii) any event that would, with the passage of time, become a Disqualification Event relating
to any Issuer Covered Person not otherwise disclosed herein.
4.16 Acknowledgment
of Dilution. The Company acknowledges that the issuance of the Conversion Shares upon conversion of the Note and of the Warrant
Shares upon exercise of the Warrant may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial.
The Company further acknowledges that its obligations under the Transaction Documents, including, without limitation, its obligation to
issue the Conversion Shares and the Warrant Shares pursuant to the Transaction Documents, are unconditional and absolute, but subject
to the terms and conditions of the Transaction Documents, and not subject to any right of set off, counterclaim, delay or reduction, regardless
of the effect of any such dilution or any claim the Company may have against the Purchaser and regardless of the dilutive effect that
such issuance may have on the ownership of the other stockholders of the Company.
4.17 Reserved.
4.18 Indemnification
of Purchaser. Subject to the provisions of this Section 4.18, the Company will indemnify and hold the Purchaser and its officers,
managers, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who controls the Purchaser (within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, managers, stockholders, agents, members, partners
or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such
title or any other title) of such controlling persons (each, a “Purchaser Party”) harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court
costs and reasonable attorneys’ fees and costs of investigation that any the Purchaser Party may suffer or incur as a result of
or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement
or in the other Transaction Documents or (b) any action instituted against the Purchaser Parties in any capacity, or any of them or their
respective Affiliates, by any stockholder of the Company who is not an Affiliate of the Purchaser Party, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based upon a breach of the Purchaser Party’s representations, warranties
or covenants under the Transaction Documents or any agreements or understandings the Purchaser Party may have with any such stockholder
or any violations by such Purchaser Party of state or federal securities laws or any conduct by the Purchaser Party which constitutes
fraud, gross negligence or willful misconduct). If any action shall be brought against any Purchaser Party in respect of which indemnity
may be sought pursuant to this Agreement, the Purchaser Party shall promptly notify the Company in writing, and the Company shall have
the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party
shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of the Purchaser Party except to the extent that (i) the employment thereof has been specifically
authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such action there is, in the reasonable opinion of counsel retained to represent such Purchaser Party, a material
conflict on any material issue between the position of the Company and the position of the Purchaser Party, in which case the Company
shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to
any Purchaser Party under this Agreement (x) for any settlement by the Purchaser Party effected without the Company’s prior written
consent, which shall not be unreasonably withheld or delayed; or (y) to the extent, but only to the extent that a loss, claim, damage
or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements
made by the Purchaser Party in this Agreement or in the other Transaction Documents or such Purchaser Party’s fraud, gross negligence
or willful misconduct. The indemnification required by this Section 4.16 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or are incurred. The indemnification contained herein shall
be in addition to any cause of action or similar right of any Purchaser Party against the Company or others and any liabilities the Company
may be subject to pursuant to applicable law.
4.19 DTC
Program. For a period of two (2) years from the Closing Date, the Company will employ as the transfer agent for the Common Stock a
participant in the Depository Trust Company Automated Securities Transfer Program and cause the Common Stock to be transferable pursuant
to such program.
4.20 Form
D; Blue Sky Filings. The Company agrees to timely file a Form D with respect to the sale of the Securities by the Company under
this Agreement as required under Regulation D. The Company shall take such action as the Company shall reasonably determine is necessary
in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchaser at the Closing under applicable securities
or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of
the Purchaser.
4.21 Stockholder
Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that the Purchaser
is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution
under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that the Purchaser
could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents
or under any other agreement between the Company and the Purchaser.
4.22 Maintenance
of Property. The Company shall keep all of its property, which is necessary or useful to the conduct of its business, in good working
order and condition, ordinary wear and tear excepted.
4.23 Preservation
of Corporate Existence. The Company shall preserve and maintain its corporate existence, rights, privileges and franchises in the
jurisdiction of its then-incorporation, and qualify and remain qualified, as a foreign corporation in each jurisdiction in which such
qualification is necessary in view of its business or operations and where the failure to qualify or remain qualified might reasonably
have a Material Adverse Effect upon the financial condition, business or operations of the Company taken as a whole.
4.24 Restriction
on Redemption and Cash Dividends. For as long as the Purchaser holds any portion of the Note (the “Obligation Period”),
the Company shall not, directly or indirectly, redeem, or declare or pay any cash dividend or distribution on, any securities of the Company
without the written consent of the Purchaser. This Section 4.24 shall not apply to any spin-off by the Company of any securities of any
Subsidiary.
4.25 Reserved.
4.26 Conversion
Procedures. The form of Notice of Conversion included in the Note sets forth the totality of the procedures required of the Purchaser
in order to convert the Note. No legal opinion, other information or instructions shall be required of the Purchaser to convert the Note
or any portion thereof. The Company shall promptly honor conversions of the Note, whether in its entirety or any portion thereof, and
shall deliver the Conversion Shares in accordance with the terms, conditions and time periods set forth in the Note.
4.27 Inspection
Rights. A representative of each of the Purchaser shall have the right upon reasonable notice and at its expense, to visit and inspect
any of the properties, books and records of the Company and to discuss the Company’s affairs, finances and accounts with its directors,
officers and employees. All inspection rights and information rights are subject to the confidentiality restrictions contained in any
agreement entered into between the Company and the Purchaser.
4.28 Conduct
of Business. The business of the Company shall not be conducted in violation of any law, ordinance or regulation of any governmental
entity, except where such violations would not result, either individually or in the aggregate, in a Material Adverse Effect.
4.29 Passive
Foreign Investment Company. The Company shall conduct its business in such a manner as will ensure that the Company will not be deemed
to constitute a passive foreign investment company within the meaning of Section 1297 of the U.S. Internal Revenue Code of 1986, as amended.
ARTICLE V
TERMINATION
5.1 Termination.
(a) The
Purchaser may elect to terminate this Agreement upon the occurrence of any of the following:
(i) if
at any time the Company has filed for and/or is subject to any bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings for relief under any bankruptcy law or any law for the relief of debtors instituted by or against the Company or any Subsidiary
of the Company;
(ii) the
Company is in breach or default of any Material Agreement, which breach or default could reasonably be expected to have a Material Adverse
Effect; or
(iii) the
Company is in breach or default of this Agreement, any Transaction Document, or any agreement with any Purchaser or any Affiliate of the
Purchaser.
(b) This
Agreement will automatically terminate if the Closing has not occurred prior to October 20, 2023, provided, however, that the Purchaser
may extend such the Closing Date up to two times, by up to 30 days each extension, by notice to the Company, or unless extended by the
mutual consent of the parties.
5.2 Effect
of Termination. Notwithstanding anything to the contrary above, nothing contained in this Section 5 shall be deemed to release any
party from any liability for any breach by such party of the terms and provisions of this Agreement or the other Transaction Documents
or to impair the right of any party to compel specific performance by any other party of its obligations under this Agreement or the other
Transaction Documents.
ARTICLE VI
MISCELLANEOUS
6.1 Rescission
and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of
the other Transaction Documents, whenever the Purchaser exercises a right, election, demand or option under a Transaction Document and
the Company does not timely perform its related obligations within the periods therein provided, then the Purchaser may rescind or withdraw,
in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part
without prejudice to its future actions and rights; provided, however, that in the case of a rescission of a conversion or exercise of
any portion of the Note or the Warrant, respectively, the Purchaser shall be required to return any shares of Common Stock subject to
any such rescinded conversion or exercise notice concurrently with the return to the Purchaser of the aggregate exercise price paid to
the Company for such shares.
6.2 Fees
and Expenses. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and
expenses of its Advisors, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all Transfer Agent fees,
DTC fees, stamp taxes and other similar taxes and duties levied in connection with the delivery of any Securities to the Purchaser in
addition to paying the cost of any counsel or other expenses incurred in rendering Rule 144 opinions of any the Purchaser upon request.
6.3 Entire
Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of
the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written,
with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.
6.4 Notices.
All notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, , (ii)
delivered by reputable air courier service with charges prepaid, or (iv) transmitted by email, addressed as set forth below or to such
other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted
to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by email, at the address or number designated below
(if delivered on a business day during normal business hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the
second business day following the date of express courier service, fully prepaid, addressed to such address, or upon actual receipt of
such delivery, whichever shall first occur. The addresses for such communications shall be: (i) if to the Company, to: Ault Alliance,
Inc., 11411 Southern Highlands Pkwy Suite 240, Las Vegas, NV 89141, Attn. William B. Horne, CEO, email: _________ with a copy by e-mail
only (which shall not constitute notice) to: Ault Alliance, 100 Park Avenue, Suite 1658 New York, NY 10017, Attn: Henry Nisser, Esq.,
email: ____________, and (ii) if to the Purchaser, to: the addresses and email address indicated on the signature pages hereto.
6.5 Amendments;
Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed,
in the case of an amendment, by the Company and the Purchaser, or, in the case of a waiver, by the party against whom enforcement of any
such waived provision is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise
of any such right.
6.6 Headings.
The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any
of the provisions hereof.
6.7 Successors
and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the
Purchaser. The Purchaser may assign any or all of its rights under this Agreement to any Person to whom the Purchaser assigns or
transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by
the provisions of the Transaction Documents that apply to the “Purchasers.”
6.8 No
Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors
and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise
set forth herein.
6.9 Governing
Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall
be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles
of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense
of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, stockholders, partners, members, employees or agents) shall be commenced exclusively in the
state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state
and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding.
Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding
by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address
in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process
and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner
permitted by law. If either party shall commence an action or proceeding to enforce any provisions of the Transaction Documents,
then the prevailing party in such action, suit or proceeding shall be reimbursed by the other party for its reasonable attorneys’
fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.
6.10 Survival.
The representations and warranties contained herein shall survive the Closing and the delivery of the Securities at the Closing for the
applicable statute of limitations.
6.11 Execution.
This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood that
the parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail
delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were
an original thereof.
6.12 Severability.
If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force
and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts
to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
6.13 Usury.
To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and
will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter
in force, in connection with any Action or Proceeding that may be brought by the Purchaser in order to enforce any right or remedy under
any Transaction Document. Notwithstanding any provision to the contrary contained in any Transaction Document, it is expressly agreed
and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest shall not
exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing,
in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest
that the Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum contract
rate of interest allowed by law and applicable to the Transaction Documents is increased or decreased by statute or any official governmental
action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to
the Transaction Documents from the effective date thereof forward, unless such application is precluded by applicable law. If under any
circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to the Purchaser with respect to indebtedness
evidenced by the Transaction Documents, such excess shall be applied by the Purchaser to the unpaid principal balance of any such indebtedness
or be refunded to the Company, the manner of handling such excess to be at the Purchaser’s election.
6.14 Replacement
of Securities. If any certificate or instrument evidencing any of the Securities is mutilated, lost, stolen or destroyed, the
Company shall issue or cause to be issued in exchange and substitution for and upon surrender and cancellation thereof (in the case of
mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory
to the Company of such loss, theft, destruction, or mutilation, and of the ownership of such Security. The applicant for a new certificate
or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity and bonds) associated
with the issuance of such replacement Securities.
6.15 Remedies.
In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchaser
and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages
may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and
hereby agree to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law
would be adequate.
6.16 Payment
Set Aside. To the extent that the Company makes a payment or payments to the Purchaser pursuant to any Transaction Document
or the Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise
or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or
are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including,
without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such
restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect
as if such payment had not been made or such enforcement or setoff had not occurred.
6.17 Liquidated
Damages. The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction
Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts
due thereunder have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages
or other amounts are due and payable shall have been canceled.
6.18 Saturdays,
Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or
granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business
Day.
6.19 Construction.
The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction Documents
and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every reference to
share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse and forward stock splits,
stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.
6.20 WAIVER
OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE
PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY
AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.
6.21 Equitable
Adjustment. Trading volume amounts, price/volume amounts and similar figures in the Transaction Documents shall be equitably adjusted
(but without duplication) to offset the effect of stock splits, similar events and as otherwise described in this Agreement, if such events
shall occur between the date of this Agreement and Closing.
(Signature Pages Follow)
IN WITNESS WHEREOF,
the parties hereto have caused this Agreement to be duly executed by their respective authorized signatories as of the date first indicated
above.
AULT ALLIANCE, Inc. |
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By: |
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Name: William B. Horne |
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Title: Chief Executive Officer |
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[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
PURCHASER
SIGNATURE PAGE TO AULT ALLIANCE, INC.
SECURITIES
PURCHASE AGREEMENT
IN WITNESS WHEREOF, the undersigned
has caused this Securities Purchase Agreement to be duly executed by its duly authorized signatory as of the date first indicated above.
Name of Purchaser: Ault & Company, Inc.
Signature of Authorized Signatory of Purchaser:
__________________________________
Name of Authorized Signatory: Milton C. Ault,
III
Title of Authorized Signatory: Chief Executive
Officer
Email Address of Authorized Signatory:
Address for Notice to Purchaser:
11411 Southern Highlands Pkwy, Suite 240
Las Vegas, NV 89141,
Address for Delivery of Securities to Purchaser
(if not same as address for notice):
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Subscription Amount: US$17,519,832 |
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EIN Number, if applicable, will be provided under separate cover: |
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EXHIBIT A
10% Senior Secured Convertible Promissory Note
EXHIBIT B
Security Agreement
EXHIBIT C
Subordination Agreement
EXHIBIT D
Warrant
EXHIBIT E
Transfer Agent Instruction Letter
Exhibit 10.2
SECURITY AGREEMENT
This SECURITY AGREEMENT,
dated as of October 13, 2023 (this “Agreement”), is by and among Ault Alliance, Inc., a Delaware corporation (the “Company”),
Sentinum, Inc., a Nevada corporation and a wholly owned subsidiary of the Company (“Sentinum”), Ault Global Real Estate
Equities, Inc., a Nevada corporation and a wholly owned subsidiary of the Company (“AGREE”), Third Avenue Apartments
LLC, a Delaware limited liability company (the “Florida Property Owner”), Alliance Cloud Services, LLC, a Delaware
limited liability company (the “Michigan Property Owner”), Ault Aviation, LLC, a Nevada limited liability company (“Aviation”),
Ault Lending, LLC, a California limited liability company (“Ault Lending”) BNI Montana LLC, a Delaware limited liability
company and (“BNI Montana,” and collectively with the Company, Sentinum, the Florida Property Owner, the Michigan Property
Owner, Aviation and Ault Lending, the “Debtor” or “Debtors”) and Ault & Company, Inc., a Delaware
corporation, as the holder of the Company’s 10% Senior Secured Convertible Promissory Note due October 12, 2028, in the original
principal amount of 17,519,832.00 (the “Note”) signatory hereto, its endorsees, transferees and assigns (collectively,
the “Secured Party”).
W I T N E S S E T H:
WHEREAS, pursuant to
the Purchase Agreement (as defined in the Note), the Secured Party has agreed to provide the loans to the Company evidenced by the Note;
and
WHEREAS, in order to
induce the Secured Party to provide the loan evidenced by the Note, the Debtor has agreed to execute and deliver to the Secured Party
this Agreement and to grant the Secured Party, through the Agent (as defined in Section 18 hereof), a security interest in
certain property of such Debtor to secure the prompt payment, performance and discharge in full of all of the Company’s obligations
under the Note.
NOW, THEREFORE, in
consideration of the agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto hereby agree as follows:
1. Certain
Definitions. As used in this Agreement, the following terms shall have the meanings set forth in this Section 1. Terms
used but not otherwise defined in this Agreement that are defined in Article 9 of the UCC (such as “account,” “chattel
paper,” “commercial tort claim,” “deposit account,” “document,” “equipment,” “fixtures,”
“general intangibles,” “goods,” “instruments,” “inventory,” “investment property,”
“letter-of-credit rights,” “proceeds” and “supporting obligations”) shall have the respective meanings
given such terms in Article 9 of the UCC.
“Collateral”
means the collateral in which the Secured Party is granted a security interest by this Agreement and which shall comprise all the assets
of the Debtors, including, without limitation, the following personal property of the Debtors, whether presently owned or existing or
hereafter acquired or coming into existence, wherever situated, and all additions and accessions thereto and all substitutions and replacements
thereof, and all proceeds, products and accounts thereof, including, without limitation, all proceeds from the sale or transfer of the
Collateral and of insurance covering the same and of any tort claims in connection therewith, and all dividends, interest, cash, notes,
securities, equity interest or other property at any time and from time to time acquired, receivable or otherwise distributed in respect
of, or in exchange for, any or all of the Pledged Securities (as defined below):
(i) All
goods, including, without limitation, (A) all machinery, equipment, computers, motor vehicles, trucks, tanks, boats, ships, appliances,
furniture, special and general tools, fixtures, test and quality control devices and other equipment of every kind and nature and wherever
situated, together with all documents of title and documents representing the same, all additions and accessions thereto, replacements
therefor, all parts therefor, and all substitutes for any of the foregoing and all other items used and useful in connection with any
Debtor’s businesses and all improvements thereto; and (B) all inventory;
(ii) All
contract rights and other general intangibles, including, without limitation, all partnership interests, membership interests, stock or
other securities of the Debtors, rights under any of the Organizational Documents (as defined below), agreements related to the Pledged
Securities, licenses, distribution and other agreements, computer software (whether “off-the-shelf,” licensed from any third
party or developed by any Debtor), computer software development rights, leases, franchises, customer lists, quality control procedures,
grants and rights, goodwill, Intellectual Property (as defined below) and income tax refunds;
(iii) All
accounts, together with all instruments, all documents of title representing any of the foregoing, all rights in any merchandising, goods,
equipment, motor vehicles and trucks which any of the same may represent, and all right, title, security and guaranties with respect to
each account, including any right of stoppage in transit;
(iv) All
documents, letter-of-credit rights, instruments and chattel paper;
(v) All
commercial tort claims;
(vi) All
deposit accounts and all cash (whether or not deposited in such deposit accounts);
(vii) All
investment property;
(viii) All
supporting obligations;
(ix) All
files, records, books of account, business papers, and computer programs; and
(x) the
products and proceeds of all of the foregoing Collateral set forth in clauses (i)-(ix) above.
Without limiting the generality
of the foregoing, the “Collateral” shall include all investment property and general intangibles respecting ownership and/or
other equity interests in the Guarantor, including, without limitation, the shares of capital stock and the other equity interests (as
the same may be modified from time to time pursuant to the terms hereof), Schedule G of the Disclosure Schedules, which Disclosure
Schedules shall be provided by each Debtor to the Secured Party upon request within ten (10) business days of such request, and any other
shares of capital stock and/or other equity interests of any other direct or indirect subsidiary of any Debtor obtained in the future,
and, in each case, all certificates representing such shares and/or equity interests and, in each case, all rights, options, warrants,
stock, other securities and/or equity interests that may hereafter be received, receivable or distributed in respect of, or exchanged
for, any of the foregoing and all rights arising under or in connection with the Pledged Securities, including, but not limited to, all
dividends, interest and cash.
Notwithstanding the foregoing,
nothing herein shall be deemed to constitute an assignment of any asset which, in the event of an assignment, becomes void by operation
of applicable law or the assignment of which is otherwise prohibited by applicable law (in each case to the extent that such applicable
law is not overridden by Sections 9-406, 9-407 and/or 9-408 of the UCC or other similar applicable law); provided, however,
that, to the extent permitted by applicable law, this Agreement shall create a valid security interest in such asset and, to the extent
permitted by applicable law, this Agreement shall create a valid security interest in the proceeds of such asset.
“Designated Senior
Debt” means (a) debt under or in respect of the Loan and Guaranty Agreement (the “Senior Loan Agreement”),
dated as of November 7, 2022 as amended by the First Amendment and Joinder dated July 19, 2023, by and among (1) the Company, (2) the
other Borrowers and Guarantors party thereto (collectively with the Company, the “Loan Parties”), (3) JGB Capital,
LP, JGB Partners, LP and JGB (Cayman) Buckeye Ltd., as lenders, and (4) JGB Collateral, LLC, as agent for the Senior Lenders (the “Senior
Agent”).
“Intellectual Property”
means the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United
States, multinational or foreign laws or otherwise, including, without limitation, (i) all copyrights arising under the laws of the United
States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished,
all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations,
recordings and applications in the United States Copyright Office, (ii) all letters patent of the United States, any other country or
any political subdivision thereof, all reissues and extensions thereof, and all applications for letters patent of the United States or
any other country and all divisions, continuations and continuations-in-part thereof, (iii) all trademarks, trade names, corporate names,
company names, business names, fictitious business names, trade dress, service marks, logos, domain names and other source or business
identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof,
and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency
of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common law rights
related thereto, (iv) all trade secrets arising under the laws of the United States, any other country or any political subdivision thereof,
(v) all rights to obtain any reissues, renewals or extensions of the foregoing, (vi) all licenses for any of the foregoing, and (vii)
all causes of action for infringement of the foregoing.
“Necessary Endorsement”
means undated stock powers endorsed in blank or other proper instruments of assignment duly executed and such other instruments or documents
as the Agent (as that term is defined below) may reasonably request.
“Obligations”
means all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or
that are now or may be hereafter contracted or acquired, or owing to, of any Debtor to the Secured Party under this Agreement, the Note,
the Guaranty and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, in
each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated,
whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or
incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided
or recovered directly or indirectly from the Secured Party as a preference, fraudulent transfer or otherwise as such obligations may be
amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing,
the term “Obligations” shall include, without limitation: (i) principal of, interest and any other amounts owed under
the Note as set forth in the Note (ii) any and all obligations due under the Transaction Documents (as defined in the Purchase Agreement);
(iii) any and all other fees, indemnities, costs, obligations and liabilities of the Debtors from time to time under or in connection
with this Agreement, the Note, the Transaction Documents and any other instruments, agreements or other documents executed and/or delivered
in connection herewith or therewith; and (iv) all amounts (including but not limited to post-petition interest) in respect of the foregoing
that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence
of a bankruptcy, reorganization or similar proceeding involving any Debtor.
“Organizational Documents”
means, with respect to any Debtor, the documents by which such Debtor was organized (such as articles of incorporation, certificate of
incorporation, certificate of limited partnership or articles of organization, and including, without limitation, any certificates of
designation for preferred stock or other forms of preferred equity) and which relate to the internal governance of such Debtor (such as
bylaws, a partnership agreement or an operating, limited liability or members agreement).
“Permitted Indebtedness”
means the indebtedness evidenced by the Senior Loan Agreement and the Note.
“Permitted Liens”
means the following:
(i) liens
(as defined in the Purchase Agreement) imposed by law for taxes that are not yet due or are being contested in good faith, which in each
case, have been appropriately reserved for;
(ii) Carriers’,
warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like liens imposed by law, arising in the ordinary
course of business and securing obligations that are not overdue by more than thirty (30) days or are being contested in good faith;
(iii) Pledges
and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other
social security laws or regulations;
(iv) Deposits
to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature, in each case in the ordinary course of business;
(v) liens
under this Agreement;
(vi) liens
incurred in connection with the Permitted Indebtedness; and
(vi) Any
other liens in favor of the Secured Party.
“Pledged Securities”
shall have the meaning ascribed to such term in Section 4(j).
“Subordination Agreement”
means the Subordination Agreement by and between the Holder, the Loan Parties, the Senior Lenders and the Agent dated as of the date hereof
“UCC” shall
have the meaning ascribed to such term in the Purchase Agreement. It is the intent of the parties that defined terms in the
UCC should be construed in their broadest sense so that the term “Collateral” will be construed in its broadest sense. Accordingly
if there are, from time to time, changes to defined terms in the UCC that broaden the definitions, they are incorporated herein and if
existing definitions in the UCC are broader than the amended definitions, the existing ones shall be controlling.
2. Grant
of Security Interest in Collateral. As an inducement for the Secured Party to extend the loan as evidenced by the Note and to secure
the complete and timely payment, performance and discharge in full, as the case may be, of all of the Obligations, upon the execution
hereof, (a) each Debtor hereby unconditionally and irrevocably pledges, grants and hypothecates to the Secured Party a perfected, first
priority security interest in and to, a lien upon and a right of set-off against all of their respective right, title and interest of
whatsoever kind and nature in and to, the Collateral (a “First Priority Security Interest” and, collectively, the “First
Priority Security Interests”), provided, however, that for purposes of this Agreement, the First Priority Security Interest
shall not constitute a first priority security interest of in the assets defined as “Collateral” in that certain Subordination
Agreement dated as of the date hereof and entered into by and among the Secured Party, the Company and the other signatories thereto (the
“Excluded Collateral”), in which each of the Debtors hereby unconditionally and irrevocably pledges, grants and hypothecates
to the Secured Party a perfected, second priority security interest in and to, a lien upon and a right of set-off against all of their
respective right, title and interest of whatsoever kind and nature in and to, the Collateral (a “Second Priority Security Interest”
and, collectively, the “Second Priority Security Interests” and with the First Priority Security Interest and the First
Priority Security Interests, the “Security Interest” and the “Security Interests”) and (b) each
Guarantor shall become a guarantor to this Agreement and promptly perfect the Secured Party’s Security Interest in such Guarantor,
and to use its reasonable best efforts to cause such Guarantor to pledge its respective equity in favor of the Secured Party.
3. Delivery
of Certain Collateral. Contemporaneously or prior to the execution of this Agreement, the Debtor shall deliver or cause
to be delivered to the Agent (a) any and all certificates and other instruments representing or evidencing the Pledged Securities, and
(b) any and all certificates and other instruments or documents representing any of the other Collateral, in each case, together with
all Necessary Endorsements. The Debtors are, contemporaneously with the execution hereof, delivering to Agent, or have previously
delivered to Agent, a true and correct copy of each Organizational Document governing any of the Pledged Securities.
4. Representations,
Warranties, Covenants and Agreements of the Debtors. Except as set forth under the corresponding Section of the disclosure schedules,
which shall be provided by each Debtor to the Secured Party upon request within ten (10) business days of such request (the “Disclosure
Schedules”), which Disclosure Schedules shall be deemed a part hereof, each Debtor represents and warrants to, and covenants
and agrees with, the Secured Party as follows:
(a) Each
Debtor has the requisite corporate, partnership, limited liability company or other power and authority to enter into this Agreement and
otherwise to carry out its obligations hereunder. The execution, delivery and performance by the Debtor of this Agreement and the filings
contemplated herein have been duly authorized by all necessary action on the part of such Debtor and no further action is required by
such Debtor. This Agreement has been duly executed by the Debtor. This Agreement constitutes the legal, valid and binding obligation of
the Debtor, enforceable against the Debtor in accordance with its terms except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization and similar laws of general application relating to or affecting the rights and remedies of creditors and by
general principles of equity.
(b) The
Debtor has no place of business or offices where its books of account and records are kept (other than temporarily at the offices of its
attorneys or accountants) or places where Collateral is stored or located, except as set forth on Schedule A attached
hereto. Except as specifically set forth on Schedule A, the Debtor is the record owner of the real property
where such Collateral is located, and there exist no mortgages or other liens on any such real property except for Permitted Liens as
set forth on Schedule A. Except as disclosed on Schedule A, none of such Collateral is in the
possession of any consignee, bailee, warehouseman, agent or processor.
(c) Except
for Permitted Liens and as set forth on Schedule B attached hereto, the Debtor is the sole owner of the Collateral
(except for non-exclusive licenses granted by any Debtor in the ordinary course of business), free and clear of any liens, security interests,
encumbrances, rights or claims, and are fully authorized to grant the Security Interests. Except as set forth on Schedule C attached
hereto, there is not on file in any governmental or regulatory authority, agency or recording office an effective financing statement,
security agreement, license or transfer or any notice of any of the foregoing (other than those that will be filed in favor of the Secured
Party pursuant to this Agreement) covering or affecting any of the Collateral. Except as set forth on Schedule C attached
hereto and except pursuant to this Agreement, as long as this Agreement shall be in effect, the Debtors shall not execute and shall not
knowingly permit to be on file in any such office or agency any other financing statement or other document or instrument (except to the
extent filed or recorded in favor of the Secured Party pursuant to the terms of this Agreement).
(d) No
written claim has been received that any Collateral or any Debtor’s use of any Collateral violates the rights of any third party.
There has been no adverse decision to any Debtor’s claim of ownership rights in or exclusive rights to use the Collateral in any
jurisdiction or to any Debtor’s right to keep and maintain such Collateral in full force and effect, and there is no proceeding
involving said rights pending or, to the best knowledge of any Debtor, threatened before any court, judicial body, administrative or regulatory
agency, arbitrator or other governmental authority.
(e) The
Debtor shall at all times maintain its books of account and records relating to the Collateral at its principal place of business and
its Collateral at the locations set forth on Schedule A attached hereto and may not relocate such books of account
and records or tangible Collateral unless it delivers to the Secured Party at least thirty (30) days prior to such relocation (i) written
notice of such relocation and the new location thereof (which must be within the United States) and (ii) evidence that appropriate financing
statements under the UCC and other necessary documents have been filed and recorded and other steps have been taken to perfect the Security
Interests to create in favor of the Secured Party a valid, perfected and continuing perfected first priority lien in the Collateral (to
the extent such Collateral can be perfected by the filing of a UCC financing statement).
(f) This
Agreement creates in favor of the Secured Party a valid first priority security interest in the Collateral, subject only to Section 2
above and Permitted Liens, securing the payment and performance of the Obligations. Upon making the filings described in the immediately
following paragraph, all security interests created hereunder in any Collateral which may be perfected by filing UCC financing statements
shall have been duly perfected. Except for (i) the filing of the UCC financing statements referred to in the immediately following paragraph,
(ii) the execution and delivery of deposit account control agreements satisfying the requirements of Section 9-104(a)(2) of the UCC with
respect to each deposit account of the Debtors, (iii) if there is any investment property or deposit account included as Collateral that
can be perfected by “control” through an account control agreement, the execution and delivery of securities account control
agreements satisfying the requirements of 9-106 of the UCC with respect to each such investment property of the Debtors, and (iv) the
delivery of the certificates and other instruments provided in Section 3, Section 4(aa) and Section 4(cc), no action is necessary to create,
perfect or protect the security interests created hereunder. Without limiting the generality of the foregoing, except for the foregoing,
no consent of any third parties and no authorization, approval or other action by, and no notice to or filing with, any governmental authority
or regulatory body is required for (x) the execution, delivery and performance of this Agreement, (y) the creation or perfection
of the Security Interests created hereunder in the Collateral (to the extent such Collateral can be perfected by the filing of a UCC financing
statement) or (z) the enforcement of the rights of the Agent and the Secured Party hereunder.
(g) The
Debtor hereby authorizes the Agent to file one or more financing statements under the UCC, with respect to the Security Interests, with
the proper filing and recording agencies in any jurisdiction deemed proper by it.
(h) The
execution, delivery and performance of this Agreement by the Debtors does not (i) violate any of the provisions of any Organizational
Documents of any Debtor or any judgment, decree, order or award of any court, governmental body or arbitrator or any applicable law, rule
or regulation applicable to any Debtor or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing any Debtor’s debt or otherwise)
or other understanding to which any Debtor is a party or by which any property or asset of any Debtor is bound or affected. All required
consents (including, without limitation, from stockholders or creditors of any Debtor), if any, for any Debtor to enter into and perform
its obligations hereunder have been obtained.
(i) The
Pledged Securities (defined below) by their express terms provide that they are securities governed by Article 8 of the UCC.
(j) The
capital stock and other equity interests listed on Schedule G hereto (the “Pledged Securities”)
represent all capital stock and other equity interests owned, directly or indirectly, by the Debtors. All of the Pledged Securities
are validly issued, fully paid and nonassessable, and the Company is the legal and beneficial owner of the Pledged Securities, free and
clear of any lien, security interest or other encumbrance except for the security interests created by this Agreement and other Permitted
Liens.
(k) Except
for Permitted Liens, the Debtor shall at all times maintain the liens and Security Interests provided for hereunder as valid and perfected,
first priority (to the extent that such liens and Security Interests can be perfected by the filing of a UCC financing statement) liens
and security interests in the Collateral in favor of the Secured Party until this Agreement and the Security Interest hereunder shall
be terminated pursuant to Section 14 hereof. The Debtor hereby agrees to defend the same against the claims of
any and all persons and entities. The Debtor shall safeguard and protect all Collateral for the account of the Secured Party. At
the request of the Agent, the Debtor will deliver to the Agent on behalf of the Secured Party at any time or from time to time one or
more financing statements pursuant to the UCC in form reasonably satisfactory to the Agent and will pay the cost of filing the same in
all public offices wherever filing is, or is deemed by the Agent to be, necessary or desirable to effect the rights and obligations provided
for herein. Without limiting the generality of the foregoing, the Debtor shall pay all fees, taxes and other amounts necessary to maintain
the Collateral and the Security Interests hereunder, and the Debtor shall obtain and furnish to the Agent from time to time, upon demand,
such releases and/or subordinations of claims and liens which may be required to maintain the priority of the Security Interests hereunder.
(l) No
Debtor will transfer, pledge, hypothecate, encumber, license, sell or otherwise dispose of any of the Collateral (except for Permitted
Liens or non-exclusive licenses granted by a Debtor in its ordinary course of business, sales of inventory by a Debtor in its ordinary
course of business and the replacement of worn-out or obsolete equipment by a Debtor in its ordinary course of business) without the prior
written consent of the Secured Party.
(m) The
Debtor shall keep and preserve its equipment, inventory and other tangible Collateral in good condition, repair and order and shall not
operate or locate any such Collateral (or cause to be operated or located) in any area excluded from insurance coverage.
(n) The
Debtor shall maintain with financially sound and reputable insurers, insurance with respect to the Collateral, including Collateral hereafter
acquired, against loss or damage of the kinds and in the amounts customarily insured against by entities of established reputation having
similar properties similarly situated and in such amounts as are customarily carried under similar circumstances by other such entities
and otherwise as is prudent for entities engaged in similar businesses but in any event sufficient to cover the full replacement cost
thereof. If no Event of Default (as defined in the Note) exists and if the proceeds arising out of any claim or series of related
claims do not exceed $100,000, loss payments in each instance will be applied by the applicable Debtor to the repair and/or replacement
of property with respect to which the loss was incurred to the extent reasonably feasible, and any loss payments or the balance thereof
remaining, to the extent not so applied, shall be payable to the applicable Debtor; provided, however, that payments received by any Debtor
after an Event of Default occurs and is continuing or in excess of $100,000 for any occurrence or series of related occurrences, upon
approval by Agent, which approval shall not be unreasonably withheld, delayed, denied or conditioned, loss payments in each instance will
be applied by the applicable Debtor to the repair and/or replacement of property with respect to which the loss was incurred to the extent
reasonably feasible, and any loss payments or the balance thereof remaining, to the extent not so applied, shall be paid to Agent on behalf
of the Secured Party and, if received by such Debtor, shall be held in trust for the Secured Party and immediately paid over to the Secured
Party unless otherwise directed in writing by Agent. Copies of such policies or the related certificates, in each case, naming the Secured
Party as lender-loss-payee and additional insured shall be delivered to the Secured Party at least annually and at the time any new policy
of insurance is issued.
(o) The
Debtor shall, within ten (10) days of obtaining knowledge thereof, advise the Secured Party, in sufficient detail, of any material adverse
change in the Collateral, and of the occurrence of any event that would have a material adverse effect on the value of the Collateral
or on the Secured Party’s security interest, through the Agent, therein.
(p) On
a continuing basis, the Debtor shall promptly execute and deliver to the Agent such further deeds, mortgages, assignments, security agreements,
financing statements or other instruments, documents, certificates and assurances, and take such further action as the Agent may from
time to time request and may in its sole discretion deem necessary, to perfect, protect or enforce the Secured Party’s security
interest in the Collateral and otherwise to carry out the intent and purposes of this Agreement.
(q) Upon
reasonable prior notice (so long as no Event of Default or breach of the Transaction Documents has occurred or continuing, which in either
such event, no prior notice is required), the Debtor shall permit the Agent and its representatives and agents to inspect the Collateral
during normal business hours and to make copies of records pertaining to the Collateral as may be reasonably requested by the Agent from
time to time.
(r) The
Debtor shall take all steps reasonably necessary to diligently pursue and seek to preserve, enforce and collect any rights, claims, causes
of action and accounts receivable in respect of the Collateral.
(s) The
Debtor shall promptly notify the Secured Party in sufficient detail upon becoming aware of any attachment, garnishment, execution or other
legal process levied against any material portion of the Collateral and of any other information received by such Debtor that may materially
affect the value of the Collateral, the Security Interest or the rights and remedies of the Secured Party hereunder.
(t) All
information heretofore, herein or hereafter supplied to the Secured Party by or on behalf of any Debtor with respect to the Collateral
is accurate and complete in all material respects as of the date furnished.
(u) The
Debtors shall at all times preserve and keep in full force and effect their respective valid existence and good standing and any rights
and franchises material to its business.
(v) No
Debtor will change its name, type of organization, jurisdiction of organization, organizational identification number (if it has one),
legal or corporate structure, or identity, or add any new fictitious name unless it provides at least thirty (30) days’ prior written
notice to the Secured Party of such change and, at the time of such written notification, such Debtor provides any financing statements
or fixture filings necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.
(w) Except
in the ordinary course of business, no Debtor may consign any of its inventory or sell any of its inventory on bill-and-hold, sale-or-return,
sale-on-approval, or other conditional terms of sale without the consent of the Agent, which shall not be unreasonably withheld, delayed,
denied, or conditioned.
(x) No
Debtor may relocate its chief executive office to a new location without providing thirty (30) days’ prior written notification
thereof to the Secured Party and so long as, at the time of such written notification, such Debtor provides any financing statements or
fixture filings necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.
(y) The
Debtor was organized and remains organized solely under the laws of the state set forth next to such Debtor’s name in Schedule D attached
hereto, which Schedule D sets forth the Debtor’s organizational identification number or, if any Debtor does
not have one, states that one does not exist.
(z) (i)
The actual name of the Debtor is the name set forth in Schedule D attached hereto; (ii) no Debtor has any trade
names except as set forth on Schedule E attached hereto; (iii) no Debtor has used any name other than that
stated in the preamble hereto or as set forth on Schedule E for the preceding five (5) years; and (iv) no entity has
merged into any Debtor or been acquired by any Debtor within the past five years except as set forth on Schedule E.
(aa) At any time and from
time to time that any Collateral consists of instruments, certificated securities or other items that require or permit possession by
the secured party to perfect the security interest created hereby, the applicable Debtor shall deliver such Collateral to the Agent.
(bb) The Debtor, in its capacity
as issuer, hereby agrees to comply with any and all orders and instructions of Agent regarding the Pledged Securities consistent with
the terms of this Agreement without the further consent of any Debtor as contemplated by Section 8-106 (or any successor section)
of the UCC. Further, the Debtor agrees that it shall not enter into a similar agreement (or one that would confer “control”
within the meaning of Article 8 of the UCC) with any other person or entity.
(cc) The Debtor shall cause
all tangible chattel paper constituting Collateral to be delivered to the Agent, or, if such delivery is not possible, then to cause such
tangible chattel paper to contain a legend noting that it is subject to the security interest created by this Agreement. To the extent
that any Collateral consists of electronic chattel paper, the applicable Debtor shall cause the underlying chattel paper to be “marked”
within the meaning of Section 9-105 of the UCC (or successor Section thereto).
(dd) If there is any investment
property or deposit account included as Collateral that can be perfected by “control” through an account control agreement,
the applicable Debtor shall cause such an account control agreement, in form and substance in each case satisfactory to the Agent, to
be entered into and delivered to the Agent for the benefit of the Secured Party.
(ee) To the extent that any
Collateral consists of letter-of-credit rights, the applicable Debtor shall cause the issuer of each underlying letter of credit to consent
to an assignment of the proceeds thereof to the Secured Party.
(ff) To the extent that any
Collateral is in the possession of any third party, the applicable Debtor shall join with the Agent in notifying such third party of the
Secured Party’s security interest in such Collateral and shall use its best efforts to obtain an acknowledgement and agreement from
such third party with respect to the Collateral, in form and substance reasonably satisfactory to the Agent.
(gg) If any Debtor shall
at any time hold or acquire a commercial tort claim, such Debtor shall promptly notify the Secured Party in a writing signed by such Debtor
of the particulars thereof and grant to the Secured Party in such writing a security interest therein and in the proceeds thereof, all
upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Agent.
(hh) The Debtor shall immediately
provide written notice to the Secured Party of any and all accounts which arise out of contracts with any governmental authority and,
to the extent necessary to perfect or continue the perfected status of the Security Interests in such accounts and proceeds thereof, shall
execute and deliver to the Agent an assignment of claims for such accounts and cooperate with the Agent in taking any other steps required,
in its judgment, under the Federal Assignment of Claims Act or any similar federal, state or local statute or rule to perfect or continue
the perfected status of the Security Interests in such accounts and proceeds thereof.
(ii) The
Debtor shall cause each subsidiary of such Debtor to immediately become a party hereto (an “Additional Debtor”), by
executing and delivering an Additional Debtor Joinder in substantially the form of Annex A attached hereto and comply
with the provisions hereof applicable to the Debtors. Concurrently therewith, the Additional Debtor shall deliver replacement
schedules for, or supplements to all other Disclosure Schedules to (or referred to in) this Agreement, as applicable, which replacement
schedules shall supersede, or supplements shall modify, the Disclosure Schedules then in effect. The Additional Debtor shall
also deliver such authorizing resolutions, good standing certificates, incumbency certificates, organizational documents, financing statements
and other information and documentation as the Agent may reasonably request. Upon delivery of the foregoing to the Agent, the
Additional Debtor shall be and become a party to this Agreement with the same rights and obligations as the Debtors, for all purposes
hereof as fully and to the same extent as if it were an original signatory hereto and shall be deemed to have made the representations,
warranties and covenants set forth herein as of the date of execution and delivery of such Additional Debtor Joinder, and all references
herein to the “Debtors” shall be deemed to include each Additional Debtor.
(jj) The Debtor shall vote
the Pledged Securities to comply with the covenants and agreements set forth herein and in the Note and all other Transaction Documents.
(kk) The Debtor shall register
the pledge of the applicable Pledged Securities on the books of such Debtor. The Debtor shall notify each issuer of Pledged
Securities to register the pledge of the applicable Pledged Securities in the name of the Secured Party on the books of such issuer. Further,
except with respect to certificated securities delivered to the Agent, the applicable Debtor shall deliver to Agent an acknowledgement
of pledge (which, where appropriate, shall comply with the requirements of the relevant UCC with respect to perfection by registration)
signed by the issuer of the applicable Pledged Securities, which acknowledgement shall confirm that: (a) it has registered the pledge
on its books and records; and (b) at any time directed by Agent during the continuation of an Event of Default, such issuer will transfer
the record ownership of such Pledged Securities into the name of any designee of Agent, will take such steps as may be necessary to effect
the transfer, and will comply with all other instructions of Agent regarding such Pledged Securities without the further consent of the
applicable Debtor.
(ll) In the event that, upon
an occurrence of an Event of Default, Agent shall sell all or any of the Pledged Securities to another party or parties (herein called
the “Transferee”) or shall purchase or retain all or any of the Pledged Securities, the Debtor shall, to the extent
applicable: (i) deliver to Agent or the Transferee, as the case may be, the articles of incorporation, bylaws, minute books, stock certificate
books, corporate seals, deeds, leases, indentures, agreements, evidences of indebtedness, books of account, financial records and all
other Organizational Documents and records of the Debtors and their direct and indirect subsidiaries (but not including any items subject
to the attorney-client privilege related to this Agreement or any of the transactions hereunder); (ii) use its best efforts to obtain
resignations of the persons then serving as officers and directors of the Debtors and their direct and indirect subsidiaries, if so requested;
and (iii) use its best efforts to obtain any approvals that are required by any governmental or regulatory body in order to permit the
sale of the Pledged Securities to the Transferee or the purchase or retention of the Pledged Securities by Agent and allow the Transferee
or Agent to continue the business of the Debtors and their direct and indirect subsidiaries.
(mm) Without limiting the
generality of the other obligations of the Debtors hereunder, the Debtor shall promptly (i) cause to be registered at the United States
Copyright Office all of its material copyrights, (ii) following an Event of Default, upon the written request of the Agent, cause the
security interest contemplated hereby with respect to all Intellectual Property registered at the United States Copyright Office or United
States Patent and Trademark Office to be duly recorded at the applicable office, and (iii) give the Agent notice whenever it acquires
(whether absolutely or by license) or creates any additional material Intellectual Property.
(nn) The Debtor will from
time to time, at the joint and several expense of the Debtors, promptly execute and deliver all such further instruments and documents,
and take all such further action as may be necessary or desirable, or as the Agent may reasonably request, in order to perfect (to the
extent such security interest can be perfected by the filing of a UCC financing statement) and protect any security interest granted or
purported to be granted hereby or to enable the Secured Party to exercise and enforce its rights and remedies hereunder and with respect
to any Collateral or to otherwise carry out the purposes of this Agreement.
(oo) Schedule F attached
hereto lists all of the patents, patent applications, trademarks, trademark applications, registered copyrights, and domain names owned
by any of the Debtors as of the date hereof. Schedule F lists all material licenses in favor of any Debtor
for the use of any patents, trademarks, copyrights and domain names as of the date hereof. All material patents and trademarks
of the Debtors have been duly recorded at the United States Patent and Trademark Office and all material copyrights of the Debtors have
been duly recorded at the United States Copyright Office.
(pp) Until the Obligations
shall have been paid and performed in full, the Company covenants that it shall promptly direct any direct or indirect subsidiary of the
Company formed or acquired after the date hereof to enter into a Guaranty in favor of the Secured Party, in the form of attached as an
exhibit to the Purchase Agreement.
5. Effect
of Pledge on Certain Rights. If any of the Collateral subject to this Agreement consists of nonvoting equity or ownership interests
(regardless of class, designation, preference or rights) that may be converted into voting equity or ownership interests upon the occurrence
of certain events (including, without limitation, upon the transfer of all or any of the other stock or assets of the issuer), it is agreed
by Debtors that the pledge of such equity or ownership interests pursuant to this Agreement or the enforcement of any of Agent’s
rights hereunder shall not be deemed to be the type of event which would trigger such conversion rights notwithstanding any provisions
in the Organizational Documents or agreements to which any Debtor is subject or to which any Debtor is party.
6. Defaults.
The following events shall be “Events of Default”:
(a) The
occurrence of an Event of Default under the Note;
(b) The
occurrence of an event of default or breach under any of the Transaction Documents;
(c) Any
representation or warranty of any Debtor in this Agreement shall prove to have been incorrect in any material respect when made;
(d) The
failure by any Debtor to observe or perform any of its obligations hereunder for thirty (30) days after delivery to such Debtor of notice
of such failure by or on behalf of a Secured Party unless such default is capable of cure but cannot be cured within such time frame and
such Debtor is using best efforts to cure same in a timely fashion; or
(e) If
any provision of this Agreement shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof
shall be contested by any Debtor, or a proceeding shall be commenced by any Debtor, or by any governmental authority having jurisdiction
over any Debtor, seeking to establish the invalidity or unenforceability thereof, or any Debtor shall deny that any Debtor has any liability
or obligation purported to be created under this Agreement.
7. Duty
to Hold in Trust.
(a) Upon
the occurrence and during the continuance of any Event of Default, the Debtor shall, upon receipt of any revenue, income, dividend, interest
or other sums subject to the Security Interests, whether payable pursuant to the Note or otherwise, or of any check, draft, note, trade
acceptance or other instrument evidencing an obligation to pay any such sum, hold the same in trust for the Secured Party and shall forthwith
endorse and transfer any such sums or instruments, or both, to the Agent, pro-rata in proportion to its respective then-currently outstanding
principal amount of the Note for application to the satisfaction of the Obligations (and if the Note is not outstanding, pro-rata in proportion
to the initial purchase of the remaining Note).
(b) If
any Debtor shall become entitled to receive or shall receive any securities or other property (including, without limitation, shares of
Pledged Securities or instruments representing Pledged Securities acquired after the date hereof, or any options, warrants, rights or
other similar property or certificates representing a dividend, or any distribution in connection with any recapitalization, reclassification
or increase or reduction of capital, or issued in connection with any reorganization of such Debtor or any of its direct or indirect subsidiaries)
in respect of the Pledged Securities (whether as an addition to, in substitution of, or in exchange for, such Pledged Securities or otherwise),
such Debtor agrees to (i) accept the same as the agent of the Secured Party; (ii) hold the same in trust on behalf of and for the benefit
of the Secured Party; and (iii) to deliver any and all certificates or instruments evidencing the same to Agent on or before the close
of business on the fifth (5th) business day following the receipt thereof by such Debtor, in the exact form received together
with the Necessary Endorsements, to be held by Agent subject to the terms of this Agreement as Collateral.
8. Rights
and Remedies Upon Default.
(a) Upon
the occurrence and during the continuance of any Event of Default, the Secured Party, acting through the Agent, shall have the right to
exercise all of the remedies conferred hereunder and under the Note, and the Secured Party shall have all the rights and remedies of a
secured party under the UCC. Without limitation, the Agent, for the benefit of the Secured Party, shall have the following
rights and powers:
(i) The
Agent shall have the right to take possession of the Collateral and, for that purpose, enter, with the aid and assistance of any person,
any premises where the Collateral, or any part thereof, is or may be placed and remove the same, and the Debtor shall assemble the Collateral
and make it available to the Agent at places which the Agent shall reasonably select, whether at such Debtor’s premises or elsewhere,
and make available to the Agent, without rent, all of such Debtor’s respective premises and facilities for the purpose of the Agent
taking possession of, removing or putting the Collateral in saleable or disposable form.
(ii) Upon
written notice to the Debtors by Agent, all rights of the Debtor to exercise the voting and other consensual rights which it would otherwise
be entitled to exercise and all rights of the Debtor to receive the dividends and interest which it would otherwise be authorized to receive
and retain, shall cease. Upon such written notice, Agent shall have the right to receive, for the benefit of the Secured Party,
any interest, cash dividends or other payments on the Collateral and, at the option of Agent, to exercise in such Agent’s discretion
all voting rights pertaining thereto. Without limiting the generality of the foregoing, Agent shall have the right (but not
the obligation) to exercise all rights with respect to the Collateral as it were the sole and absolute owner thereof, including, without
limitation, to vote and/or to exchange, at its sole discretion, any or all of the Collateral in connection with a merger, reorganization,
consolidation, recapitalization or other readjustment concerning or involving the Collateral or any Debtor or any of its direct or indirect
subsidiaries.
(iii) The
Agent shall have the right to operate the business of the Debtor using the Collateral and shall have the right to assign, sell, lease
or otherwise dispose of and deliver all or any part of the Collateral, at public or private sale or otherwise, either with or without
special conditions or stipulations, for cash or on credit or for future delivery, in such parcel or parcels and at such time or times
and at such place or places, and upon such terms and conditions as the Agent may deem commercially reasonable, all without (except as
shall be required by applicable statute and cannot be waived) advertisement or demand upon or notice to any Debtor or right of redemption
of a Debtor, which are hereby expressly waived. Upon each such sale, lease, assignment or other transfer of Collateral, the
Agent, for the benefit of the Secured Party, may, unless prohibited by applicable law which cannot be waived, purchase all or any part
of the Collateral being sold, free from and discharged of all trusts, claims, right of redemption and equities of any Debtor, which are
hereby waived and released.
(iv) The
Agent shall have the right (but not the obligation) to notify any account debtors and any obligors under instruments or accounts to make
payments directly to the Agent, on behalf of the Secured Party, and to enforce the Debtors’ rights against such account debtors
and obligors.
(v) The
Agent, for the benefit of the Secured Party, may (but is not obligated to) direct any financial intermediary or any other person or entity
holding any investment property to transfer the same to the Agent, on behalf of the Secured Party, or its designee.
(vi) The
Agent may (but is not obligated to) transfer any or all Intellectual Property registered in the name of any Debtor at the United States
Patent and Trademark Office and/or Copyright Office into the name of the Secured Party or any designee or any purchaser of any Collateral.
(b) The
Agent shall comply with any applicable law in connection with a disposition of Collateral and such compliance will not be considered adversely
to affect the commercial reasonableness of any sale of the Collateral. The Agent may sell the Collateral without giving any
warranties and may specifically disclaim such warranties. If the Agent sells any of the Collateral on credit, the Debtors will
only be credited with payments actually made by the purchaser. In addition, the Debtor waives (except as shall be required
by applicable statute and cannot be waived) any and all rights that it may have to a judicial hearing in advance of the enforcement of
any of the Agent’s rights and remedies hereunder, including, without limitation, its right following an Event of Default to take
immediate possession of the Collateral and to exercise its rights and remedies with respect thereto.
(c) For
the purpose of enabling the Agent to further exercise rights and remedies under this Section 8 or elsewhere provided by agreement
or applicable law, the Debtor hereby grants to the Agent, for the benefit of the Agent and the Secured Party, an irrevocable, nonexclusive
license (exercisable without payment of royalty or other compensation to such Debtor) to use, license or sublicense following an Event
of Default, any Intellectual Property now owned or hereafter acquired by such Debtor, and wherever the same may be located, and including
in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs
used for the compilation or printout thereof.
9. Applications
of Proceeds. The proceeds of any sale, lease or other disposition by the Agent of the Collateral hereunder or from payments made to
the Agent on account of any insurance policy insuring any portion of the Collateral shall be applied first, to the expenses of retaking,
holding, storing, processing and preparing for sale, selling, and the like (including, without limitation, any taxes, fees and other costs
incurred in connection therewith) of the Collateral, to the reasonable attorneys’ fees and expenses incurred by the Agent in enforcing
the Secured Party’s rights hereunder and in connection with collecting, storing and disposing of the Collateral, and then to satisfaction
of the Obligations pro rata to the Secured Party (based on then-outstanding principal amount of Note at the time of any such determination),
and to the payment of any other amounts required by applicable law, after which the Secured Party shall pay to the applicable Debtor any
surplus proceeds. If, upon the sale, license or other disposition of all of the Collateral, the proceeds thereof are insufficient to pay
all amounts to which the Secured Party is legally entitled, the Debtors will be liable for the deficiency, together with interest thereon,
at the rate of 18% per annum or the lesser amount permitted by applicable law (the “Default Rate”), and the reasonable
fees of any attorney employed by the Secured Party to collect such deficiency. To the extent permitted by applicable law, the
Debtor waives all claims, damages and demands against the Secured Party arising out of the repossession, removal, retention or sale of
the Collateral, unless due solely to the gross negligence or willful misconduct of the Secured Party as determined by a final judgment
(not subject to further appeal) of a court of competent jurisdiction.
10. Securities
Law Provision. The Debtor recognizes that Agent may be limited in its ability to effect a sale to the public of all or
part of the Pledged Securities by reason of certain prohibitions in the Securities Act of 1933, as amended, or other federal or state
securities laws (collectively, the “Securities Laws”), and may be compelled to resort to one or more sales to a restricted
group of purchasers who may be required to agree to acquire the Pledged Securities for their own account, for investment and not with
a view to the distribution or resale thereof. The Debtor agrees that sales so made may be at prices and on terms less favorable
than if the Pledged Securities were sold to the public, and that Agent has no obligation to delay the sale of any Pledged Securities for
the period of time necessary to register the Pledged Securities for sale to the public under the Securities Laws. The Debtor
shall cooperate with Agent in its attempt to satisfy any requirements under the Securities Laws (including, without limitation, registration
thereunder if requested by Agent) applicable to the sale of the Pledged Securities by Agent.
11. Costs
and Expenses. The Debtor agrees to pay all reasonable out-of-pocket fees, costs and expenses incurred in connection with any filing
required hereunder, including without limitation, any financing statements pursuant to the UCC, continuation statements, partial releases
and/or termination statements related thereto or any expenses of any searches reasonably required by the Agent. The Debtors
shall also pay all other claims and charges which in the reasonable opinion of the Agent is reasonably likely to prejudice, imperil or
otherwise affect the Collateral or the Security Interests therein. The Debtors will also, upon demand, pay to the Agent the
amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which
the Agent, for the benefit of the Secured Party, may incur in connection with the creation, perfection, protection, satisfaction, foreclosure,
collection or enforcement of the Security Interest and the preparation, administration, continuance, amendment or enforcement of this
Agreement and pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel
and of any experts and agents, which the Agent, for the benefit of the Secured Party, and the Secured Party may incur in connection with
(i) the enforcement of this Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon,
any of the Collateral, or (iii) the exercise or enforcement of any of the rights of the Secured Party under the Note and the Transaction
Documents. Until so paid, any fees payable hereunder shall be added to the amounts owed under the Transaction Documents and shall bear
interest at the Default Rate.
12. Responsibility
for Collateral. The Debtors assume all liabilities and responsibility in connection with all Collateral, and the Obligations shall
in no way be affected or diminished by reason of the loss, destruction, damage or theft of any of the Collateral or its unavailability
for any reason. Without limiting the generality of the foregoing and except as required by applicable law, (a) neither the
Agent nor any Secured Party (i) has any duty (either before or after an Event of Default) to collect any amounts in respect of the Collateral
or to preserve any rights relating to the Collateral, or (ii) has any obligation to clean-up or otherwise prepare the Collateral for sale,
and (b) the Debtor shall remain obligated and liable under each contract or agreement included in the Collateral to be observed or performed
by such Debtor thereunder. Neither the Agent nor any Secured Party shall have any obligation or liability under any such contract
or agreement by reason of or arising out of this Agreement or the receipt by the Agent or any Secured Party of any payment relating to
any of the Collateral, nor shall the Agent or any Secured Party be obligated in any manner to perform any of the obligations of any Debtor
under or pursuant to any such contract or agreement, to make inquiry as to the nature or sufficiency of any payment received by the Agent
or any Secured Party in respect of the Collateral or as to the sufficiency of any performance by any party under any such contract or
agreement, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which
may have been assigned to the Agent or to which the Agent or any Secured Party may be entitled at any time or times.
13. Security
Interests Absolute. All rights of the Secured Party and all obligations of the Debtor hereunder, shall be absolute and unconditional,
irrespective of: (a) any lack of validity or enforceability of this Agreement, the Note or any agreement entered into in connection with
the foregoing, or any portion hereof or thereof, against any other Debtor or Guarantor; (b) any change in the time, manner or place of
payment or performance of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent
to any departure from the Note or any other agreement entered into in connection with the foregoing; (c) any exchange, release or non-perfection
of any of the Collateral, or any release or amendment or waiver of or consent to departure from any other collateral for, or any guarantee,
or any other security, for all or any of the Obligations; (d) any action by the Secured Party to obtain, adjust, settle and cancel in
its sole discretion any insurance claims or matters made or arising in connection with the Collateral; or (e) any other circumstance which
might otherwise constitute any legal or equitable defense available to a Debtor, or a discharge of all or any part of the Security Interests
granted hereby. Until the Obligations shall have been paid and performed in full, the rights of the Secured Party shall continue
even if the Obligations are barred for any reason, including, without limitation, the running of the statute of limitations. The
Debtor expressly waives presentment, protest, notice of protest, demand, notice of nonpayment and demand for performance. In the event
that at any time any transfer of any Collateral or any payment received by the Secured Party hereunder shall be deemed by final order
of a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under the bankruptcy or insolvency laws
of the United States, or shall be deemed to be otherwise due to any party other than the Secured Party, then, in any such event, the Debtor’s
obligations hereunder shall survive cancellation of this Agreement, and shall not be discharged or satisfied by any prior payment thereof
and/or cancellation of this Agreement, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions
hereof. The Debtor waives all right to require the Secured Party to proceed against any other person or entity or to apply
any Collateral which the Secured Party may hold at any time, or to marshal assets, or to pursue any other remedy. The Debtor waives any
defense arising by reason of the application of the statute of limitations to any obligation secured hereby.
14. Term
of Agreement. This Agreement and the Security Interests shall terminate on the date on which all payments under the Note have been
indefeasibly paid in full and all other Obligations have been paid or discharged; provided, however, that all indemnities
of the Debtors contained in this Agreement (including, without limitation, Annex B hereto) shall survive and remain operative and
in full force and effect regardless of the termination of this Agreement.
15. Power
of Attorney; Further Assurances.
(a) The
Debtor authorizes the Agent, and does hereby make, constitute and appoint the Agent and its officers, agents, successors or assigns with
full power of substitution, as such Debtor’s true and lawful attorney-in-fact, with power, in the name of the Agent or such Debtor,
to, after the occurrence and during the continuance of an Event of Default, (i) endorse any note, checks, drafts, money orders or other
instruments of payment (including payments payable under or in respect of any policy of insurance) in respect of the Collateral that may
come into possession of the Agent; (ii) to sign and endorse any financing statement pursuant to the UCC or any invoice, freight or express
bill, bill of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with
accounts, and other documents relating to the Collateral; (iii) to pay or discharge taxes, liens, security interests or other encumbrances
at any time levied or placed on or threatened against the Collateral; (iv) to demand, collect, receipt for, compromise, settle and sue
for monies due in respect of the Collateral; (v) to transfer any Intellectual Property or provide licenses respecting any Intellectual
Property; and (vi) generally, at the option of the Agent, and at the expense of the Debtors, at any time, or from time to time, to execute
and deliver any and all documents and instruments and to do all acts and things which the Agent deems necessary to protect, preserve and
realize upon the Collateral and the Security Interests granted therein in order to effect the intent of this Agreement, the Note and the
other Transaction Documents all as fully and effectually as the Debtors might or could do; and the Debtor hereby ratifies all that said
attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is coupled with an interest and shall
be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding. The designation
set forth herein shall be deemed to amend and supersede any inconsistent provision in the Organizational Documents or other documents
or agreements to which any Debtor is subject or to which any Debtor is a party. Without limiting the generality of the foregoing,
after the occurrence and during the continuance of an Event of Default, each Secured Party is specifically authorized to execute and file
any applications for or instruments of transfer and assignment of any patents, trademarks, copyrights or other Intellectual Property with
the United States Patent and Trademark Office and the United States Copyright Office.
(b) On
a continuing basis, the Debtor will make, execute, acknowledge, deliver, file and record, as the case may be, with the proper filing and
recording agencies in any jurisdiction, including, without limitation, the jurisdictions indicated on Schedule C attached hereto,
all such instruments, and take all such action as may reasonably be deemed necessary or advisable, or as reasonably requested by the Secured
Party, to perfect the Security Interests granted hereunder and otherwise to carry out the intent and purposes of this Agreement, or for
assuring and confirming to the Secured Party the grant or perfection of a perfected security interest in all the Collateral under the
UCC.
(c) The
Debtor hereby irrevocably appoints the Agent as such Debtor’s attorney-in-fact, with full authority in the place and instead of
such Debtor and in the name of such Debtor, from time to time in the Agent’s discretion, to take any action and to execute any instrument
which the Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including the filing, in its sole discretion,
of one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of
such Debtor where permitted by law, which financing statements may (but need not) describe the Collateral as “all assets”
or “all personal property” or words of like import, and ratifies all such actions taken by the Agent. This power
of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations
shall be outstanding.
16. Notices.
All notices, requests, demands and other communications hereunder shall be subject to the notice provision of the Purchase Agreement.
17. Other
Security. To the extent that the Obligations are now or hereafter secured by property other than the Collateral or by the Guaranty,
endorsement or property of any other person, firm, corporation or other entity, then the Agent shall have the right, in its sole discretion,
to pursue, relinquish, subordinate, modify or take any other action with respect thereto, without in any way modifying or affecting any
of the Secured Party’s rights and remedies hereunder.
18. Appointment
of Agent. If and as applicable, the Secured Party hereby appoints the Secured Party to act as its agent (“Agent”)
for purposes of exercising any and all rights and remedies of the Secured Party hereunder. Such appointment shall continue until revoked
in writing by the Secured Party, at which time the Secured Party shall appoint a new Agent, provided that the Secured Party may not be
removed as Agent unless the Secured Party shall then hold less than $100,000 in principal amount of Note. The Agent shall have the rights,
responsibilities and immunities set forth in Annex B hereto.
19. Miscellaneous.
(a) No
course of dealing between the Debtors and the Secured Party, nor any failure to exercise, nor any delay in exercising, on the part of
the Secured Party, any right, power or privilege hereunder or under the Note or other Transaction Documents shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.
(b) All
of the rights and remedies of the Secured Party with respect to the Collateral, whether established hereby or by the Securities or the
Transaction Documents or by any other agreements, instruments or documents or by law shall be cumulative and may be exercised singly or
concurrently.
(c) This
Agreement, together with the exhibits and schedules hereto, contains the entire understanding of the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into this Agreement and the exhibits and schedules hereto. No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Debtors and the Secured Party,
or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought.
(d) If
any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void
or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect
and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find
and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant
or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
(e) No
waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver
in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.
(f) This
Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company
and the Guarantors may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Agent
(other than by merger). Any Secured Party may assign any or all of its rights under this Agreement to any Person (as defined
in the Purchase Agreement) to whom such Secured Party assigns or transfers any Obligations, provided such transferee agrees in writing
to be bound, with respect to the transferred Obligations, by the provisions of this Agreement that apply to the “Secured Party.”
(g) Each
party shall take such further action and execute and deliver such further documents as may be necessary or appropriate in order to carry
out the provisions and purposes of this Agreement.
(h) Except
to the extent mandatorily governed by the jurisdiction or situs where the Collateral is located, all questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal
laws of the State of New York, without regard to the principles of conflicts of law thereof. Except to the extent mandatorily
governed by the jurisdiction or situs where the Collateral is located, the Debtor agrees that all proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement, the Note or the other Transaction Documents (whether brought
against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall
be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Except to the
extent mandatorily governed by the jurisdiction or situs where the Collateral is located, the Debtor hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives,
and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such
proceeding is improper. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any
and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
(i) This
Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of
which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission,
such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same
with the same force and effect as if such facsimile signature were the original thereof.
(j) All
Debtors shall jointly and severally be liable for the obligations of the Debtor to the Secured Party hereunder.
(k) The
Debtor agrees to indemnify, reimburse and hold harmless the Agent and the Secured Party and its assignees and affiliates and its respective
officers, directors, employees, agents, consultants, auditors, and attorney (collectively, “Indemnitees”) from and
against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements
of any kind or nature whatsoever (including the reasonable fees relating to the cost of investigating or defending any of the foregoing)
imposed on, incurred by or asserted against such Indemnitee in any way related to or arising from or alleged to arise from this Agreement
or the Collateral, except any such losses, claims, liabilities, damages, penalties, suits, costs and expenses which result from the gross
negligence or willful misconduct of the Indemnitee as determined by a final, non-appealable decision of a court of competent jurisdiction;
provided that the Debtors shall not be obligated to indemnify the Indemnitees, or have any liability, in excess of the principal face
amount of the Note (as defined in the Purchase Agreement). This indemnification provision is in addition to, and not in limitation
of, any other indemnification provision in the Note, the Purchase Agreement or any other agreement, instrument or other document executed
or delivered in connection herewith or therewith.
(l) Nothing
in this Agreement shall be construed to subject Agent or any Secured Party to liability as a partner in any Debtor or any if its direct
or indirect subsidiaries that is a partnership or as a member in any Debtor or any of its direct or indirect subsidiaries that is a limited
liability company, nor shall Agent or any Secured Party be deemed to have assumed any obligations under any partnership agreement or limited
liability company agreement, as applicable, of any such Debtor or any of its direct or indirect subsidiaries or otherwise, unless and
until any such Secured Party exercises its right to be substituted for such Debtor as a partner or member, as applicable, pursuant hereto.
(m) To
the extent that the grant of the security interest in the Collateral and the enforcement of the terms hereof require the consent, approval
or action of any partner or member, as applicable, of any Debtor or any direct or indirect subsidiary of any Debtor or compliance with
any provisions of any of the Organizational Documents, the Debtors hereby represent that all such consents and approvals have been obtained.
(n) Notwithstanding
anything herein to the contrary, the lien and security interest granted to the Secured Party pursuant to this Agreement and the Note shall
be second in priority to the lien created in favor of the Senior Agent, pursuant to the terms of the Senior Loan Agreement and the other
Loan Documents (as defined in the Senior Loan Documents) and the exercise of any right or remedy by the holder of the Note or the Secured
Party hereunder is subject to the provisions of the Subordination Agreement. In the event of any conflict between the terms of the Subordination
Agreement, the Note and this Agreement, the terms of the Subordination Agreement shall govern and control.
[SIGNATURE PAGE OF DEBTORS FOLLOWS]
IN WITNESS WHEREOF,
the parties hereto have caused this Security Agreement to be duly executed on the day and year first above written.
AULT ALLIANCE, INC. |
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By |
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Name: |
William B. Horne |
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Title: |
Chief Executive Officer |
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SENTINUM, INC. |
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By: |
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Name: |
Henry Nisser |
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Title: |
President |
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AULT GLOBAL REAL ESTATE EQUITIES, INC. |
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By: |
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Name: |
Henry Nisser |
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Title: |
President |
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THIRD AVENUE APARTMENTS, LLC |
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By: AGREE, its Manager |
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By: |
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Name: |
Henry Nisser |
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Title: |
President |
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ALLIANCE CLOUD SERVICES, LLC |
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By: Alliance Cloud Management, LLC, its Manager |
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By: AC Management, Inc., its Managing Member |
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By: |
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Name: |
Jay Looney |
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Title: |
Chief Executive Officer |
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AULT AVIATION, LLC |
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By: Ault Alliance, Inc., its Managing Manager |
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By: |
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Name: |
Henry Nisser |
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Title: |
President |
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AULT LENDING, LLC |
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By: |
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Name: |
David J. Katzoff |
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Title: |
Manager |
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BNI MONTANA, LLC |
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By: Sentinum, Inc., its Manager |
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By: |
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Name: |
Henry Nisser |
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Title: |
President |
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AULT & COMPANY, INC. |
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By: |
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Name: |
Milton C. Ault, III |
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Title: |
Chief Executive Officer |
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16
Exhibit 10.3
SUBORDINATION AGREEMENT
This Subordination Agreement
(this “Agreement”) is made as of October 13, 2023, by and among Ault & Company, Inc., a Delaware corporation, having
an address at 11411 Southern Highlands Pkwy, #240, Las Vegas, Nevada 89141 (“Subordinated Lender”), Ault Alliance,
Inc., a Delaware corporation (f/k/a BitNile Holdings, Inc.) (the “Parent”), Third Avenue Apartments LLC, a Delaware
limited liability company (the “Florida Property Owner”), Alliance Cloud Services, LLC, a Delaware limited liability
company (the “Michigan Property Owner”), Sentinum, Inc., a Nevada corporation (f/k/a BitNile, Inc.) (“Sentinum”),
Ault Aviation, LLC, a Nevada limited liability company (“Aviation”), Ault Lending, LLC, a California limited liability
company (“Ault Lending”), BNI Montana LLC, a Delaware limited liability company (“BNI Montana”,
and collectively with the Parent, the Florida Property Owner, the Michigan Property Owner, Sentinum, Aviation and Ault Lending, the “Obligor”
and each reference to “Obligor” herein shall mean each of them collectively and individually) and JGB Collateral, LLC,
a Delaware limited liability company, having an address at 21 Charles Street, Westport, CT 06880, in its capacity as collateral agent
(“Agent”) for the Senior Lenders (as defined below).
Recitals
A. The
Obligor has obtained certain loans or other credit accommodations from the Senior Lenders or is otherwise indebted to the Senior Lenders
(which loans, credit accommodations and debts are or may be from time to time be secured by assets and property of the Obligor, including
(A) the real property commonly known as 415 E. Prairie Ronde St., & 404 Louise Ave., Dowagiac, MI 49047 (the “Michigan Property”)
and (B) the real property located in St. Petersburg, Florida with parcel #s 19-31-17-21006-000-0010, 19-31-17-21006-000-0030, 19-31-17-21006-000-0040,
19-31-17-21006-000-0060 and 19-31-17-21006-000-0080 (the “Florida Property” and collectively with the Michigan Property,
the “Property”)) pursuant to the terms of: (i) the Loan and Guaranty Agreement (the “Loan Agreement”
and capitalized terms used herein but not defined herein shall have the respective meanings give such terms in the Loan Agreement), dated
as of November 7, 2022 as amended by the First Amendment and Joinder dated July 19, 2023, by and among (1) the Obligor, as a borrower,
(2) the other loan parties thereto, (3) JGB Capital, LP, JGB Partners, LP and JGB (Cayman) Buckeye Ltd., as lenders (collectively, the
“Senior Lenders”), and (4) the Agent; (ii) the Future Advance Mortgage, dated as of November 7, 2022 as amended on
July 19, 2023, by the Michigan Property Owner in favor of the Agent; (iii) the Mortgage and Security Agreement, dated as of November 7,
2022 as amended on July 19, 2023, by the Florida Property Owner in favor of the Agent; (iv) the Aircraft Mortgage and Security Agreement,
dated as of November 7, 2022, between Aviation and the Agent; (v) the Security Agreement, dated as of November 7, 2022, between Sentinum
and the Agent, as amended by the First Amendment and Joinder dated July 19, 2023; (vi) the Pledge Agreements, each dated as of November
7, 2022, by Parent, Sentinum and Ault Global Real Estate Equities, Inc. in favor of the Agent; (vii) Deposit Account Control Agreement,
dated as of December 5, 2022, by and among Michigan Property Owner, Agent and First National Bank Alaska; (viii) Amended and Restated
Deposit Account Control Agreement, dated as of January 31, 2023, by and among Parent, Agent and First National Bank Alaska; (ix) the amended
and restated secured promissory note, dated as of July 19, 2023 by the Obligors to the Senior Lenders; (x) the Pledge Agreement, dated
as of July 19, 2023, by Parent and Circle 8 HoldCo LLC in favor of the Agent; (xi) the Security Agreement, dated as of July 19, 2023,
between BNI Montana and the Agent; (xii) Deposit Account Control Agreement, dated as of August 7, 2023, by and among Ault Lending, Agent
and First National Bank Alaska; (xiii) Deposit Account Control Agreement, dated as of August 7, 2023, by and among Parent, Agent and First
National Bank Alaska; and (xiv) each other loan document executed by an Obligor in favor or for the benefit of the Senior Lenders and/or
the Agent (the agreements described in clauses (i) through (xiv), the “Senior Loan Documents”).
B. Subordinated
Lender has extended loans or other credit accommodations to the Parent and the Obligor or the Obligor is otherwise indebted to the Subordinated
Lender pursuant to one more promissory notes, loan agreements, evidences of indebtedness and security instruments, including, without
limitation the (i) note purchase agreement, (ii) 10% senior secured convertible promissory note due October 12, 2028 and (iii) security
agreement, each dated October 13, 2023 (collectively with such other promissory notes, loan agreements, evidences of indebtedness and
other security instruments, the “Subordinated Loan Documents”).
C. Subordinated
Lender is willing to subordinate: (i) all of the Obligor’s indebtedness and obligations to Subordinated Lender pursuant to
the Subordinated Loan Documents, including, without limitation, all interest, premium payments, make-wholes and other obligations and
Liabilities arising thereunder whatsoever, whether presently existing or arising in the future (the “Subordinated Debt”)
to all of the Obligor’s indebtedness and obligations under the Senior Loan Documents, including, without limitation, all interest,
premium payments, make-wholes and other obligations and liabilities whatsoever, to the Senior Lenders; and (ii) all of Subordinated
Lender’s security interests, if any, in the Property, to all of the Senior Lenders’ security interests in the Property.
NOW, THEREFORE, THE PARTIES
AGREE, FOR GOOD AND ADEQUATE CONSIDERATION, AS FOLLOWS:
1. Subordinated
Lender hereby subordinates any security interest and/or lien that Subordinated Lender (the “Junior Liens”) may have
in the Property or any other real or personal property or other assets of the Obligor identified in the Senior Loan Documents or otherwise
(collectively, the “Collateral”) to the security interest and/or liens that Senior Lenders and the Agent now or hereafter
after acquires in the Collateral (the “Senior Liens”). Notwithstanding the respective dates of attachment or perfection
of the Junior Liens and the Senior Liens, the Senior Liens shall at all times be prior and senior to the Junior Liens. The legal description
and tax numbers of the Michigan Property are set forth on Exhibit A attached hereto and the legal description of the Florida Property
is set forth on Exhibit B hereto.
2. All
Subordinated Debt is subordinated in right of payment to all obligations of the Obligor to the Senior Lenders and the Agent, now existing
or hereafter arising, under the Senior Loan Documents together with all costs of collecting such obligations, including, without limitation,
all accrued and unpaid interest, original issue discount, all premium payments, make-whole payments, exit charges, interest accruing after
the commencement by or against the Obligor of any bankruptcy, reorganization or similar proceeding, attorneys’ fees, reimbursement
obligations, and all other obligations and liabilities of the Obligor arising under the Senior Loan Documents (the “Senior Debt”).
3. Subordinated
Lender will not demand or receive from the Obligor (and Obligor will not pay to Subordinated Lender) all or any part of the Subordinated
Debt, by way of payment, prepayment, setoff, lawsuit or otherwise, whether in cash or in kind, nor will Subordinated Lender exercise any
remedy with respect to the Subordinated Debt or the Junior Liens, nor will Subordinated Lender commence, or cause to commence, prosecute
or participate in any administrative, legal or equitable action against the Obligor, for so long as any portion of the Senior Debt remains
outstanding. For the avoidance of doubt, Subordinated Lender shall not exercise any remedy under or otherwise seek to enforce any term
or provision of the Subordinated Loan Documents for so long as any portion of the Senior Debt remains outstanding.
4. Subordinated
Lender shall promptly deliver to the Senior Lenders in the form received (except for endorsement or assignment by Subordinated Lender
where required by the Senior Lenders) for application to the Senior Debt any payment, distribution, security or proceeds received by Subordinated
Lender with respect to the Subordinated Debt other than in accordance with this Agreement.
5. In
the event of the Obligor’s bankruptcy, insolvency, reorganization or any case or proceeding under any bankruptcy or insolvency law
or laws relating to the relief of debtors, these provisions shall remain in full force and effect, and the Senior Lenders’ claims
against the Obligor shall be paid in full before any payment is made to the Subordinated Lender.
6. Senior
Lenders and the Agent shall have the exclusive right to enforce rights, exercise remedies in respect of the Senior Debt and the Senior
Liens (including set-off and the right to credit bid the Senior Debt) and make determinations regarding the release, disposition, or restrictions
with respect to any Collateral for the Senior Debt, including the Property without any notice to, consultation with or consent of the
Subordinated Lender. Subordinated Lender will, in connection with the Senior Lenders’ and Agent’s exercise of their rights
and remedies under the Senior Loan Documents, immediately, upon the written request of Senior Lenders, release any Junior Lien in any
Collateral, including the Property. Senior Lenders may enforce the provisions of the Senior Loan Documents and exercise remedies thereunder
in such order and in such manner as it may determine in its sole discretion and such exercise and enforcement shall include the rights
to sell or otherwise dispose of Collateral upon foreclosure, to incur expenses in connection with such sale or disposition, and to exercise
all the rights and remedies of a secured lender under the Uniform Commercial Code of any applicable jurisdiction, of a secured creditor
under Title 11 of the United States Code (the “Bankruptcy Code”) and under other applicable law.
7. Subordinated
Lender will not object to the forbearance by Senior Lenders from commencing or pursuing any foreclosure action or proceeding or any other
enforcement or exercise of any rights or remedies with respect to all or any part of the Collateral, including the Property.
8. Subordinated
Lender agrees that it will not support or vote in favor of any plan of reorganization in any bankruptcy, insolvency or similar proceeding
unless such plan either (x) results in the Senior Debt being paid in full in cash on the effective date of such plan, (y) is
accepted by the class of holders of the Senior Debt voting thereon and is supported by the Senior Lenders or (z) incorporates this
Agreement by reference and continues the rights and priorities of the Senior Lenders and Subordinated Lender after the effective date
of such plan.
9. For
so long as any of the Senior Debt remains unpaid, Subordinated Lender irrevocably appoints Agent as Subordinated Lender’s attorney-in-fact,
and grants to Agent a power of attorney with full power of substitution, in the name of Subordinated Lender or in the name of the Agent,
for the use and benefit of the Senior Lenders, without notice to Subordinated Lender, to perform at Agent’s option the following
acts in any bankruptcy, insolvency or similar proceeding involving the Obligor:
(i) To
file the appropriate claim or claims in respect of the Subordinated Debt on behalf of Subordinated Lender if Subordinated Lender does
not do so prior to 30 days before the expiration of the time to file claims in such proceeding and if Agent elects, in its sole discretion,
to file such claim or claims; and
(ii) To
accept or reject any plan of reorganization or arrangement on behalf of Subordinated Lender and to otherwise vote Subordinated Lender’s
claims in respect of any Subordinated Debt in any manner that the Agent deems appropriate for the enforcement of its rights hereunder.
10. In
the event of the Obligor’s bankruptcy, insolvency, reorganization or any case or proceeding, arrangement or transaction under any
federal or state bankruptcy or insolvency law or similar laws or proceedings involving the Obligor, for so long as any of the Senior Debt
remains unpaid, if the Senior Lenders shall seek to provide the Obligor with any financing under Section 364 of the Bankruptcy Code, or
the Senior Lenders support or consent to such financing provided by a third party, or consents to any order for the use of cash collateral
under Section 363 of the Bankruptcy Code (each, a “DIP Financing” or “Cash Collateral Use”), with
such DIP Financing or Cash Collateral Use to be secured by all or any portion of the Collateral (including assets that, but for the application
of Section 552 of the Bankruptcy Code (or any similar provision of any foreign laws relating to the relief of debtors) would be Collateral),
then Subordinated Lender agrees that it will not raise any objection and will not support, directly or indirectly, any objection to such
DIP Financing or Cash Collateral Use nor object to the liens or claims granted in connection therewith on any grounds, including a failure
to provide “adequate protection” for the liens, if any, securing any Subordinated Debt (and will not request any adequate
protection as a result of such DIP Financing or Cash Collateral Use, and will not support any debtor-in-possession financing or Cash Collateral
Use which would compete with such DIP Financing or Cash Collateral Use which is provided to or consented to by the Senior Lenders). In
addition, Subordinated Lender agrees that it will not provide nor seek to provide or support any debtor-in-possession financing without
the prior written consent of the Senior Lenders and the Agent.
11. No
amendment of the Subordinated Loan Documents shall directly or indirectly modify the provisions of this Agreement in any manner which
might terminate or impair the subordination of the Subordinated Debt or the subordination of the Junior Liens. In addition, such instruments
shall not be amended in any manner adverse to the Senior Lenders without the prior written consent of the Senior Lenders. For the avoidance
of doubt, any amendment that increases the principal amount of the Subordinated Debt, increases the rate of interest payable thereon,
advances the maturity date of the Subordinated Date to a date that is earlier than the current maturity date thereof, or imposes more
burdensome conditions on the Obligor shall be deemed adverse to the Senior Lenders.
12. This
Agreement shall remain effective for so long as any Senior Lender has any obligation to make credit extensions to the Obligor or the Obligor
owes any amounts to any Senior Lender or the Agent on account of the Senior Debt or the Senior Liens. If, at any time after payment in
full of the Senior Debt any payments of the Senior Debt must be disgorged by the Senior Lenders for any reason (including, without limitation,
the bankruptcy of the Obligor), this Agreement and the relative rights and priorities set forth herein shall be reinstated as to all such
disgorged payments as though such payments had not been made and Subordinated Lender shall immediately pay over to the Senior Lenders
all payments received with respect to the Subordinated Debt to the extent that such payments would have been prohibited hereunder. At
any time and from time to time, without notice to Subordinated Lender, the Senior Lenders may take such actions with respect to the Senior
Debt as the Senior Lenders in their sole discretion, may deem appropriate, including, without limitation, terminating advances to the
Obligor, increasing the principal amount (which may include any DIP Financing), extending the time of payment, increasing applicable interest
rates, renewing, compromising or otherwise amending the terms of any documents affecting the Senior Debt and any Collateral (including
the Property), and enforcing or failing to enforce any rights against the Obligor or any other person. No such action or inaction shall
impair or otherwise affect the Senior Lenders’ or the Agent’s rights hereunder.
13. This
Agreement shall bind any successors or assignees of a Subordinated Lender and shall benefit any successors or assigns of the Senior Lenders
and/or the Agent. This Agreement is solely for the benefit of Subordinated Lender, the Senior Lenders and the Agent and not for the benefit
of the Obligor or any other party. Subordinated Lender has not assigned or transferred any of the Subordinated Debt, any interest therein
or any collateral or security pertaining thereto and will not assign or transfer the same to any person unless such transferee has
entered into a subordination agreement in respect of the Subordinated Debt in form and substance reasonably satisfactory to Senior Lenders
and the Agent.
14. Subordinated
Lender hereby waives the right to assert any claim or cause of action to avoid any transfer to the Senior Lenders contemplated by and
made pursuant to the Senior Loan Documents that may exist by virtue of any federal or state statute providing for such avoidance.
15. This
Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute
one instrument.
16. This
Agreement was negotiated in the State of New York, which State the parties agree has a substantial relationship to the parties and to
the underlying transaction embodied hereby, and in all respects, including matters of construction, validity and performance, this Agreement
and the obligations arising hereunder shall be governed by, and construed in accordance with, the laws of the State of New York applicable
to contracts made and performed in such State and any applicable law of the United States of America.
17. This
Agreement represents the entire agreement with respect to the subject matter hereof, and supersedes all prior negotiations, agreements
and commitments. Subordinated Lender is not relying on any representations by the Senior Lenders or the Obligor in entering into this
Agreement, and Subordinated Lender has kept and will continue to keep itself fully apprised of the financial and other condition of the
Obligor. This Agreement may be amended only by written instrument signed by Subordinated Lender, the Senior Lenders and the Agent. The
Subordinated Lender has reviewed and is familiar with the of the Senior Loan Documents.
[signature pages follow]
IN WITNESS WHEREOF, the undersigned have executed
this Agreement as of the date first above written.
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“Senior Lenders” |
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JGB CAPITAL, LP |
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By: |
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Name: |
Brett Cohen |
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Title: |
President |
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JGB PARTNERS, LP |
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By: |
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Name: |
Brett Cohen |
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Title: |
President |
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JGB (CAYMAN) BuCKEYE LTD. |
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By: |
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Name: |
Brett Cohen |
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Title: |
President |
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AGENT: |
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JGB COLLATERAL, LLC, as collateral agent |
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By: |
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Name: |
Brett Cohen |
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Title: |
President |
[Senior Lender and Agent Signature Pages to Subordination
Agreement]
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“OBLIGOR” |
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AULT ALLIANCE, INC., a Delaware corporation |
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By: |
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Name: |
William B. Horne |
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Title: |
Chief Executive Officer |
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THIRD AVENUE APARTMENTS, LLC, a Delaware limited liability company |
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By: AULT Global Real Estate Equities, Inc., its manager |
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By: |
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Name: |
Henry Nisser |
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Title: |
President |
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ALLIANCE CLOUD SERVICES, LLC, |
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a Delaware limited liability company |
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By: Alliance Cloud Management, LLC, its manager |
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By: AC Management, Inc., its managing member |
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By: |
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Name: |
Jay Looney |
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Title: |
Chief Executive Officer |
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SENTINUM, INC., a Nevada corporation |
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By: |
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Name: |
Henry C.W. Nisser |
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Title: |
President |
[Obligor’s Signature Page to Subordination
Agreement]
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AULT AVIATION, LLC, a Nevada limited liability company |
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By: Ault Alliance, Inc., its managing manager |
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By: |
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Name: |
Henry C.W. Nisser |
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Title: |
President |
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AULT LENDING, LLC, a California limited liability company |
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By: |
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Name: |
David J. Katzoff |
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Title: |
Manager |
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BNI MONTANA, LLC, a Delaware limited liability company |
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By: Sentinum, Inc., its manager |
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By: |
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Name: |
Henry C.W. Nisser |
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Title: |
President |
[Obligor’s Signature
Page to Subordination Agreement]
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“Subordinated Lender” |
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AULT & COMPANY, INC. |
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By: |
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Name: |
Milton C. Ault |
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Title: |
Chief Executive Officer |
[Subordinated Lender Signature Page to Subordination
Agreement]
EXHIBIT A
Michigan Property
Legal
Description:
Land Situated in the State of Michigan, County of Cass, City of Dowagiac.
Parcel 1
That part of the Northwest fractional 1/4 and
that part of the Northeast 1/4 of fractional Section 31, Township 5 South, Range 15 West, described as: Beginning at the Southeast corner
of Lot 9, Dr. McMaster's Addition to the City of Dowagiac, according to the recorded plat thereof, as recorded in Liber 1 of Plats, Page
26, Cass County Records; said beginning point being 414.80 feet West of and 66.00 feet North of the center of said Section 31; thence
South 35 degrees 52 minutes 38 seconds West, 40.73 feet to the North line of Prairie Ronde Boulevard (formerly Boulevard Street); thence
West on said North line, 186.57 feet to the East line of Louise Avenue; thence North 00 degrees 39 minutes 27 seconds West (deeded North
00 degrees 53 minutes 00 seconds West) on said East line, 918.86 feet to the South line of an alley; thence East on the South line of
said alley, 132.00 feet; thence North 00 degrees 39 minutes 27 seconds West, (deeded North 00 degrees 53 minutes 00 seconds West) 208.00
feet to the South line of Lot 104 of said Addition; thence West on the South line of Lots 104 and 103 of said Addition, 132.00 feet; thence
North 00 degrees 39 minutes 27 seconds West (deeded North 00 degrees 53 minutes 00 seconds West) on the East line of Louise Avenue, 194.00
feet to the North line of Columbus Street of said Addition; thence West 8.04 feet to a point being 24.75 feet East of the West line of
the East 1/2 of the East 1/2 of the Northwest fractional 1/4 of said Section; thence North 00 degrees 33 minutes 12 seconds West, (deeded
North 00 degrees 53 minutes 00 seconds West) 75.00 feet; thence East 140.26 feet; thence North 00 degrees 33 minutes 12 seconds West,
(deeded North 00 degrees 53 minutes 00 seconds West) 90.00 feet; thence West 140.26 feet; thence North 00 degrees 33 minutes 12 seconds
West, (deeded North 00 degrees 53 minutes 00 seconds West) 783.79 feet to the North line of the South 1/2 of the Northeast 1/4 of the
Northeast 1/4 of the Northwest 1/4 of said Section 31; thence South 89 degrees 55 minutes 28 seconds East, on said North line, 627.11
feet (deeded South 89 degrees 57 minutes 00 seconds East, 633.59 feet) to the North and South 1/4 line of said Section 31; thence South
00 degrees 45 minutes 32 seconds East on said North and South 1/4 line, 675.18 feet (deeded South 00 degrees 53 minutes 00 seconds East,
676.26 feet); thence South 54 degrees 26 minutes 25 seconds East, 595.92 feet (deeded South 54 degrees 37 minutes 00 seconds East, 596.45
feet) to the Westerly line of West Railroad Street; thence South 35 degrees 52 minutes 38 seconds West on said Westerly line, 1,498.23
feet (deeded South 35 degrees 44 minutes 00 seconds West, 1,496.47 feet) to the Point of Beginning.
The above-described land includes Lots 9, 10,
19 to 23, inclusive, 36 to 39, inclusive, Dr. McMaster's Addition to the City of Dowagiac, according to the recorded plat thereof, as
recorded in Liber 1 of Plats, Page 26, Cass County Records. ALSO Lots 52 to 63, inclusive, Lots 72 to 78, inclusive, Lots 89 to 94, inclusive,
Lots 103 to 112, inclusive, Dr. McMaster's Second Addition to the City of Dowagiac, according to the recorded plat thereof, as recorded
in Liber 1 of Plats, Page 32, Cass County Records. ALSO INCLUDING, the vacated streets in said Additions lying East of Louise Avenue,
and the vacated alley lying between Lots 73 and 78 of said Second Addition.
APN/Parcel ID: 14-160-200-664-00
Address: 415 East Prairie Ronde Street (Provided
for Reference Only)
Parcel 2
Beginning at a point 108.00 feet North of the
intersection of the centerline of Columbus Street and the centerline of Louise Avenue in the City of Dowagiac, in the Northwest 1/4 of
Section 31, Township 5 South, Range 15 West; thence North on the centerline of Louise Avenue extended, 90.00 feet; thence South 89 degrees
14 minutes 00 seconds East parallel to Columbus Street, 165.00 feet; thence South 90.00 feet; thence North 89 degrees 14 minutes 00 seconds
West, 165.00 feet to the Place of Beginning, EXCEPT the West 24.75 feet thereof.
APN/Parcel ID: 14-160-200-126-40
Address: 404 Louise Avenue (Provided for Reference
Only)
[Legal Description]
Combined Surveyed Legal
That part of the North 1/2 of Section 31, Township
5 South, Range 15 West, City of Dowagiac, described land includes Lots 9, 10, 19 to 23, inclusive, Lots 36 to 39, inclusive, of Dr. McMaster's
Addition, according to the plat thereof, as recorded in Liber 1 of Plats, Page 26, Cass County Records, AND ALSO Lots 52 to 63, inclusive,
Lots 72 to 78, inclusive, Lots 89 to 94, inclusive, Lots 103 to 112, inclusive, of Dr. McMaster's Second Addition, according to the plat
thereof, as recorded in Liber 1 of Plats, Page 32, Cass County Records, ALSO INCLUDING the vacated streets in said Additions lying East
of Louise Avenue, and the vacated alley lying between Lots 73 and 78 of said Second Addition, more particularly described as: Beginning
at the Southeast corner of Lot 9, Dr. McMaster's Addition to the City of Dowagiac, according to the plat thereof, as recorded in Liber
1 of Plats, Page 26, Cass County Records; said beginning point being 414.82 feet West of and 66.00 feet North of the center of said Section
31; thence along the Northwesterly boundary of West Railroad Street, South 35 degrees 54 minutes 52 seconds West 40.80 feet to a chiseled
X found on the North line of Prairie Ronde Street; thence West on said North line 186.48 feet to a bar and cap (54431) set on the East
line of Louise Avenue; thence North 00 degrees 39 minutes 27 seconds West on said East line 918.86 feet to a found MAG nail on the South
line of a vacated alley; thence South 89 degrees 46 minutes 37 seconds East on the South line of said vacated alley 132.26 feet to a found
MAG nail; thence North 00 degrees 41 minutes 13 seconds West 208.00 feet to a concrete monument found on the South line of Lot 104 of
said Second Addition; thence North 89 degrees 33 minutes 08 seconds West on the South line of Lots 104 and 103 of said Second Addition
132.10 feet to a found concrete monument; thence North 00 degrees 40 minutes 37 seconds West on the East line of Louise Avenue 193.53
feet to a bar and cap (38117) on the North line of Columbus Street of said Second Addition; thence West 8.04 feet to a bar and cap (38117)
found on the East line of Louise Avenue; thence North 00 degrees 31 minutes 32 seconds West 948.71 feet on the East line of Louise Avenue
to the North line of the South 1/2 of the Northeast 1/4 of the Northeast 1/4 of the Northwest 1/4 of said Section 31; thence South 89
degrees 55 minutes 32 seconds East on said North line 627.01 feet to the North and South 1/4 line of said Section 31; thence South 00
degrees 45 minutes 00 seconds East on said North and South 1/4 line 675.86 feet; thence South 54 degrees 23 minutes 41 seconds East 596.23
feet to a concrete monument found on the Westerly line of West Railroad Street; thence South 35 degrees 54 minutes 52 seconds West on
said Westerly line 1,497.35 feet to the Point of Beginning.
[Legal Description]
Exhibit B
Florida Property
Legal
Description:
Land Situated in the State of Florida, County
of Pinellas.
Parcel I:
Lot C, DEVOE'S SUBDIVISION, according to the
Plat thereof, as recorded in Plat Book 3, Page 12, of the Public Records of Pinellas County, Florida, and beginning at the Northwest corner
of Lot C, DEVOE'S SUBDIVISION, thence South 16°42' West along the Westerly line of Lot C, a distance of 52.2 feet to the Southwesterly
corner thereof, thence West along the Southerly line of Lot C, extended Westerly a distance of 0.5 feet to a point on the East line of
Lake Street (now known as 5th Street North); thence Northeasterly along the Easterly line of said Lake Street on a curve to the left,
radius 747.5 feet to a point on the South line of Third Avenue North extended Westerly 1.44 feet West of the POINT OF BEGINNING; thence
East along the South line of 3rd Avenue North to the Beginning.
Parcel II:
Lots A and B, and the North 1/2 of 10 feet
of vacated alley between the South Line of Lots A and B and the North Line of Lots G and H, DEVOE'S SUBDIVISION, according to the Plat
thereof, as recorded in Plat Book 3, Page 12, of the Public Records of Pinellas County, Florida.
Parcel III:
Lots F and G and the South 1/2 of Lot E, DEVOE'S
SUBDIVISION, according to the Plat thereof, as recorded in Plat Book 3, Page 12, of the Public Records of Pinellas County, Florida; TOGETHER
WITH a strip of land lying Westerly of and adjacent to the Westerly boundary of said Lot F and the South 1/2 of Lot E, and lying between
the Northerly boundary of said South 1/2 of Lot E and the Southerly boundary of said Lot F, extended Westerly to the Easterly boundary
of Lake Street (now known as 5th Street North), as established by the Plat of LAKE STREET, as recorded in Plat Book 6, Page 34, of the
Public Records of Hillsborough County, Florida, of which Pinellas County was formerly a part; ALSO TOGETHER WITH the South 1/2 of vacated
alley lying North of and adjacent to the North boundary of Lot G of said DEVOE'S SUBDIVISION, between the Northerly extension of the East
and West lines of said Lot G extended to the center of said vacated alley.
Parcel IV:
Lot H and the South 1/2 of the vacated alley
abutting the North boundary of said land and lying between the East and West boundary lines of said Lot extended North to the center of
said alley, DEVOE'S SUBDIVISION, according to the Plat thereof, as recorded in Plat Book 3, Page 12, of the Public Records of Pinellas
County, Florida.
Parcel V:
Lot D and the North
1/2 of Lot E, DEVOE'S SUBDIVISION, according to the Plat thereof, as recorded in Plat Book 3, Page 12, of the Public Records of Pinellas
County, Florida; TOGETHER WITH a strip of land lying Westerly of and adjacent to the Westerly boundary of said Lot D and said North 1/2
of Lot E, and lying between the Northerly boundary of said Lot D and the Southerly boundary of said North 1/2 of Lot E, extended Westerly
to the Easterly boundary of Lake Street (now known as 5th Street North) as established by the Plat of LAKE STREET, as recorded in Plat
Book 6, Page 34, of the Public Records of Hillsborough County, Florida, of which Pinellas County was formerly a part.
[Legal Description]
Exhibit 99.1
Ault Alliance Enters Agreement with Ault &
Company to Restructure of $17.5 Million of Liabilities into Long-Term Convertible Debt
LAS VEGAS--(BUSINESS WIRE) – October 16,
2023 – Ault Alliance, Inc. (NYSE American: AULT), a diversified holding company (“AAI,”
or the “Company”), today announced that it has entered into a note purchase agreement (the “Agreement”)
with Ault & Company, Inc., a related party (“A&C”). Pursuant to the Agreement, which closed upon execution
on October 13, 2023, AAI issued to A&C a senior secured convertible promissory note (the “Note”) and warrants (the
“Warrants”) to purchase shares of AAI’s common stock (“Common Stock”).
The Note and Warrants were paid by A&C through
(i) approximately $11.6 million of secured promissory notes previously issued by the Company, which have been assumed by A&C, for
which the Company has issued term notes to A&C in the same amount, which A&C canceled on closing, (ii) $4.6 million of loans made
by A&C to the Company pursuant to a credit agreement entered into between the parties in June 2023, which A&C canceled on closing,
and (iii) $1.3 million stated value of 125,000 outstanding shares of the Company’s Series B convertible preferred stock that A&C
has surrendered to the Company for retirement.
The Note accrues interest at the rate of 10% per
annum, is due five years after issuance, and is secured by a first priority security interest in all the assets of the Company and its
subsidiaries, though certain collateral comprising the security interest is subordinated to a security interest previously granted by
the Company and certain of its subsidiaries to an existing lender.
The Note is convertible, at the option of A&C,
into shares of Common Stock at a conversion price equal to the greater of (i) $0.10 per share (the “Floor Price”),
which Floor Price shall not, except for voting rights purposes, be adjusted for stock dividends, stock splits, stock combinations and
other similar transactions and (ii) the lesser of (A) $0.2952, or (B) a 5% premium to the closing sale price of the Common stock on the
day immediately prior to the date of conversion (the “Conversion Price”). The Conversion Price is subject to standard
anti-dilution provisions in connection with any stock split, stock dividend, subdivision or similar reclassification of the Common Stock.
The Note also has “full ratchet” price protection in the event the Company should issue securities at a lower price than the
Conversion Price.
A&C received Warrants to purchase up to 47.7
million shares of Common Stock, exercisable for five years at $0.1837 per share, subject to adjustment.
Milton “Todd” Ault, III, Executive
Chairman of AAI and Chief Executive Officer of A&C, commented, “A&C’s and its affiliates’ commitment to the
Company dates back to late 2016. Despite various evolutions, name shifts, and acquisitions effectuated by AAI, AAI’s primary objective
to foster a resilient holding company remains unchanged. This debt restructuring reflects A&C’s ongoing dedication to enable
AAI to meet its financial commitments and expand its business. Upon conversion of the Note, should A&C elect to pursue such conversion,
A&C looks forward to demonstrating its confidence in AAI through becoming the largest stockholder of AAI.”
The Note and Warrants will not be convertible
and/or exercisable unless and until approval is obtained for conversion and exercise from the NYSE American, and thereafter, not into
more than an aggregate of 19.99% of the total shares of Common Stock outstanding as of the date of the Agreement, unless the Company obtains
stockholder approval.
Additional information regarding the securities
described above and the terms of the Agreement, the Note and the Warrants will be included in a Current Report on Form 8-K to be filed
with the Securities and Exchange Commission (“SEC”).
The Note and Warrants were issued in reliance
upon the exemption from the securities registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities
Act”) as promulgated by SEC under the Securities Act.
This press release does not constitute an offer
to sell or the solicitation of an offer to buy the securities, nor will there be any sale of the securities in any jurisdiction in which
such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of such jurisdiction.
For more information
on AAI and its subsidiaries, AAI recommends that stockholders, investors, and any other interested parties read AAI’s public filings
and press releases available under the Investor Relations section at www.Ault.com
or at www.sec.gov/.
About Ault Alliance,
Inc.
Ault Alliance, Inc.
is a diversified holding company pursuing growth by acquiring undervalued businesses and disruptive technologies with a global impact.
Through its wholly and majority-owned subsidiaries and strategic investments, AAI owns and operates a data center at which it mines Bitcoin
and offers colocation and hosting services for the emerging artificial intelligence ecosystems and other industries, and provides mission-critical
products that support a diverse range of industries, including metaverse platform, oil exploration, crane services, defense/aerospace,
industrial, automotive, medical/biopharma, consumer electronics, hotel operations and textiles. In addition, AAI extends credit to select
entrepreneurial businesses through a licensed lending subsidiary. AAI’s headquarters are located at 11411 Southern Highlands Parkway,
Suite 240, Las Vegas, NV 89141; www.ault.com/.
Forward-Looking Statements
This press release contains
“forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended. These forward-looking statements generally include statements that are predictive
in nature and depend upon or refer to future events or conditions, and include words such as “believes,” “plans,”
“anticipates,” “projects,” “estimates,” “expects,” “intends,” “strategy,”
“future,” “opportunity,” “may,” “will,” “should,” “could,” “potential,”
or similar expressions. Statements that are not historical facts are forward-looking statements. Forward-looking statements are based
on current beliefs and assumptions that are subject to risks and uncertainties.
Forward-looking statements speak only as of the
date they are made, and the Company undertakes no obligation to update any of them publicly in light of new information or future events.
Actual results could differ materially from those contained in any forward-looking statement as a result of various factors. More information,
including potential risk factors, that could affect the Company’s business and financial results are included in the Company’s
filings with the U.S. Securities and Exchange Commission, including, but not limited to, the Company’s Forms 10-K, 10-Q and 8- K.
All filings are available at www.sec.gov and on the Company’s
website at www.ault.com/.
Ault Alliance Investor Contact:
IR@Ault.com or
1-888-753-2235
v3.23.3
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