Exhibit 10.5
LOAN AGREEMENT
This Loan Agreement
(this “Agreement”) is dated as of September 20, 2024 and is made and entered into between Quality Industrial Corp.,
a Nevada corporation (the “Company”), and J.J. Astor & Co., a Utah corporation (including its successors
and assigns, the “Lender”).
WHEREAS,
the Company wishes to borrow the sum of $300,000 for working capital, and the Company wishes to enter into this Agreement and the
Exhibits hereto and issue to the Lender, the promissory note in the form of Exhibit A hereto (the “Note”);
and
WHEREAS,
the Company and its Subsidiaries have agreed to further perfect and secure the Lender’s first priority Lien on all of the assets
and properties of the Company pursuant to the Security Agreement and Subsidiary Guarantees to be entered into on the Closing Date;
WHEREAS,
in consideration for the Loan and as an inducement to the Lender entering into this Agreement and the other Transaction Documents, the
Company has agreed to issue the Bonus Shares to the Lender on the Closing Date; and
WHEREAS,
the Company and the Lender are executing and delivering this Agreement in reliance upon an exemption from securities registration requirements
of the Securities Act of 1933, as amended (the “Securities Act”), afforded by the provisions of Section 4(a)(2) and/or
Rule 506(b) of Regulation D promulgated thereunder by the U.S. Securities and Exchange Commission.
NOW, THEREFORE,
in consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the Company and the Lender agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. In addition to the terms
defined elsewhere in this Agreement:
(a) capitalized
terms that are not otherwise defined herein have the meanings given to such terms in the Note (as defined herein), and (b) the following
terms have the meanings set forth in this Agreement.
“$” means United States Dollars.
“Action” shall have the meaning ascribed
to such term in Section 3.01(k).
“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.
“Board
of Directors” means the board of directors of the Company or Subsidiary of the Company, as the context may require or permit.
“Bonus
Shares” The Company shall issue to the Lender at Closing Two Million Five Hundred Thousand (2,500,000) restricted common shares
of the Company (including any securities issued or then issuable upon any stock split, dividend or other distribution, recapitalization
or similar event with respect to the foregoing).
“Business
Day” means any day except Saturday, Sunday, any day which is a federal legal holiday in the United States or any day on
which banking institutions in the State of Utah are authorized or required by law or other governmental action to close. 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.
“Closing”
means the closing of the transactions contemplated by this Agreement pursuant to Section 2.01.
“Closing
Date” means the Business Day when all of the Transaction Documents have been executed and delivered by the applicable parties
thereto, and conditions precedent to: (i) the Lender’s obligations to pay professional fees and Closing costs and provide working
capital to the Company, and (ii) the Company’s obligations to deliver the Note and the other Transaction Documents have been satisfied
or waived.
“Commission” means the United States
Securities and Exchange Commission.
“Common
Stock” means the common stock, par value $0.001 per share, of the Company and any other class of securities into which such
securities may hereafter be reclassified or changed.
“Common
Stock Equivalent” means any convertible note, convertible preferred stock, warrant, option or other right to receive or subscribe
for or purchase any additional shares of Common Stock or any Common Stock Equivalent.
“Company
Disclosure Schedule” means the disclosure schedule submitted by the Company to the Lender as exceptions to or disclosures in
respect of the representations and warranties of the Company set forth in this Agreement.
“Covenant
Compliance Guarantee” means the “limited guarantee agreement executed by John-Paul Backwell, the Chief Executive Officer
of the Company, the form of Exhibit D attached hereto.
“Conversion
Price” means 80% of the average of the four lowest volume weighted average closing prices of Company Common Stock over the twenty
(20) trading days immediately prior to each permitted conversion of the Note (the “Conversion Price Formula”); provided,
however, in the event that the Company issues any securities, including convertible notes or debentures, Common Stock or Common
Stock Equivalents at a conversion price, exercise price or per share price that is less such Conversion Price Formula, the Conversion
Price shall be reduced to the lowest conversion price, exercise price or per share price issued by the Company and the Maximum Conversion
Shares shall subject to appropriate increase as a result thereof.
“Conversion
Shares” shall mean the shares of Common Stock of the Company issuable upon any full or partial permitted conversion of the Note.
“Exempt
Issuance” means: (i) the issuance by the Company of the Note, Conversion Shares and the Bonus Shares, (ii) the issuance by
the Company of Common Stock upon the exercise of any outstanding stock option or warrant or the conversion of a security outstanding
on the date hereof as disclosed in the Company Disclosure Schedule, or (iii) the issuance by the Company of any Common Stock or standard
options to purchase Common Stock to directors, officers, employees or consultants of the Company or its Subsidiaries in their capacity
as such pursuant to an employee benefit plan which has been approved by the Board of Directors of the Company prior to the date hereof
pursuant to which Common Stock and standard options to purchase Common Stock may be issued to any employee, officer, director or consultant
for services provided to the Company or its subsidiaries in their capacity as such. For the avoidance of doubt, the term “Exempt
Issuance” does not mean or include the issuance of any other Indebtedness or debt securities (other than the Note and related Conversion
Shares) or any other Common Stock or Common Stock Equivalents by the Company or any Subsidiary, unless otherwise approved and consented
to in writing in advance by the Lender.
“Exchange Act”
means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“FINRA” means the Financial Industry
Regulatory Authority.
“Funding
Amount” means, with respect to the Note, ninety-six percent (96%) of the Subscription Amount. The Funding Amount takes into
account the Origination Fee due from the Company to the Lender in an amount equal to four percent (4%) of Offering Amount, which shall
be retained by the Lender at Closing for its own account.
“Indebtedness” has the meaning as that
term is defined in the Note constituting Exhibit A hereto.
“Intellectual Property Rights” shall
have the meaning ascribed to such term in Section 3.01(p).
“Liens” shall mean
a lien, charge, security interest, mortgage, encumbrance, right of first refusal, preemptive right or other restriction or adverse claim
of a third party.
“Loan” shall have the meaning ascribed
to such term in Section 2.01(a).
“Loan Parties” shall have the meaning
ascribed to such term in Section 3.01.
“Material Adverse Effect” shall have
the meaning ascribed to such term in Section 3.01(b).
“Maximum
Conversion Shares” means, upon the occurrence of any Event of Default (as defined in the Note) which shall not be timely cured
by the Loan Parties the outstanding principal amount of the Note shall automatically increase to 110%, and upon the request of the Lender,
all or any portion of such increased outstanding principal amount of the Note may be converted by the Lender into that number of shares
of Company Common Stock as shall be determined by (a) dividing 200% of the then increased outstanding principal amount of the Note by
(b) the Conversion Price then in effect.
“Note”
means the senior secured $405,000 Original Principal Amount note issued by the Company to the Lender hereunder, which shall be payable
in forty weekly installments of $10,125 and shall contain the other terms and conditions set forth the form of Note attached hereto as
Exhibit A.
“Offering
Amount” means the Three Hundred Thousand Dollars ($300,000) of funding to be evidenced by the Four Hundred and Five Thousand
Dollars ($405,000) in Original Principal Amount of the Note.
“Original
Principal Amount” means, with respect to the Note, the amount obtained by multiplying: (i) the Subscription Amount
for such Note under this Agreement by (ii) 1.35.
“Origination
Fee” shall mean the sum of $12,000 which shall be deducted from the Subscription Amount of the Loan at Closing and retained
by the Lender.
“Person”
means an individual or corporation, partnership, trust, incorporated or un-incorporated association, joint-venture, limited liability
company, joint-stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“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.
“Required Approvals” shall have the meaning
ascribed to such term in Section 3.01(e).
“Rule
144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.
“SEC Reports” has the meaning ascribed
to such term in Section 3.01(h).
“Securities Act”
means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Security Agreement”
means the Security Agreement, dated as of the date hereof, in the form of Exhibit C attached hereto.
“State
Securities Laws” means the securities (or “blue sky”) rules, regulations, or other similar laws of a particular
state.
“Subscription
Amount” means, with respect to the Note, the aggregate amount not to exceed $300,000 to be paid for such Note hereunder,
being the Offering Amount.
“Subsidiary”
means any subsidiary of the Company as set forth on Section 3.01(a) and listed in the Company Disclosure Schedule and shall, where applicable,
include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.
“Subsidiary
Guarantee” the Subsidiary Guarantee executed by each Subsidiary of the Company in the form of Exhibit B, attached
hereto.
“Transaction
Documents” means the collective reference to this Agreement, the Note, the Subsidiary Guarantee, the Security Agreement, Covenant
Compliance Guarantee. All other appendices, exhibits and schedules hereto and thereto and any other documents or agreements executed in
connection with the transactions contemplated hereunder.
ARTICLE
II
PURCHASE AND SALE
Section 2.01 Closing.
(a)
On the Closing Date, upon the terms and subject to the conditions set forth herein and in the other Transaction Documents to be
executed and delivered by the parties hereto and thereto, the Lender hereby agrees to make a loan of $300,000, less that Origination Fee
(the “Loan”), the Company hereby agrees to issue to the Lender the Note in Four Hundred and Five Thousand Dollars ($405,000)
Original Principal Amount and the Bonus Shares and the Lender hereby agrees to accept from the Company the Note and the Bonus Shares.
(b)
At the Closing, the Lender shall deliver to the Company, via wire transfer, of immediately available funds, an amount equal to
approximately $288,000, representing the Funding Amount.
(c)
The Company and its Subsidiaries shall deliver to the Lender such Note and other Transaction Documents to be delivered as of the
Closing Date and the Lender shall deliver the other items set forth in Section 2.02 deliverable at the Closing.
(d)
Upon satisfaction of the conditions set forth in Sections 2.02 and 2.03, the Closing shall occur at the offices of the Lender’s
counsel, or such other location as the parties shall mutually agree or may be closed remotely by electronic delivery of documents.
Section 2.02 Closing
Deliverables.
(a) By
Lender. On or prior to the Closing Date, the Lender shall deliver or cause to be delivered to the Company the following:
| (i) | this Agreement duly executed by the Lender; |
| (ii) | the Security Agreement, the form of which is attached hereto as Exhibit C,
duly executed by the Lender; |
| (iii) | the Funding Amount, by wire transfer to the Lender’s counsel pursuant to the
wiring instructions set forth in Section 2.03(c); and |
| (iv) | the Flow of Funds Agreement duly executed
by the Lender and in the form of Exhibit E attached hereto; and |
| (v) | the Registration Rights Agreement duly executed by the Lender and in the form of Exhibit F attached hereto. |
(b) By
the Company. On or prior to the Closing Date, the Company shall deliver or cause to be delivered to the Lender:
| (i) | this Agreement, duly executed by an authorized officer of behalf of the Company; |
| (ii) | a Note, the form of which is attached hereto as Exhibit A, registered
in the name of the Lender, in the Original Principal Amount calculated in accordance herewith, duly executed by an authorized officer
on behalf of the Company; |
| (iii) | the Subsidiary Guarantee, the form of which is attached hereto as Exhibit
B, executed by an authorized officer on behalf of each Subsidiary of the Company; |
| (iv) | the Security Agreement, the form of which is attached hereto as Exhibit C,
executed by an authorized officer on behalf of each Subsidiary of the Company; |
| (v) | the Covenant Compliance Guarantee, executed by John-Paul Backwell, as Chief Executive
Officer of the Company the form of which is attached hereto as Exhibit D; |
| (vi) | the Flow of Funds Agreement duly executed by the Company and in the form of Exhibit
E attached hereto; |
| (vii) | the Registration Rights Agreement duly executed by the Company and in the form of
Exhibit F attached hereto; |
| (viii) | An Irrevocable Instruction letter addressed to the Company’s transfer agent
with respect to the shares of Common Stock issuable upon any full or partial conversion of the Note, executed by an authorized officer
of the Company and acknowledged and accepted by transfer agent, to be in such form and substance as is acceptable to the Investor in its
sole discretion; and |
| (ix) | an officer’s certificate of the Company and each Subsidiary certifying its:
(A) charter (or similar formation document); (B) good standing certificate in its state of incorporation (or formation);
(C) bylaws (or similar governing document); and (D) resolutions of its Board of Directors (or similar governing body) approving and authorizing
the execution, delivery and performance of the Transaction Documents to which it is (or is to be) a party. |
Section 2.03 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 Lender’s
representations and warranties contained herein; |
| (ii) | all obligations, covenants and agreements of the Lender required to be performed
at or prior to the Closing Date shall have been performed; and |
| (iii) | the delivery by the Lender of the items set forth in Section 2.02(a) of this Agreement. |
(b)
The obligations of the Lender hereunder in connection with the Closing are subject to the following conditions being met (it being
understood that the Company may waive any of the conditions for any Closing hereafter):
| (i) | the accuracy in all material respects (or, to the extent representations or warranties
are qualified by materiality or Material Adverse Effect, in all respects) when made and on the Closing Date of the representations and
warranties of the Company 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 Company and its Subsidiaries required
to be performed at or prior to the Closing Date shall have been performed; |
| (iii) | the delivery by the Company and its Subsidiaries of the items set forth in Section
2.02(b) of this Agreement; |
| (iv) | there shall have been no Material Adverse Effect with respect to the Company or
any Subsidiary of the Company since the date hereof; and |
(c) The wiring instructions for the Company are as follows:
| |
Bank Name: |
Evolve Bank & Trust |
| |
|
|
| |
ABA No. |
084106768 |
| |
Acct. Name: |
Quality Industrial Corp. |
| |
Acct. No.: |
9800589864 |
ARTICLE
III
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and
Warranties of the Company. The Company hereby represents and warrants to the Lender on behalf of the Company and each of its
Subsidiaries (together with the Company, the “Loan Parties”) that, except as set forth in the applicable Section
of the Company Disclosure Schedule the Company Disclosure Schedule, the following representations are true and complete as of the
date of the date hereof.
(a) Subsidiaries.
The names of all Subsidiaries of the Company, their jurisdictions of formation, and the executive officers of each Subsidiary are
set forth in Section 3.01(a) of the Company Disclosure Schedule. Each such Subsidiary has executed and delivered the Subsidiary
Guarantee and the Security Agreement.
(b) Organization
and Qualification. The Company is duly incorporated or otherwise organized, validly existing and in good standing under the laws
of the Nevada and each of its Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the state of incorporation (or other formation), with the requisite power and authority to own and use
its properties and assets and to carry on its business as currently conducted. Neither the Company nor any of its Subsidiaries is in
violation or default of any of the provisions of its articles of incorporation or bylaws, each, as amended and in effect. A complete
and correct copy of the Company’s certificate or articles of incorporation and bylaws, each as amended and in effect on the
date of this Agreement and as they will be in effect on the Closing Date, is attached to the officer’s certificate referenced
in Section 2.02(b)(v). There are no other organizational or charter documents of the Company or any of its Subsidiaries. The Company
and each of its Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity
in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary,
except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to
result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document; (ii) a material
adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and
each of its Subsidiaries or any of their respective material assets or lines of business, individually; or (iii) a material adverse
effect on the Company’s or any of its Subsidiaries’ ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no
Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such
power and authority or qualification; provided, however, that “Material Adverse Effect” shall not include any
event, occurrence, fact, condition or change, directly or indirectly, arising out of or attributable to: (i) general economic or
political conditions, (ii) conditions generally affecting the industry in which the Company or any Subsidiary operates, (iii) any
changes in financial or securities markets in general, (iv) acts of war (whether or not declared), armed hostilities or terrorism,
or the escalation or worsening thereof, (v) any pandemic, epidemics or human health crises (including COVID-19), (vi) any changes in
applicable laws or accounting rules, (vii) the announcement, pendency or completion of the transactions contemplated by the
Transaction Documents, or (viii) any action required or permitted by the Transaction Documents or any action taken (or omitted to be
taken) with the written consent of or at the written request of the Lender.
(c) Authorization;
Enforcement. The Company and each of its Subsidiaries has the requisite corporate power and authority to enter into and to
consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations hereunder
and thereunder. The execution and delivery of each of the 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 each
of its Subsidiaries and no further action is required by the Company, any of its Subsidiaries or the Board of Directors or
stockholders thereof in connection therewith (other the Required Approvals). Each Transaction Document to which the Company or any
of its Subsidiaries is a party has been (or upon delivery will have been) duly executed by the Company and such Subsidiaries and,
when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company and
such Subsidiaries enforceable against the Company and such Subsidiaries in accordance with their respective 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 and each of its Subsidiaries of the Transaction Documents to
which it is (or is to be) a party and the consummation by the Company and of its Subsidiaries of the other transactions contemplated
hereby and thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any of its
Subsidiaries’ certificate 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 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, agreement or other instrument
(evidencing Indebtedness of the Company or any Subsidiary, or otherwise) or other understanding to which the Company or any of its
Subsidiaries is a party or by which any property or asset of the Company or any of its Subsidiaries 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 any of its Subsidiaries is subject
(including federal and State Securities Laws and regulations), or by which any property or asset of the Company or any of its
Subsidiaries 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 and its Subsidiaries are 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 their execution, delivery and performance of the Transaction Documents, other than: (i)
such consents, waivers, or authorizations as have been obtained before the Closing; and (ii) 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) Maximum
Conversion Shares. The Company has reserved from its duly authorized Common Stock a number of shares of Common Stock, up to the
sum of the Bonus Shares to be issued at Closing plus the Maximum Conversion Shares for issuance to the Lender or its Affiliates in
the event of the full permitted conversion of the Note.
(g) Capitalization.
The capitalization of the Company is as set forth in the most recent SEC Reports and as further modified in Section 3.01(g) of the
Company Disclosure Schedule. The Company has no Indebtedness, except as disclosed in the most recent SEC Reports and in Section
3.01(g) of the Company Disclosure Schedule. Since the date of the most recently filed SEC Report, the Company has not issued any
Common Stock, Common Stock Equivalents or other equity interests (other than Exempt Issuances) or (without duplication) pursuant to
the conversion and/or exercise of Common Stock Equivalents outstanding as of the date hereof. Except in instances where valid
waivers have been obtained, 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 set forth in the SEC Reports and further
modified in Section 3.01(g) of the Company Disclosure Schedule, 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 Common Stock or the capital stock
of any Subsidiary, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become
bound to issue additional Common Stock or Common Stock Equivalents or capital stock of any Subsidiary. The issuance and sale of the
Note will not obligate the Company or any Subsidiary to issue any securities to any Person (other than the Lender) 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 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. Except for the Required
Approvals and waivers that have heretofore been obtained, no further approval or authorization of any stockholder, Board of
Directors or other Person(s) is required for the issuance and sale of the Note hereunder.
(h) 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 years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material)
(the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively
referred to herein as the “SEC Reports”). 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 SEC 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 year-end audit
adjustments.
(i) Undisclosed
Liabilities. The Company has no liability, indebtedness, obligation, expense, claim, deficiency or guaranty of any type, whether
accrued, absolute, contingent, matured, unmatured or otherwise, required to be reflected in financial statements in accordance with
GAAP, which individually or in the aggregate: (A) has not been reflected in the latest balance sheet included in the financial
statements referenced hereinabove; or (B) has not arisen: (i) in the ordinary course of business, consistent with past practices,
since the date of the latest balance sheet included in such financial statements in an amount that does not exceed $25,000 in any
one case or $50,000 in the aggregate, (ii) pursuant to or in connection with this Agreement or other Transaction Document, or (c)
are executory performance obligations to be performed after the date hereof in the ordinary course of business pursuant to
agreement(s) entered into in the ordinary course of business, consistent with past practices. The Company is not in default with
respect to any Indebtedness.
(j) Material
Changes. Since the date of the latest financial statements made available to Lender prior to the date hereof: (A) there has been
no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect; (B)
the Company has not incurred any liabilities (contingent or otherwise) other than (i) trade payables and accrued expenses incurred
in the ordinary course of business consistent with past practice, and (ii) liabilities not required to be reflected in the
Company’s financial statements pursuant to GAAP; (C) the Company has not altered their method of accounting; (D) 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 except; and (E) the Company has not issued any equity
securities except in favor of an officer, director or consultant pursuant to an existing Company equity incentive plans.
(k) 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 of its Subsidiaries or any of their respective properties or assets before or by
any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign)
(collectively, an “Action”) which: (A) adversely affects or challenges the legality, validity or enforceability
of any of the Transaction Documents; or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result
in a Material Adverse Effect. None of the Company or any director or officer thereof, is or has been the subject of anyAction
involving: (x) a claim of violation of or liability under the Securities Act, the Exchange Act, FINRA rules or any State Securities
Laws; (y) breach of fiduciary duty; or (z) fraud (statutory or common law), embezzlement, misappropriation or conversion of property
or rights, or any other crime involving deceit.
(l) Labor
Relations. No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the
Company or any of its Subsidiaries which could reasonably be expected to result in a Material Adverse Effect. None of the
Company’s or any of its Subsidiaries’ employees is a member of a union that relates to such employee’s
relationship with the Company or its Subsidiary, and the Company and each of its Subsidiaries is not a party to any collective
bargaining agreement. The Company believes that its relationships with its employees are good. No executive officer, to the
knowledge of the Company, is, or is now expected to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement or non- competition agreement, or any other contract or agreement
or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not
subject the Company to any liability with respect to any of the foregoing matters. To the best of the Company’s knowledge, it
is in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment
practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not,
individually or in the a and each of its Subsidiaries aggregate, reasonably be expected to have a Material Adverse Effect.
(m) Compliance.
Except as disclosed set forth in Section 3.01(m) of the Company Disclosure Schedule, the Company and each of its Subsidiaries: (i)
is neither in default under nor 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 its Subsidiary under), nor has the Company or any of its Subsidiaries
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 not in violation of any order of any court, arbitrator or governmental body; and (iii) is not
and has not been in material violation of any statute, law, rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its business and all such laws that affect the environment.
(n) Regulatory
Permits. The Company and each of its Subsidiaries possesses all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities necessary to conduct its business, except where the failure to
possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material
Permits”), and the Company has not received any notice of proceedings relating to the revocation or modification of any
Material Permit.
(o) Title
to Assets. The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and
marketable title in all personal property owned by it that, in each case, is material to the business of the Company and its
Subsidiaries, in each case free and clear of all Liens, except for Liens disclosed in Section 3.01(o) of the Company Disclosure
Schedule that do not materially and adversely (x) affect the value of such property or (y) interfere with the use made and proposed
to be made of such property by the Company and its Subsidiaries. Any real property and facilities held under lease by the Company or
a Subsidiary is held by it under valid, subsisting and enforceable leases with which the Company or such Subsidiary (as applicable)
are in compliance.
(p) Patents
and Trademarks. (i) The Company or a Subsidiary thereof has, or has rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, trade secrets, inventions, copyrights, software, websites, licenses and
other intellectual property rights and similar rights as necessary or material for use in connection with its business
(collectively, the “Intellectual Property Rights”); (ii) the Company has not received a notice (written or
otherwise) that any of the Intellectual Property Rights violates or infringes upon the intellectual property rights of any other
Person; (iii) all Intellectual Property Rights are enforceable by the Company or its Subsidiary, and there is no existing
infringement by any other Person of any of the Intellectual Property Rights, except where the failure to be so enforceable or for
such infringements as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; and
(iv) the Company has taken reasonable security measures to protect the secrecy, confidentiality and value of all of its Intellectual
Property Rights, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
(q) Transactions
with Officers, Directors and Employees. None of the officers or directors of the Company or any of its Subsidiaries and, to the
knowledge of the Company, none of the employees of the Company or any of its Subsidiaries, is presently a party to any transaction
with the Company (other than for services as employees, officers and directors and related party notes as identified in the SEC
Reports), 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, or otherwise requiring payments to or from, any such officer, director or employee
or, to the knowledge of the Company, any entity in which any such officer, director or employee has a substantial interest or is an
officer, director, trustee, member or partner, in each case other than for: (x) payment of salary or fees for services rendered; (y)
reimbursement for expenses incurred on behalf of the Company; and (z) other employee benefits, including stock option agreements
under any stock option plan of the Company.
(r) Indebtedness.
All Indebtedness owed by the Loan Parties to all other Persons disclosed in the most recent SEC Reports and in Section 3.01(g) and
Section 3.01(r) of the Company Disclosure Schedule is unsecured and is not currently due and payable.
(q) Private
Placement. Assuming the accuracy of the Lender’s representations and warranties set forth in Section 3.02, no registration
under the Securities Act is required for the offer and sale of the Note by the Company to the Lender as contemplated hereby.
(r) Investment
Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Note will not be or 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 be an “investment company” subject to registration
under the Investment Company Act of 1940, as amended.
(s) Registration
Rights. Other than as described in the SEC Reports, as set forth in the Registration Rights Agreement and further modified by
Section 3.01(s) of the Company Disclosure Schedule, no Person has any right to demand the Company to file a registration statement
under the Securities Act covering the sale of any securities of the Company.
(t) Disclosure.
Except with respect to: (i) the material terms and conditions of the transactions contemplated by the Transaction Documents; and
(ii) information given to the Lender, if any, which the Company hereby confirms will not constitute material non-public information,
the Company confirms that neither it nor any other Person acting on its behalf has provided any of the Lender or their agents
or counsel withany information that it believes constitutes or might constitute material, nonpublic information. The Company
understands and confirms that the Lender will rely on the foregoing representation in effecting transactions in securities of the
Company. All disclosure furnished by or on behalf of the Company to the Lender regarding the Company, its business and the
transactions contemplated hereby, 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.
(u) No
Integrated Offering. Assuming the accuracy of the Lender’s representations and warranties set forth in Section 3.02,
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 Note to be integrated with prior offerings by the Company for purposes of the Securities Act which would require the
registration of any such securities under the Securities Act.
(v) Solvency.
Based on the consolidated financial condition of the Company as of the Closing Date after giving effect to the receipt by the
Company of the proceeds from the sale of the Note 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, 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 will not, after the Closing Date, 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). Except as disclosed in Section 3.01(v) of the Company Disclosure Schedule, 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.
(w) Tax
Status. Except as set forth in Section 3.01(w) of the Company Disclosure Schedule. The Company has filed all federal, state and
foreign income and franchise tax returns and have paid or accrued all taxes shown as due thereon, and the Company has no knowledge
of a tax deficiency which has been asserted or threatened against the Company.
(x) No
General Solicitation. Neither the Company nor any Person acting on behalf of the Company has offered or sold any of the Note by
any form of general solicitation or general advertising. The Company has offered the Note for sale only to the Lender and certain
other “accredited investors” within the meaning of Rule 501 under the Securities Act.
(y) Insurance.
As set forth in Section 3.01(y) of the Company Disclosure Schedule, the Company and each of its Subsidiaries is insured by insurers
of recognized financial responsibility against such losses and risks and in such amounts as management of the Company reasonably
believes to be prudent and customary in the businesses in which the Company is engaged. The Company has never been refused any
insurance coverage sought or applied for, and the Company has no reason to believe that it will not be able to renew all existing
insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers.
(z) Acknowledgment
Regarding Lender’s Purchase of the Note. The Company acknowledges and agrees that each of the Lender 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 acknowledges that Lender is not acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by Lender or any
of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby
is merely incidental to the Lender’s purchase of the Note. The Company further represents to the Lender 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.
(aa) No
Disqualification Events. With respect to the Note to be offered and sold hereunder in reliance on Rule 506(b) under the
Securities Act (“Regulation D Securities”), none of the Company, any of its predecessors, any affiliated issuer,
any director, executive officer, other officer of the Company participating in the offering hereunder, any beneficial owner of
twenty percent (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” and, together, “Issuer Covered Persons”) 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. The Company has
complied, to the extent applicable, with its disclosure obligations under Rule 506(e), and has furnished to the Lender a copy of any
disclosures provided thereunder.
(bb) Other
Covered Persons. The Company is not aware of any person (other than any Issuer Covered Person) that has been or will be paid (directly
or indirectly) remuneration for solicitation of purchasers in connection with the sale of any Regulation D Securities.
(cc) Notice
of Disqualification Events. The Company will notify the Lender 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.
(dd) Foreign
Corrupt Practices. Neither the Company nor, to the knowledge of the Company, no agent or other person acting on behalf of the Company,
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 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 the Foreign Corrupt Practices Act.
(ee) Office
of Foreign Assets Control. Neither the Company 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”).
(ff) U.S. Real
Property Holding Corporation. The Company is not and has never been a U.S. real property holding corporation within the meaning
of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company shall so certify upon Lender’s request.
(gg) Bank
Holding Company Act. Neither the Company nor any of its Affiliates is subject to the Bank Holding Company Act of 1956, as amended
(“BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (“Federal Reserve”). Neither
the Company nor any of its 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 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.
(hh) Money
Laundering. The operations of the Company are and have been conducted at all times in compliance 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 or Proceeding by
or before any court or governmental agency, authority or body or any arbitrator involving the Company with respect to the Money Laundering
Laws is pending or, to the knowledge of the Company, threatened.
(ii)
Representations. The representations and
warranties of the Company contained in this Agreement, and the certificate(s) furnished or to be furnished to the Lender at the Closing,
when taken as a whole, do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to
make the statements contained herein or therein not misleading in light of the circumstances under which they were made. The Company
acknowledges and agrees that the representations contained in section 3.02 shall not modify, amend or affect Lender’s right to
rely on the Company’s representations and warranties contained in this section 3.01 or elsewhere in this Agreement or any representations
and warranties contained in any other Transaction Document, or any other document or instrument executed and/or delivered in connection
with this Agreement or the consummation of the transactions contemplated hereby.
Section 3.02 Representations and
Warranties of the Lender.
The Lender,
for itself and for no other Person, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as
follows (unless as of a specific date therein, in which case they shall be accurate as of such date):
(a) Authority;
Organization. The Lender has full power and authority to enter into this Agreement and to perform all obligations required to be
performed by it hereunder. If an entity, the Lender is an entity duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization with full right, corporate or partnership power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents and otherwise to carryout its obligations hereunder and
thereunder. The execution and delivery of the Transaction Documents and performance by the Lender of the transactions contemplated
by the Transaction Documents have been duly authorized by all necessary corporate or similar action on the part of the Lender. Each
Transaction Document to which it is a party has been duly executed by the Lender, and when delivered by the Lender in accordance
with the terms hereof, will constitute the valid and legally binding obligation of the Lender, enforceable against it 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.
(b) Own
Account. The Lender understands that the Note, the Bonus Shares and the Conversion Shares are “restricted
securities” and have not been registered under the Securities Act or any applicable State Securities Law and is acquiring the
Note, the Bonus Shares and Conversion Shares as principal for its own account and not with a view to or for distributing or
reselling such the Note, the Bonus Shares or Conversion Shares or any part thereof in violation of the Securities Act or any
applicable State Securities Law, has no present intention of distributing anyof such the Note, the Bonus Shares or Conversion Shares
in violation of the Securities Act or any applicable State Securities Law and has no direct or indirect arrangement or
understandings with any other persons to distribute or regarding the distribution of such the Note (this representation and warranty
not limiting the Lender’s right to sell the Note, the Bonus Shares or Conversion Shares in compliance with applicable federal
and State Securities Laws) in violation of the Securities Act or any applicable State Securities Law. The Lender is acquiring the
Note hereunder in the ordinary course of its business.
(c) Non-Transferrable.
The Lender agrees: (i) that the Lender will not sell, assign, pledge, give, transfer or otherwise dispose of the Note, the Bonus
Shares or Conversion Shares or any interest therein, or make any offer or attempt to do any of the foregoing, except pursuant to a
registration of the Note, the Bonus Shares and Conversion Shares under the Securities Act and all applicable State Securities Laws,
or in a transaction which is exempt from the registration provisions of the Securities Act and all applicable State Securities Laws,
(ii) that the certificates representing the Note will bear a legend making reference to the foregoing restrictions, and (iii) that
the Company and its Affiliates shall not be required to give effect to any purported transfer of such the Note, the Bonus Shares and
Conversion Shares except upon compliance with the foregoing restrictions.
(d) Lender
Status. The Lender is an “accredited investor” as defined in Rule 501(a) under Regulation D of the Securities Act.
The undersigned agrees to furnish any additional information requested by the Company or any of its Affiliates to assure compliance
with applicable U.S. federal and state securities laws in connection with the purchase and sale of the Note. Any information that
has been furnished or that will be furnished by the undersigned to evidence its status as an accredited investor is accurate and
complete, and does not contain any misrepresentation or material omission.
(e) Experience
of The Lender. The Lender, 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 prospective investment in the Note,
and has so evaluated the merits and risks of such investment. The Lender is able to bear the economic risk of an investment in the
Note and, at the present time, is able to afford a complete loss of such investment.
(f) No
Trading Market. The Lender acknowledges that there is currently no trading market for the Note and that none is expected to
develop for the Note.
(g) General
Solicitation. The Lender acknowledges that neither the Company nor any other person offered to sell the Note to it by means of
any form of general solicitation or advertising, including, but not limited to: (i) any advertisement, article, notice, or other
communication published in any newspaper, magazine or similar media or broadcast over television or radio, or (ii) any seminar or
meeting whose attendees were invited by any general solicitation or general advertising.
(h) Confidentiality.
Other than to other Persons party to this Agreement and its advisors who have agreed to keep information confidential or have a
fiduciary obligation to keep such information confidential, the Lender has maintained the confidentiality of all disclosures made to
it in connection with the transaction (including the existence and terms of this transaction).
(i) Foreign
Lender. If the Lender is not a United States person, the Lender represents that it has satisfied itself as to the full
observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Note or any use of this Agreement,
including: (i) the legal requirements within its jurisdiction for the purchase of the Note, (ii) any foreign exchange restrictions
applicable to such purchase, (iii) any governmental or other consents that may need to be obtained, and (iv) the income tax and
other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale or transfer of the Note. The Lender
further represents that its payment for, and its continued beneficial ownership of the Note, will not violate any applicable
securities or other laws ofits jurisdiction.
(j) Information
from Company. The Lender and its investment managers, if any, have been afforded the opportunity to obtain any information
necessary to verify the accuracy of any representations or information presented by the Company in this Agreement and have had all
inquiries to the Company answered, and have been furnished all requested materials, relating to the Company and the Offering and
sale of the Note and anything set forth in the Transaction Documents. Neither the Lender nor the Lender’s investment managers,
if any, have been furnished any offering literature by the Company or any of its Affiliates, associates, or agents other than the
Transaction Documents, and the agreements referenced therein.
(k) [Intentionally Omitted]
(l) Speculative
Nature of Investment; Risk Factors. THE LENDER UNDERSTANDS THAT AN INVESTMENT IN THE NOTES INVOLVES A HIGH DEGREE OF RISK. The
Lender acknowledges that: (i) any projections, forecasts or estimates as may have been provided to the Lender are purely speculative
and cannot be relied upon to indicate actual results that may be obtained through this investment; any such projections, forecasts
and estimates are based upon assumptions which are subject to change and which are beyond the control of the Company or its
management, (ii) the tax effects which may be expected by this investment are not susceptible to absolute prediction, and new
developments and rules of the Internal Revenue Service, audit adjustment, court decisions or legislative changes may have an adverse
effect on one or more of the tax consequences of this investment, and (iii) the Lender has been advised to consult with his own
advisor regarding legal matters andtax consequences involving this investment. The Lender represents that the Lender’s
investment objective is speculative in that the Lender seeks the maximum total return through an investment in a broad spectrum of
securities, which involves a higher degree of risk than other investment styles and therefore the Lender’s risk exposure is
also speculative. The Note offered hereby are highly speculative and involve a high degree of risk and Lender should only purchase
these securities if Lender can afford to lose their entire investment.
(m) Money
Laundering. If an entity, the operations of the Lender are and have been conducted at all times in compliance with applicable
financial record-keeping and reportingrequirements 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 or Proceeding by or before any court or governmental agency, authority or body or any arbitrator
involving the Company with respect to the Money Laundering Laws is pending or, to the knowledge of the Company or any Subsidiary,
threatened.
The Company
acknowledges and agrees that the representations contained in Section 3.02 shall not modify, amend or affect the Lender’s right
to rely on the Company’s representations and warranties contained in this Agreement or any representations and warrantiescontained
in any other Transaction Document or any other document or instrument executed and/or delivered in connection with this Agreement or the
consummation of the transaction contemplated hereby.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
Section 4.01 Affirmative and
Negative Covenants. Each of the Loan Parties hereby covenants and agrees that until all obligations owed to the Lender shall have
been paid in full, without the prior written approval of the Lender:
| (a) | the Loan Parties shall not incur any Indebtedness, other than as expressly permitted
by this Agreement; |
| (b) | the Loan Parties shall not engage in the public or private sale of any securities,
including convertible and non-convertible notes or debentures, Common Stock or Common Stock Equivalents, except as expressly permitted
in the Note or other Transaction Documents; |
| (c) | no payments of Indebtedness shall be paid to any related party; |
| (d) | the Loan Parties shall not permit any Person, including any Remaining Lender to
have a Lien of any of the assets of any of the Loan Parties; |
| (e) | the Loan Parties shall comply with all of the additional affirmative and negative
covenants set forth in the Note and the Security Agreement. |
Section 4.02 Transfer Restrictions.
(a)
The Note, Bonus Shares and Conversion Shares may only be disposed of in compliance with state and federal securities laws. In connection
with any transfer of the Note, Bonus Shares or Conversion Shares other than pursuant to an effective registration statement or Rule 144,
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 the Note, Bonus Shares and Conversion Shares under the Securities Act.
As a condition of such sale or transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall
have the rights of Lender under this Agreement.
(b) The
Lender agrees to the imprinting, so long as is required by this Section 4.01, of a legend on any of the Note, the Bonus Shares and Conversion
Shares in the following form:
THIS SECURITY HAS NOT BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY THIS SECURITY.
Section 4.03
Use of Proceeds; Restrictions on Certain Payments. The Company shall use the net proceeds hereunder for general working capital
purposes.
Section 4.04
Future Subsidiaries. Each Subsidiary of the Company (or any of its Subsidiaries) formed or acquired after the Closing Date shall
promptly thereafter execute and deliver (or otherwise join and agreed to be bound as a Subsidiary of the Company under) the Subsidiary
Guaranty and the Security Agreement.
Section 4.05
Sale of Securities. Without the prior written consent of Lender, neither the Company nor any of its Subsidiaries shall sell, offer
for sale or solicit offers to buy or otherwise negotiate in any private placement or public offering the sale of any security (as defined
in Section 2 of the Securities Act) including any notes, debentures or other evidence of Indebtedness, or any Common Stock or Common Stock
Equivalents. Notwithstanding the foregoing in the event and to the extent that the Lender permits the Company to sell any Common Stock
or Common Stock Equivalents, all net proceeds received or receivable by the Company from such sale(s) shall be used to prepay the then
entire Outstanding Principal Amount of the Note.
Section 4.06 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 Note to the Lender in a manner that would require
the registration under the Securities Act of the issuance and sale of the Note to the Lender.
Section 4.07
Publicity. The Company and the Lender shall consult with each other in issuing any other press releases and SEC Reports with respect
to the transactions contemplated hereby, and neither the Company nor the Lender shall issue any such press release or SEC Report nor otherwise
make any such public statement without the prior consent of the Company with respect to any press release of the Lender, or without the
prior consent of the Lender with respect to any press release or SEC Report of the Company mentioning the Lender, which consent shall
not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly
provide the other party with prior notice of such public statement, SEC Report or communication.
Section
4.08 Indemnification of Lender. The Company shall indemnify, reimburse and hold harmless the Lender and its partners,
members, shareholders, officers, directors, employees and agents (and any other persons with other titles that have similar
functions) (collectively, “Indemnitees”) from and against any and all losses, claims, liabilities, damages,
penalties, suits, costs and expenses, of any kind or nature, (including fees relating to the cost of investigating and 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: (i) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement
or in the other Transaction Documents and (ii) any action instituted against such Indemnitee in any capacity, or any of them or
their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Indemnitee, with respect to any of
the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Indemnitee’s
representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Indemnitee may
have with any such stockholder or any violations by such Indemnitee of state or federal securities laws or any conduct by such
Indemnitee which results from the gross negligence or willful misconduct of the Indemnitee as determined by a final, non-appealable
decision of a court of competent jurisdiction).
Section 4.09
Reservation of Conversion Shares. The Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance
pursuant to the Note in such amount, as the Maximum Conversion Shares, as may then be required to fulfill its obligations in full under
the Note. If, on any date, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than the Maximum
Conversion Shares on such date, then the Board of Directors of the Company shall use commercially reasonable efforts to amend the Company’s
certificate or articles of incorporation to increase the number of authorized but unissued shares of Common Stock to at least the Maximum
Conversion Shares at such time, as soon as possible and in any event not later than the 60th day after such date.
Section 4.10
Board Observation Rights. The Lender shall have the right, so long the Note is outstanding, to appoint one individual as a non-voting
observer (the “Observer”) to the Board of Directors of the Company (the “Board”), who shall initially
be Jarom Heaps. The Observer may be replaced at any time by the Lender and shall be entitled to attend all meetings of the Board and any
committees of the Board and to receive all information provided to the members of the Board or its committees (including minutes of previous
meetings of the Board or such committees). The Company shall provide the Observer copies of all notices, minutes, consents and other materials
that it provides to the members of the Board (or committee, as applicable), at the same time and in the same manner as such information
is delivered to the Board members (or committee members, as applicable).
ARTICLE V
MISCELLANEOUS
Section 5.01
Termination. This Agreement may be terminated by the Lender by written notice to the Company if the Closing has not been consummated
on or before 3rd Business Day after the date of the execution and delivery of this Agreement by both parties; provided that such
termination will not affect the right of any party to sue for any breach by the other party.
Section
5.02 Fees and Expenses. The Company shall bear its own expenses incurred in connection with its negotiation, preparation, execution,
delivery and performance of the Transaction Documents, including, without limitation, reasonable attorneys’ and consultants’
fees and expenses, transfer agent fees, fees for stock quotation services, fees relating to any amendments or modifications of the Transaction
Documents or any consents or waivers of provisions in the Transaction Documents, fees for the preparation of opinions of counsel, escrow
fees, and costs of restructuring the transactions contemplated by the Transaction Documents. When possible, the Company must pay these
fees directly, including, but not limited to, any and all wire fees, otherwise the Company must make immediate payment for reimbursement
to the Lender for all fees and expenses immediately upon written notice by the Lender or the submission of an invoice by the Lender.
In addition, the Company shall pay the origination fee of $120,000 to the Lender as specified hereinabove.
Section 5.03
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 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.
Section 5.04 Notices. Any notice,
request, instruction or other document to be given hereunder by any party to the others shall be in writing and delivered personally
or sent by registered or certified mail, postage prepaid, or by or email:
if to Lender:
J.J. Astor & Co.
26 S Rio Grande Street, #2072
Salt Lake City, Utah
84101
Attn: Michael Pope
Email: Michael.p@jjastor.com
with a copy to:
Barton, LLP
711 Third Avenue, 14th Floor
New York,
New York 10017
if to the Company:
Quality Industrial Corp
315 Montgomery St
San Francisco, CA 94104
Attn: John-Paul Backwell
Email: jp.backwell@qualityindustrialcorp.com
with a copy to:
Lucosky Brookman
111 Broadway, Suite 807
New York, NY, 10006
Att:
Chris Haunschild
Email: chaunschild@lucbro.com
or to such other persons or addresses as may be designated
in writing by the party to receive such notice as provided above.
Section 5.05
Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented, or amended except in a written instrument
signed, in thecase of an amendment, by the Company and the Lender 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 bedeemed to be a continuing waiver in the future or a waiver of any subsequent default or awaiver 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.
Section 5.06
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 Lender
(other than by merger). The Lender may assign any or all of its rights under this Agreement to any Person to whom the Lender assigns or
transfers the Note, and/or participate any of such rights in connection with granting of any participation of the Note, provided that
such transfer or participation complies with all applicable federal and State Securities Laws and that any such transferee or participant
agrees in writing by the provisions of the Transaction Documents that apply to the Lender.
Section 5.07
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.
Section 5.08 Arbitration and Governing
Law.
(a) Arbitration
of Disputes. In the event and to the extent that a claim or dispute arises out of, or in relation to this Agreement or any other
Transaction Document, including without limitation, the terms, construction, interpretation, performance, termination, breach, or
enforceability of this Agreement or such Transaction Document(s), the Parties hereby each agree that the claim or dispute shall be,
at the election of any Party within thirty (30) days after the claim or dispute arises, resolved by mandatory binding arbitration in
Utah, except that Lender may, at its election, maintain any action for equitable relief in the Third Judicial District, Salt Lake
County, Utah, including seeking the appointment of a receiver, judicial foreclosure, an accounting of Collateral, restraining orders
or injunctions or other equitable relief without a right to compel arbitration by the Company or any Subsidiary Guarantor. To the
extent that an arbitration occurs, the Parties agree that the arbitration shall be administered by JAMS and the arbitration shall be
conducted in accordance with the Expedited Procedures of the JAMS Comprehensive Arbitration Rules and Procedures except as otherwise
agreed in this Agreement. The arbitrator shall be chosen in accordance with the procedures of JAMS, and shall base the award on
applicable Utah law, and in connection therewith each of the Loan Parties hereby expressly waive any right to seek an exemption from
Utah law based on any public policies or principles of any other State. The Parties agree that the arbitration shall be conducted
before a single arbitrator. Judgment on the award may be entered in any federal or state court in the State of Utah and in the
federal courts of any other State. The Parties further agree that the costs of the arbitration shall be divided equally between the
Company and the Lender until a prevailing Party is determined, at which time the non-prevailing Party shall be charged the
prevailing Party’s share of the arbitration fees. Each Party may pursue arbitration solely in an individual capacity, and not
as a representative or class member in any purported class or representative proceeding. The arbitrator may not consolidate more
than one Person’s claims, and may not otherwise preside over any form of a representative or class proceeding. This arbitration
section is governed by the Federal Arbitration Act, 9 U.S.C. §§ 1-16.
(b) Governing
Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents,
including, without limitation, the enforcement of any award by the arbitrator, shall be governed by and construed and enforced in
accordance with the internal laws of the State of Utah, 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) that is not initially submitted to arbitration in accordance with Section 5.08(a) above, shall be commenced
exclusively in the federal and state courts sitting in Salt Lake County, Salt Lake City, Utah (the “Utah
Courts”). Each Party hereto hereby irrevocably submits to the exclusive jurisdiction of the Utah Courts for the
enforcement of any arbitration award or 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 Utah Courts, or that such Utah Courts are improper or inconvenient venue for such proceeding or that such Party
may obtain an exemption from Utah law based on any public policies or principles of any other State or jurisdiction. 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 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 the Transaction Documents or the
transactions contemplated hereby. If any Party shall commence an Action or Proceeding to enforce any provisions of the Transaction
Documents, then the prevailing Party in such Action or Proceeding shall be reimbursed by the other Party for its attorney’s
fees and other costs and expenses incurred in the investigation, preparation and prosecution of such Action or Proceeding.
Section 5.09
Survival. The representations and warranties contained herein shall survive the Closing and the delivery of the Note.
Section 5.10
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 the other party, it
being understood that both 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 datafile, 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 was an original thereof.
Section 5.11
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 hereinshall 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.
Section 5.12
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 Lender 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 Lender 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.
Section 5.13
Replacement of the Note. If any certificate or instrument evidencing the Note is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon 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 or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable
third-party costs (including customary indemnity) associated with the issuance of such replacement the Note.
Section 5.14
Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages,
the Lender and the Company will be entitled to seek 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.
Section
5.15 Payment Set Aside. To the extent that the Company makes a payment or payments to the Lender pursuant to any Transaction
Document or the Lender 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 enforcementor setoff had not occurred.
Section 5.16
Construction. The parties agree that each of them and/or their respective counsel has 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 hereto. 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.
Section 5.17
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.
Section 5.18
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.
[SIGNATURE
PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties
hereto have caused this Loan Agreement to be duly executed by their respective authorized signatories as of the date below.
| |
Company: |
| |
|
| |
QUALITY INDUSTRIAL CORP. |
| |
|
| |
By: |
/s/ John-Paul Backwell |
| |
Name: |
John-Paul Backwell |
| |
Title: |
Chief Executive Officer |
| |
|
| |
Lender: |
| |
|
| |
J.J. ASTOR & CO. |
| |
|
| |
By: |
/s/ Michael Pope |
| |
Name: |
Michael Pope |
| |
Title: |
Chief Executive Officer |
DISCLOSURE SCHEDULES
Schedule 3.01(a)
Subsidiaries
Company Subsidiaries
| Legal Name |
Formation Jurisdiction |
| Al Shola Al Modea Gas Distribution LLE |
United Arab Emirates |
Executive Officers of all Subsidiaries
Schedule 3.01(g)
Capitalization
Schedule 3.01(m)
Compliance
Schedule 3.01(o)
Title to Assets
Schedule
3.01(s)
Registration Rights
Schedule 3.01(v)
Solvency
