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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
27, 2023 (October 26, 2023)
DIGITAL
ALLY, INC.
(Exact
Name of Registrant as Specified in Charter)
Nevada |
|
001-33899 |
|
20-0064269 |
(State
or other Jurisdiction |
|
(Commission |
|
(IRS
Employer |
of
Incorporation) |
|
File
Number) |
|
Identification
No.) |
14001
Marshall Drive, Lenexa, KS 66215
(Address
of Principal Executive Offices) (Zip Code)
(913)
814-7774
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of exchange on which registered |
Common
stock, $0.001 par value |
|
DGLY |
|
The
Nasdaq Capital Market LLC |
Check
the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under
any of the following provisions:
☐ |
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|
|
☐ |
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
|
|
☐ |
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
|
|
☐ |
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
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 ☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 1.01 Entry into a Material Definitive Agreement.
On
October 26, 2023, Digital Ally, Inc. (the “Company”) entered into a Loan and Security Agreement (the “Loan Agreement”)
by and between the Company, Digital Ally Healthcare, Inc., a Nevada corporation and wholly-owned subsidiary of the Company (“Digital
Ally Healthcare” and, together with the Company, the “Borrower”), and Kompass Kapital Funding, LLC, a Kansas
limited liability company (“Kompass”). In connection with the Loan Agreement, on October 26, 2023, the Company entered
into a Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing (the “Mortgage”) by and between
the Company, as grantor, and Kompass, as grantee, and issued a Revolving Note (the “Revolving Note”) to Kompass.
The gross proceeds to the Company are $4,880,000 before repaying those certain Senior Secured Convertible Notes issued on
April 5, 2023 in the aggregate amount of $3,162,500 and paying customary fees and expenses.
Pursuant
to the Loan Agreement, Kompass agreed to make revolving loans (the “Revolving Loans”) available to the Borrower as
the Borrower may from time to time request until, but not including, October 26, 2025, and in such amounts as the Borrower may from time
to time request, provided, however, that the aggregate principal balance of the Revolving Loans outstanding at any time shall not exceed
the lesser of $4,880,000.00 or an amount equal to eighty percent of the value of the mortgaged property, which consists of the real
property owned by the Company having an address of 14001 Marshall Drive, Lenexa, KS 66215 (the “Mortgaged Property”).
Under the Loan Agreement, the Revolving Loans made by Kompass may be repaid and, subject to customary terms and conditions, borrowed
again up to, but not including October 26, 2025, unless the Revolving Loans are otherwise accelerated, terminated or extended as provided
in the Loan Agreement. The Revolving Loans shall be used by the Borrower for the purpose of working capital and to retire existing debt.
Under the Loan Agreement, the Borrower is required to provide written notice to Kompass prior to creating, assuming or incurring any
debt or becoming liable, whether as endorser, guarantor, surety or otherwise, for any debt or obligation of any other party. While obligations
remain outstanding under the Loan Agreement, the Borrower is required to maintain a minimum balance of $97,600 in a reserve account (the
“Capital Reserve Account”). Under the Loan Agreement, the Borrower is prohibited from creating, assuming, incurring
or suffering or permitting to exist any lien of any kind or character upon the collateral, which consists of the Mortgaged Property and the Company’s
interest in the Capital Reserve Account. The Loan Agreement contains customary covenants, representations and warranties by the Borrower.
Pursuant
to the Loan Agreement, the Company issued the Revolving Note to Kompass whereby the Company and Digital Ally Healthcare jointly
and severally promise to pay to the order of Kompass the lesser of (i) $4,880,000.00, or (ii) the aggregate principal amount of all Revolving
Loans outstanding under and pursuant to the Loan Agreement at the maturity or maturities and in the amount or amounts stated on the records
of Kompass, together with interest (computed on the actual number of days elapsed on the basis of a 360 day year) at a floating per annum
rate equal to the greater of (i) the Prime Rate plus four percent or (ii) eight percent, on the aggregate principal amount of all Revolving
Loans outstanding from time to time as provided in the Loan Agreement.
The
Company entered into the Mortgage to secure its obligations under the Loan Agreement. The property mortgaged under the Mortgage consists
of the Mortgaged Property. The Mortgage contains customary covenants, representations and warranties by the Company.
The foregoing summaries
provide only a brief description of the Loan Agreement, Mortgage, and Revolving Note. The summaries do not purport to be complete and
are qualified in their entireties by the full text of such documents, copies of which are attached as Exhibits 10.1, 10.2, and 10.3,
respectively, and incorporated herein by reference.
Item 2.01 Completion of Acquisition or Disposition of Assets.
The
information included in Item 1.01 of this Form 8-K is hereby incorporated by reference into this Item 2.01.
Item
2.03 Creation of a Direct Financial
Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
The
information included in Item 1.01 of this Form 8-K is hereby incorporated by reference into this Item 2.03.
Item 9.01 Financial Statements and Exhibits.
(d)
Exhibits
See
the Exhibit Index below, which is incorporated by reference herein.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
|
Digital
Ally, Inc. |
|
|
|
Date:
October 27, 2023 |
By: |
/s/
Stanton E. Ross |
|
Name: |
Stanton
E. Ross |
|
Title: |
Chairman
and Chief Executive Officer |
Exhibit 10.1
LOAN
AND SECURITY AGREEMENT
This
LOAN AND SECURITY AGREEMENT dated as of October 26, 2023 (the “Effective Date”) (the “Agreement”), is
executed by and between DIGITAL ALLY, INC., a Nevada corporation (“Digital Ally”), and DIGITAL ALLY HEALTHCARE,
LLC, a Nevada limited liability company (“Healthcare”; and individually and collectively with Digital Ally, the “Borrower”),
each of which has its chief executive office located at 14001 Marshall Drive, Lenexa, Kansas 66215, and KOMPASS KAPITAL FUNDING, LLC,
a Kansas limited liability company (the “Lender”), whose address is 9800 Metcalf Avenue, Suite 120, Overland Park,
Kansas 66212.
R
E C I T A L S:
A.
The Borrower desires to borrow funds and obtain other financial accommodations from the Lender.
B.
Pursuant to the Borrower’s request, the Lender is willing to extend such financial accommodations to the Borrower under the terms
and conditions set forth herein.
NOW
THEREFORE, in consideration of the premises, and the mutual covenants and agreements set forth herein, the Borrower agrees to borrow
from the Lender, and the Lender agrees to lend to the Borrower, subject to and upon the following terms and conditions:
A
G R E E M E N T S:
Section
1. DEFINITIONS.
1.1
Defined Terms. For the purposes of this Agreement, the following capitalized words and phrases shall have the meanings set forth
below.
“Account
Control Agreement” shall have the meaning set forth in Section 6.4
“Affiliate”
of any Person shall mean (a) any other Person which, directly or indirectly, controls or is controlled by or is under common control
with such Person, (b) any officer or director of such Person, and (c) with respect to the Lender, any entity administered or managed
by the Lender, or an Affiliate or investment advisor thereof and which is engaged in making, purchasing, holding or otherwise investing
in commercial loans. A Person shall be deemed to be “controlled by” any other Person if such Person possesses, directly or
indirectly, power to direct or cause the direction of the management and policies of such Person whether by contract, ownership of voting
securities, membership interests or otherwise.
“Bankruptcy
Code” shall mean the United States Bankruptcy Code, as now existing or hereafter amended.
“Borrower’s
Knowledge” shall mean the actual knowledge of any officer, director, or other principal employee of the Borrower or knowledge
that any such person should have using reasonable care, diligence or inquiry.
“Business
Day” shall mean any day other than a Saturday, Sunday or a legal holiday on which banks are authorized or required to be closed
for the conduct of commercial banking business in Kansas.
“Capital
Lease” shall mean, as to any Person, a lease of any interest in any kind of property or asset, whether real, personal or mixed,
or tangible or intangible, by such Person, as lessee, that is, or should be, in accordance with Financial Accounting Standards Board
Statement No. 13, as amended from time to time, or, if such statement is not then in effect, such statement of GAAP as may be applicable,
recorded as a “capital lease” on the financial statements of such Person prepared in accordance with GAAP.
“Capital
Reserve Account” shall have the meaning set forth in Section 3.1(d).
“Capital
Securities” shall mean, with respect to any Person, all shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person’s capital, whether now outstanding or issued or acquired after the date hereof, including
common shares, preferred shares, membership interests in a limited liability company, limited or general partnership interests in a partnership
or any other equivalent of such ownership interest.
“Capitalized
Lease Obligations” shall mean, as to any Person, all rental obligations of such Person, as lessee under a Capital Lease which
are or will be required to be capitalized on the books of such Person.
“Collateral”
shall have the meaning set forth in Section 6.1 hereof.
“Commodity
Exchange Act” means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, and any successor
statute.
“Contingent
Liability” and “Contingent Liabilities” shall mean, respectively, each obligation and liability of the Borrower
and all such obligations and liabilities of the Borrower incurred pursuant to any agreement, undertaking or arrangement by which the
Borrower: (a) guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or
otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against
loss) the indebtedness, dividend, obligation or other liability of any other Person in any manner (other than by endorsement of instruments
in the course of collection), including without limitation, any indebtedness, dividend or other obligation which may be issued or incurred
at some future time; (b) guarantees the payment of dividends or other distributions upon the shares or ownership interest of any other
Person; (c) undertakes or agrees (whether contingently or otherwise): (i) to purchase, repurchase, or otherwise acquire any indebtedness,
obligation or liability of any other Person or any property or assets constituting security therefor, (ii) to advance or provide funds
for the payment or discharge of any indebtedness, obligation or liability of any other Person (whether in the form of loans, advances,
stock purchases, capital contributions or otherwise), or to maintain solvency, assets, level of income, working capital or other financial
condition of any other Person, or (iii) to make payment to any other Person other than for value received; (d) agrees to lease property
or to purchase securities, property or services from such other Person with the purpose or intent of assuring the owner of such indebtedness
or obligation of the ability of such other Person to make payment of the indebtedness or obligation; (e) to induce the issuance of, or
in connection with the issuance of, any letter of credit for the benefit of such other Person; or (f) undertakes or agrees otherwise
to assure a creditor against loss. The amount of any Contingent Liability shall (subject to any limitation set forth herein) be deemed
to be the outstanding principal amount (or maximum permitted principal amount, if larger) of the indebtedness, obligation or other liability
guaranteed or supported thereby.
“Debt”
shall mean, as to any Person, without duplication, (a) all indebtedness of such Person; (b) all borrowed money of such Person (including
principal, interest, fees and charges), whether or not evidenced by bonds, debentures, notes or similar instruments; (c) all obligations
to pay the deferred purchase price of property or services; (d) all obligations, contingent or otherwise, with respect to the maximum
face amount of all letters of credit (whether or not drawn), bankers’ acceptances and similar obligations issued for the account
of such Person (including the letters of credit), and all unpaid drawings in respect of such letters of credit, bankers’ acceptances
and similar obligations; (e) all indebtedness secured by any Lien on any property owned by such Person, whether or not such indebtedness
has been assumed by such Person (provided, however, if such Person has not assumed or otherwise become liable in respect of such indebtedness,
such indebtedness shall be deemed to be in an amount equal to the fair market value of the property subject to such Lien at the time
of determination); (f) the aggregate amount of all Capitalized Lease Obligations of such Person; (g) all Contingent Liabilities of such
Person, whether or not reflected on its balance sheet; (h) all bank product obligations of such Person; (i) all Debt of any partnership
of which such Person is a general partner; and (j) all monetary obligations of such Person under (i) a so-called synthetic, off-balance
sheet or tax retention lease, or (ii) an agreement for the use or possession of property creating obligations that do not appear on the
balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the indebtedness
of such Person (without regard to accounting treatment). Notwithstanding the foregoing, Debt shall not include trade payables and accrued
expenses incurred by such Person in accordance with customary practices and in the ordinary course of business of such Person.
“Default
Rate” shall mean a per annum rate of interest equal to the applicable interest rate plus five percent (5.00%).
“Disclosure
Schedules” means the disclosure schedules delivered by the Borrower to the Lender concurrently with the execution and delivery
of this Agreement.
“Employee
Plan” includes any pension, stock bonus, employee stock ownership plan, retirement, profit sharing, deferred compensation,
stock option, bonus or other incentive plan, whether qualified or nonqualified, or any disability, medical, dental or other health plan,
life insurance or other death benefit plan, vacation benefit plan, severance plan or other employee benefit plan or arrangement, including,
without limitation, those pension, profit-sharing and retirement plans of the Borrower described from time to time in the financial statements
of the Borrower and any pension plan, welfare plan, Defined Benefit Pension Plans (as defined in ERISA) or any multi-employer plan, maintained
or administered by the Borrower or to which the Borrower is a party or may have any liability or by which the Borrower is bound.
“Environmental
Laws” shall mean all present or future federal, state or local laws, statutes, common law duties, rules, regulations, ordinances
and codes, together with all administrative or judicial orders, consent agreements, directed duties, requests, licenses, authorizations
and permits of, and agreements with, any governmental authority, in each case relating to any matter arising out of or relating to public
health and safety, or pollution or protection of the environment or workplace, including any of the foregoing relating to the presence,
use, production, generation, handling, transport, treatment, storage, disposal, distribution, discharge, emission, release, threatened
release, control or cleanup of any Hazardous Substance.
“ERISA”
shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.
“Event
of Default” shall mean any of the events or conditions which are set forth in Section 11 hereof.
“Floor
Rate” means a per annum rate of interest equal to eight percent (8.00%).
“GAAP”
shall mean generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting
Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which
are applicable to the circumstances as of the date of determination, provided, however, that interim financial statements or reports
shall be deemed in compliance with GAAP despite the absence of footnotes and fiscal year-end adjustments as required by GAAP.
“Hazardous
Substances” shall mean (a) any petroleum or petroleum products, radioactive materials, asbestos in any form that is or
could become friable, urea formaldehyde foam insulation, dielectric fluid containing levels of polychlorinated biphenyls, radon gas and
mold; (b) any chemicals, materials, pollutant or substances defined as or included in the definition of “hazardous substances”,
“hazardous waste”, “hazardous materials”, “extremely hazardous substances”, “restricted hazardous
waste”, “toxic substances”, “toxic pollutants”, “contaminants”, “pollutants” or
words of similar import, under any applicable Environmental Law; and (c) any other chemical, material or substance, the exposure
to, or release of which is prohibited, limited or regulated by any governmental authority or for which any duty or standard of care is
imposed pursuant to, any Environmental Law.
“Indemnified
Party” and “Indemnified Parties” shall mean, respectively, each of the Lender and any parent corporation,
Affiliate or Subsidiary of the Lender, and each of their respective officers, directors, employees, attorneys and agents, and all of
such parties and entities.
“Lien”
shall mean, with respect to any Person, any interest granted by such Person in any real or personal property, asset or other right owned
or being purchased or acquired by such Person (including, without limitation, an interest in respect of a Capital Lease) which secures
payment or performance of any obligation and shall include any mortgage, lien, encumbrance, title retention lien, charge or other security
interest of any kind, whether arising by contract, as a matter of law, by judicial process or otherwise.
“Loan
Documents” shall mean each of the agreements, documents, instruments and certificates set forth in Section 3.1 hereof,
and any and all such other instruments, documents, certificates and agreements from time to time executed and delivered by the Borrower,
or any of their Subsidiaries for the benefit of the Lender pursuant to any of the foregoing, and all amendments, restatements, supplements
and other modifications thereto.
“Loans”
shall mean, collectively, all Revolving Loans made by the Lender to the Borrower, under and pursuant to this Agreement.
“Material
Adverse Effect” shall mean (a) a material adverse change in, or a material adverse effect upon, the assets, business, properties,
prospects, condition (financial or otherwise) or results of operations of the Borrower taken as a whole, (b) a material impairment of
the ability of the Borrower to perform any of the Obligations under any of the Loan Documents, or (c) a material adverse effect on (i)
any substantial portion of the Collateral, (ii) the legality, validity, binding effect or enforceability against the Borrower of any
of the Loan Documents, (iii) the perfection or priority of any Lien granted to the Lender under any Loan Document, or (iv) the rights
or remedies of the Lender under any Loan Document.
“Mortgage”
shall mean the Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of the approximate date hereof,
by Digital Ally for the benefit of the Lender, encumbering the Mortgaged Property, as may be amended, restated, or otherwise modified.
“Mortgaged
Property” shall mean the real property located at 14001 Marshall Drive, Lenexa, Kansas 66215, that is pledged to Lender pursuant
to the Mortgage.
“Note”
shall mean the Revolving Note.
“Obligations”
shall mean the Loans, as evidenced by any Note, all interest accrued thereon (including interest which would be payable as post-petition
in connection with any bankruptcy or similar proceeding, whether or not permitted as a claim thereunder), any fees due the Lender hereunder,
any expenses incurred by the Lender hereunder and any and all other liabilities and obligations of the Borrower to the Lender under this
Agreement and any other Loan Document, including any reimbursement obligations of the Borrower in respect of letters of credit and surety
bonds, and all other obligations of the Borrower owed to the Lender or an Affiliate of the Lender, all in each case howsoever created,
arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, together
with any and all renewals or extensions thereof.
“Obligor”
shall mean the Borrower, any guarantor, accommodation endorser, third party pledgor, or any other party liable with respect to the Obligations.
“Organizational
Certificates” means, with respect to any Person that is a corporation, limited partnership or limited liability company, a
certificate of the appropriate official(s) of the jurisdiction of organization of such Person and each jurisdiction of foreign qualification
in which such Person is required to maintain foreign qualification to lawfully transact business in such jurisdiction, certifying as
to (i) the subsistence in good standing of, (ii) the authority to transact business by and (iii) the payment of taxes by, such Person
in such jurisdiction(s).
“Organizational
Documents” means (i) with respect to any Person that is a corporation, the articles of incorporation and bylaws of such corporation,
(ii) with respect to any Person that is a limited partnership, the articles of formation and partnership agreement of such limited partnership,
(iii) with respect to any Person that is a limited liability company, the articles of organization or certificate of formation and operating
agreement or limited liability company agreement of such limited liability company, (iv) with respect to any Person that is a trust,
the trust agreement governing such trust, and (v) with respect to any Person that is a general partnership, the partnership agreement
of such general partnership.
“Organizational
Identification Number” means, with respect to Borrower, the organizational identification number assigned to Borrower by the
applicable governmental unit or agency of the jurisdiction of organization of the Borrower.
“Permitted
Liens” shall mean (a) Liens for Taxes, assessments or other governmental charges not at the time delinquent or
thereafter payable without penalty or being contested in good faith by appropriate proceedings and, in each case, for which it maintains
adequate reserves in accordance with GAAP and in respect of which no Lien has been filed; (b) Liens arising in the ordinary course of
business (such as (i) Liens of carriers, warehousemen, mechanics and materialmen and other similar Liens imposed by law, and (ii) Liens
in the form of deposits or pledges incurred in connection with worker’s compensation, unemployment compensation and other types
of social security (excluding Liens arising under ERISA) or in connection with surety bonds, bids, performance bonds and similar obligations)
for sums not overdue or being contested in good faith by appropriate proceedings and not involving any advances or borrowed money or
the deferred purchase price of property or services, which do not in the aggregate materially detract from the value of the property
or assets of the Borrower or materially impair the use thereof in the operation of the Borrower’s business and, in each case, for
which it maintains adequate reserves in accordance with GAAP and in respect of which no Lien has been filed; (c) Liens described on Schedule
9.2 as of the Effective Date; (d) attachments, appeal bonds, judgments and other similar Liens, for sums not exceeding
Fifty Thousand and 00/100 Dollars ($50,000.00) arising in connection with court proceedings, provided the execution or other enforcement
of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith and by appropriate proceedings
and to the extent such judgments or awards do not constitute an Event of Default under Section 11.8 hereof; (e) easements, rights of
way, restrictions, minor defects or irregularities in title and other similar Liens not interfering in any material respect with the
ordinary conduct of the business of the Borrower; (f) Liens arising in connection with Capitalized Lease Obligations (and attaching only
to the property being leased); (g) Liens that constitute purchase money security interests on any property securing Debt incurred for
the purpose of financing all or any part of the cost of acquiring such property, provided that any such Lien attaches to such
property within twenty (20) days of the acquisition thereof and attaches solely to the property so acquired; and (h) Liens
granted to the Lender hereunder and under the Loan Documents.
“Person”
shall mean any natural person, partnership, limited liability company, corporation, trust, joint venture, joint stock company, association,
unincorporated organization, government or agency or political subdivision thereof, or other entity, whether acting in an individual,
fiduciary or other capacity.
“Pledge
Agreement” shall have the meaning set forth in Section 3.1(d).
“Prime
Rate” shall mean Prime Rate published by The Wall Street Journal, adjusting on a monthly basis. The Lender shall not
be obligated to give notice of any change in the Prime Rate.
“Revolving
Interest Rate” shall mean a floating per annum rate of interest equal to the greater of (i) the Prime Rate plus four
percent (4.00%), or (ii) the Floor Rate.
“Revolving
Loan” and “Revolving Loans” shall mean, respectively, each direct advance and the aggregate of all such
direct advances made by the Lender to the Borrower under and pursuant to this Agreement, as set forth in Section 2.1 of this Agreement.
“Revolving
Loan Availability” shall mean, at any time, an amount equal to the lesser of (i) the Revolving Loan Commitment, or (ii) an
amount equal to eighty percent (80%) of the value of the Mortgaged Property, as set forth in the appraisal delivered to Lender pursuant
to Section 3.1(e)(vi).
“Revolving
Loan Commitment” shall mean FOUR MILLION EIGHT HUNDRED EIGHTY THOUSAND AND 00/100 DOLLARS ($4,880,000.00).
“Revolving
Loan Maturity Date” shall mean October 26, 2025, unless extended by the Lender pursuant to any modification, extension or renewal
note executed by the Borrower and accepted by the Lender in its sole and absolute discretion in substitution for the Revolving Note.
“Revolving
Note” shall mean a revolving note in the form prepared by and acceptable to the Lender, dated as of the date hereof, in the
amount of the Revolving Loan Commitment and maturing on the Revolving Loan Maturity Date, duly executed by the Borrower and payable to
the order of the Lender, together with any and all renewal, extension, modification or replacement notes executed by the Borrower and
delivered to the Lender and given in substitution therefor.
“Subsidiary”
and “Subsidiaries” shall mean, respectively, with respect to any Person, each and all such corporations, partnerships,
limited partnerships, limited liability companies, limited liability partnerships, joint ventures or other entities of which or in which
such Person owns, directly or indirectly, such number of outstanding Capital Securities as have more than fifty percent (50.00%) of the
ordinary voting power for the election of directors or other managers of such corporation, partnership, limited liability company or
other entity. Unless the context otherwise requires, each reference to Subsidiaries herein shall be a reference to Subsidiaries of the
Borrower.
“Taxes”
shall mean any and all present and future taxes, duties, levies, imposts, deductions, assessments, charges or withholdings, and any and
all liabilities (including interest and penalties and other additions to taxes) with respect to the foregoing.
“UCC”
shall mean the Uniform Commercial Code in effect in the state of Kansas from time to time.
“Unmatured
Event of Default” shall mean any event which, with the giving of notice, the passage of time or both, would constitute an Event
of Default.
“Voidable
Transfer” shall have the meaning set forth in Section 13.21 hereof.
“Wholly-Owned
Subsidiary” shall mean any Subsidiary of which or in which the Borrower owns, directly or indirectly, one hundred percent (100%)
of the Capital Securities of such Subsidiary.
1.2
Accounting Terms. Any accounting terms used in this Agreement which are not specifically defined herein shall have the meanings
customarily given them in accordance with GAAP. Calculations and determinations of financial and accounting terms used and not otherwise
specifically defined hereunder and the preparation of financial statements to be furnished to the Lender pursuant hereto shall be made
and prepared, both as to classification of items and as to amount, in accordance with sound accounting practices and GAAP as used in
the preparation of the financial statements of the Borrower on the date of this Agreement. If any changes in accounting principles or
practices from those used in the preparation of the financial statements are hereafter occasioned by the promulgation of rules, regulations,
pronouncements and opinions by or required by the Financial Accounting Standards Board or the American Institute of Certified Public
Accountants (or any successor thereto or agencies with similar functions), which results in a material change in the method of accounting
in the financial statements required to be furnished to the Lender hereunder or in the calculation of financial covenants, standards
or terms contained in this Agreement, the parties hereto agree to enter into good faith negotiations to amend such provisions so as equitably
to reflect such changes to the end that the criteria for evaluating the financial condition and performance of the Borrower will be the
same after such changes as they were before such changes; and if the parties fail to agree on the amendment of such provisions, the Borrower
will furnish financial statements in accordance with such changes, but shall provide calculations for all financial covenants, perform
all financial covenants and otherwise observe all financial standards and terms in accordance with applicable accounting principles and
practices in effect immediately prior to such changes. Calculations with respect to financial covenants required to be stated in accordance
with applicable accounting principles and practices in effect immediately prior to such changes shall be reviewed and certified by the
Borrower’s accountants.
1.3
Other Terms Defined in UCC. All other capitalized words and phrases used herein and not otherwise specifically defined herein
shall have the respective meanings assigned to such terms in the UCC, to the extent the same are used or defined therein.
1.4
Other Interpretive Provisions.
(a)
The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms. Whenever the context so requires,
the neuter gender includes the masculine and feminine, the single number includes the plural, and vice versa, and in particular the word
“Borrower” shall be so construed.
(b)
Section and Schedule references are to this Agreement unless otherwise specified. The words “hereof”, “herein”
and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not
to any particular provision of this Agreement.
(c)
The term “including” is not limiting, and means “including, without limitation”.
(d)
In the computation of periods of time from a specified date to a later specified date, the word “from” means “from
and including”; the words “to” and “until” each mean “to but excluding”, and the word “through”
means “to and including”.
(e)
Unless otherwise expressly provided herein, (i) references to agreements (including this Agreement and the other Loan Documents)
and other contractual instruments shall be deemed to include all subsequent amendments, restatements, supplements and other modifications
thereto, but only to the extent such amendments, restatements, supplements and other modifications are not prohibited by the terms of
any Loan Document, and (ii) references to any statute or regulation shall be construed as including all statutory and regulatory
provisions amending, replacing, supplementing or interpreting such statute or regulation.
(f)
To the extent any of the provisions of the other Loan Documents are inconsistent with the terms of this Loan Agreement, the provisions
of this Loan Agreement shall govern.
(g)
This Agreement and the other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are cumulative and each shall be performed in accordance with its terms.
Section
2. COMMITMENT
OF THE LENDER.
2.1
Revolving Loans.
(a)
Revolving Loan Commitment. Subject to the terms and conditions of this Agreement and the other Loan Documents, and in reliance
upon the representations and warranties of the Borrower set forth herein and in the other Loan Documents, the Lender agrees to make such
Revolving Loans at such times as the Borrower may from time to time request until, but not including, the Revolving Loan Maturity Date,
and in such amounts as the Borrower may from time to time request, provided, however, that the aggregate principal balance of all Revolving
Loans outstanding at any time shall not exceed the Revolving Loan Availability. Revolving Loans made by the Lender may be repaid and,
subject to the terms and conditions hereof, borrowed again up to, but not including the Revolving Loan Maturity Date unless the Revolving
Loans are otherwise accelerated, terminated or extended as provided in this Agreement. The Revolving Loans shall be used by the Borrower
for the purpose of working capital.
(b)
Revolving Loan Interest and Payments. The principal amount of the Revolving Loans outstanding from time to time shall bear interest
at the applicable Revolving Interest Rate. Accrued and unpaid interest on the unpaid principal balance of all Revolving Loans outstanding
from time to time, shall be due and payable monthly, in arrears, commencing on October 26, 2023 and continuing on the [same] day of each
calendar month thereafter, and on the Revolving Loan Maturity Date. Any amount of principal or interest on the Revolving Loans which
is not paid when due, whether at stated maturity, by acceleration or otherwise, shall bear interest payable on demand at the Default
Rate.
(c)
Revolving Loan Principal Payments.
(i)
Revolving Loan Mandatory Payments. All Revolving Loans hereunder shall be repaid by the Borrower on the Revolving Loan Maturity
Date, unless payable sooner pursuant to the provisions of this Agreement. In the event the aggregate outstanding principal balance of
all Revolving Loans hereunder exceeds the Revolving Loan Availability, the Borrower shall, without notice or demand of any kind, immediately
make such repayments of the Revolving Loans or take such other actions as are satisfactory to the Lender as shall be necessary to eliminate
such excess, all without further demand, presentment, protest or notice of any kind, all of which are hereby waived by the Borrower.
(ii)
Optional Prepayments. The Borrower may from time to time prepay the Revolving Loans, in whole or in part, subject to the following
conditions:
(A)
Any prepayment of the entire principal balance of the Revolving Loans shall include accrued interest on such Revolving Loans to the date
of such prepayment;
(B)
Not less than ten (10) days prior to the date upon which the Borrower desires to make such prepayment, the Borrower shall deliver to
the Lender written notice of its intention to prepay the Revolving Loan, which notice shall be irrevocable and state the prepayment amount
and the prepayment date;
(C)
If such prepayment is made using funds from an issuance of non-convertible Debt, the Borrower shall pay to the Lender, concurrently with
any such prepayment, a prepayment premium equal to three percent (3%) of the amount of principal prepaid; and
(D)
The Borrower shall pay to the Lender all accrued and unpaid interest on the Revolving Loan through the date of such prepayment on the
principal balance being prepaid.
2.2
Reserved.
2.3
Interest and Fee Computation; Collection of Funds. Except as otherwise set forth herein, all interest and fees shall be calculated
on the basis of a year consisting of 360 days and shall be paid for the actual number of days elapsed. Principal payments submitted in
funds not immediately available shall continue to bear interest until collected. If any payment to be made by the Borrower hereunder
or under any Note shall become due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day
and such extension of time shall be included in computing any interest in respect of such payment. Notwithstanding anything to the contrary
contained herein, the final payment due under any of the Loans must be made by wire transfer or other immediately available funds. All
payments made by the Borrower hereunder or under any of the Loan Documents shall be made without setoff, counterclaim, or other defense.
2.4
Reserved.
2.5
All Loans to Constitute Single Obligation. The Loans shall constitute one general obligation of the Borrower and shall be secured
by Lender’s priority security interest in and Lien upon all of the Collateral and by all other security interests, Liens, claims
and encumbrances heretofore, now or at any time or times hereafter granted by the Borrower to Lender.
Section
3. CONDITIONS
OF BORROWING.
Notwithstanding
any other provision of this Agreement, the Lender shall not be required to disburse, make or continue all or any portion of the Loans,
if any of the following conditions shall have occurred.
3.1
Loan Documents. The Borrower shall have failed to execute and deliver to the Lender any of the following Loan Documents, all of
which must be satisfactory to the Lender and the Lender’s counsel in form, substance and execution:
(a)
Loan Agreement. This Agreement duly executed by the Borrower.
(b)
Revolving Note. A Revolving Note duly executed by the Borrower, in the form prepared by and acceptable to the Lender.
(c)
Pledge Agreement. A Pledge Agreement dated as of the date of this Agreement (the “Pledge Agreement”), executed
by Digital Ally, in the form prepared by and acceptable to the Lender, pursuant to which Digital Ally shall pledge to Lender all of Digital
Ally’s right, title, and interest in its operating account held at CrossFirst Bank (the “Capital Reserve Account”).
(d)
Capital Reserve Account Control Agreement. A duly executed Account Control Agreement, in a form acceptable to Lender and CrossFirst
Bank, with respect to the Capital Reserve Account (the “Account Control Agreement”).
(e)
Real Estate Documents. With respect to the Mortgaged Property, a duly executed Mortgage providing for a fully perfected Lien,
in favor of the Lender, in all right, title and interest of the Borrower or such Subsidiary in such real property, together with:
(i)
an ALTA Loan Title Insurance Policy, issued by an insurer acceptable to the Lender, insuring the Lender’s Lien on such real property
and containing such endorsements as the Lender may reasonably require (it being understood that the amount of coverage, exceptions to
coverage and status of title set forth in such policy shall be acceptable to the Lender);
(ii)
copies of all documents of record concerning such real property as shown on the commitment for the ALTA Loan Title Insurance Policy referred
to above;
(iii)
original or certified copies of all insurance policies required to be maintained with respect to such real property by this
Agreement, the applicable Mortgage or any other Loan Document;
(iv)
an ALTA survey certified to the Lender and such title insurer referred to above, meeting such standards as the Lender may reasonably
establish and otherwise reasonably satisfactory to the Lender;
(v)
an environmental site assessment report, the nature and scope of which is reasonably satisfactory to the Lender, and prepared by environmental
engineers reasonably satisfactory to the Lender;
(vi)
within thirty (30) days of the Effective Date, an “As Is” appraisal of the Mortgaged Property, in form acceptable to Lender
in its sole discretion, performed by an appraiser holding the designation of being a Member of the Appraisal Institute; and
(vii)
a flood insurance policy concerning such real property, if required by the Flood Disaster Protection Act of 1973.
(f)
Search Results; Lien Terminations. Copies of UCC search reports dated such a date as is reasonably acceptable to the Lender, listing
all effective financing statements which name the Borrower, under their present names and any previous names, as debtors, together with
(i) copies of such financing statements, (ii) payoff letters evidencing repayment in full of all existing Debt to be repaid with the
Loans, the termination of all agreements relating thereto and the release of all Liens granted in connection therewith, with UCC or other
appropriate termination statements and documents effective to evidence the foregoing (other than Permitted Liens), and (iii) such other
UCC termination statements as the Lender may reasonably request.
(g)
Organizational and Authorization Document. Copies of (i) the Organizational Documents of the Borrower; (ii) resolutions for the
Borrower approving and authorizing such Person’s execution, delivery and performance of the Loan Documents to which it is party
and the transactions contemplated thereby; (iii) signature and incumbency certificates for the Borrower, for any Person executing any
of the Loan Documents, each of which the Borrower hereby certifies to be true and complete, and in full force and effect without modification,
it being understood that the Lender may conclusively rely on each such document and certificate until formally advised by the Borrower
of any changes therein; and (iv) Organizational Certificate of the Borrower and in each other state requested by the Lender.
(h)
Insurance. Evidence satisfactory to the Lender of the existence of insurance required to be maintained pursuant to Section
8.6, together with evidence that the Lender has been named as a lender’s loss payee and as an additional insured on all related
insurance policies.
(i)
Additional Documents. Such other certificates, financial statements, schedules, resolutions, opinions of counsel, notes and other
documents which are provided for hereunder or which the Lender shall require.
3.2
Event of Default. Any Event of Default, or Unmatured Event of Default shall have occurred and be continuing.
3.3
Material Adverse Effect. The occurrence of any event having a Material Adverse Effect upon the Borrower.
3.4
Litigation. Any litigation or governmental proceeding shall have been instituted against the Borrower or any of its officers or
shareholders which has a Material Adverse Effect upon the Borrower.
3.5
Representations and Warranties. Any representation or warranty of the Borrower contained herein or in any Loan Document shall
be untrue or incorrect as of the date of any Loan as though made on such date, except to the extent such representation or warranty expressly
relates to an earlier date.
3.6
Commitment Fee. The Borrower shall have failed to pay to the Lender a commitment fee in the amount of $146,400.00, payable on
or before the execution of this Agreement by the Lender.
Section
4. NOTE
EVIDENCING LOANS.
4.1
Revolving Note. The Revolving Loans shall be evidenced by the Revolving Note. At the time of the initial disbursement of a Revolving
Loan and at each time any additional Revolving Loan shall be requested hereunder or a repayment made in whole or in part thereon, a notation
thereof shall be made on the books and records of the Lender. All amounts recorded shall be, absent manifest error, conclusive and binding
evidence of (i) the principal amount of the Revolving Loans advanced hereunder, (ii) any accrued and unpaid interest owing on the Revolving
Loans, and (iii) all amounts repaid on the Revolving Loans. The failure to record any such amount or any error in recording such amounts
shall not, however, limit or otherwise affect the obligations of the Borrower under the Revolving Note to repay the principal amount
of the Revolving Loans, together with all interest accruing thereon.
Section
5. MANNER
OF BORROWING.
5.1
Borrowing Procedures. Each Revolving Loan shall be made available to the Borrower upon any written, verbal, electronic, telephonic
or telecopy loan request which the Lender in good faith believes to emanate from a properly authorized representative of the Borrower,
whether or not that is in fact the case. Each such notice shall be effective upon receipt by the Lender, shall be irrevocable, and shall
specify the date, amount and type of borrowing. A request for a direct advance must be received by the Lender no later than 11:00 a.m.
Overland Park, Kansas time, on the day it is to be funded. The proceeds of each direct advance shall be made available at the office
of the Lender by credit to the account of the Borrower or by other means requested by the Borrower and acceptable to the Lender. The
Borrower does hereby irrevocably confirm, ratify and approve all such advances by the Lender and does hereby indemnify the Lender against
losses and expenses (including court costs, attorneys’ and paralegals’ fees) and shall hold the Lender harmless with respect
thereto.
5.2
Automatic Debit. In order to effectuate the timely payment of any of the Obligations when due, the Borrower hereby authorizes
and directs the Lender, at the Lender’s option, to make a Revolving Loan hereunder to pay the amount of the Obligations.
5.3
Discretionary Disbursements. The Lender, in its sole and absolute discretion, may immediately upon notice to the Borrower, disburse
any or all proceeds of the Loans made or available to the Borrower pursuant to this Agreement to pay any fees, costs, expenses or other
amounts required to be paid by the Borrower hereunder and not so paid. All monies so disbursed shall be a part of the Obligations, payable
by the Borrower on demand from the Lender.
Section
6. SECURITY
FOR THE OBLIGATIONS.
6.1
Security for Obligations. As security for the payment and performance of the Obligations, the Borrower does hereby pledge, assign,
transfer and deliver to the Lender and does hereby grant to the Lender a continuing and unconditional first priority security interest
in and to (collectively, the “Collateral”):
(a)
the Mortgaged Property pledged to Lender pursuant to the Mortgage; and
(b)
Digital Ally’s interest in the Capital Reserve Account, pledged to Lender pursuant to the Pledge Agreement.
6.2
Possession and Transfer of Collateral. Unless an Event of Default exists hereunder, the Borrower shall be entitled to possession
or use of the Collateral, except that Borrower shall have no right to access the Capital Reserve Account pursuant to the terms of the
Pledge Agreement. The cancellation or surrender of any Note, upon payment or otherwise, shall not affect the right of the Lender to retain
the Collateral for any other of the Obligations. The Borrower shall not sell, assign (by operation of law or otherwise), license, lease
or otherwise dispose of, or grant any option with respect to any of the Collateral without the prior written consent of Lender.
6.3
Financing Statements. The Borrower shall, at the Lender’s request, at any time and from time to time, execute and deliver
to the Lender such financing statements, amendments and other documents and do such acts as the Lender deems necessary in order to establish
and maintain valid, attached and perfected first priority security interests in the Collateral in favor of the Lender, free and clear
of all Liens and claims and rights of third parties whatsoever, except Permitted Liens. The Borrower hereby irrevocably authorizes the
Lender at any time, and from time to time, to file in any jurisdiction any initial financing statements and amendments thereto without
the signature of the Borrower that (a) indicate the Collateral (i) is comprised of the above described assets of the Borrower or words
of similar effect, regardless of whether any particular asset comprising a part of the Collateral falls within the scope of Article 9
of the Uniform Commercial Code of the jurisdiction wherein such financing statement or amendment is filed, or (ii) as being of an equal
or lesser scope or within greater detail as the grant of the security interest set forth herein, and (b) contain any other information
required by Section 5 of Article 9 of the Uniform Commercial Code of the jurisdiction wherein such financing statement or amendment is
filed regarding the sufficiency or filing office acceptance of any financing statement or amendment, including (i) whether the Borrower
is an organization, the type of organization and any Organizational Identification Number issued to the Borrower, and (ii) in the case
of a financing statement filed as a fixture filing or indicating Collateral as as-extracted collateral or timber to be cut, a sufficient
description of the real property to which the Collateral relates. The Borrower agrees to furnish any such information to the Lender promptly
upon request. The Borrower further ratifies and affirms its authorization for any financing statements and/or amendments thereto, executed
and filed by the Lender in any jurisdiction prior to the date of this Agreement. In addition, the Borrower shall make appropriate entries
on its books and records disclosing the Lender’s security interests in the Collateral; provided, however, that upon the repayment
in full of the Loans, the Lender shall file appropriate termination statement to confirm that the Lender will no longer have any legal
recourse to the Collateral.
6.4
Reserved.
6.5
Reserved.
6.6
Preservation of the Collateral. The Lender may, but is not required, to take such actions from time to time as the Lender deems
appropriate to maintain or protect the Collateral. The Lender shall have exercised reasonable care in the custody and preservation of
the Collateral if the Lender takes such action as the Borrower shall reasonably request in writing which is not inconsistent with the
Lender’s status as a secured party, but the failure of the Lender to comply with any such request shall not be deemed a failure
to exercise reasonable care; provided, however, the Lender’s responsibility for the safekeeping of the Collateral shall (i) be
deemed reasonable if such Collateral is accorded treatment substantially equal to that which the Lender accords its own property, and
(ii) not extend to matters beyond the control of the Lender, including, without limitation, acts of God, war, insurrection, riot or governmental
actions. In addition, any failure of the Lender to preserve or protect any rights with respect to the Collateral against prior or third
parties, or to do any act with respect to preservation of the Collateral, not so requested by the Borrower, shall not be deemed a failure
to exercise reasonable care in the custody or preservation of the Collateral. The Borrower shall have the sole responsibility for taking
such action as may be necessary, from time to time, to preserve all rights of the Borrower and the Lender in the Collateral against prior
or third parties. Without limiting the generality of the foregoing, where Collateral consists in whole or in part of securities, the
Borrower represents to, and covenants with, the Lender that the Borrower has made arrangements for keeping informed of changes or potential
changes affecting the securities (including, but not limited to, rights to convert or subscribe, payment of dividends, reorganization
or other exchanges, tender offers and voting rights), and the Borrower agrees that the Lender shall have no responsibility or liability
for informing the Borrower of any such or other changes or potential changes or for taking any action or omitting to take any action
with respect thereto.
6.7
Other Actions as to any and all Collateral. The Borrower further agrees to take any other action reasonably requested by the Lender
to ensure the attachment, perfection and first priority of, and the ability of the Lender to enforce, the Lender’s security interest
in any and all of the Collateral including, without limitation, (a) causing the Lender’s name to be noted as secured party on any
certificate of title for a titled good if such notation is a condition to attachment, perfection or priority of, or ability of the Lender
to enforce, the Lender’s security interest in such Collateral, (b) complying with any provision of any statute, regulation or treaty
of the United States as to any Collateral if compliance with such provision is a condition to attachment, perfection or priority of,
or ability of the Lender to enforce, the Lender’s security interest in such Collateral, (c) obtaining governmental and other third
party consents and approvals, including without limitation any consent of any licensor, lessor or other Person obligated on Collateral,
(d) obtaining waivers from mortgagees and landlords in form and substance satisfactory to the Lender, and (e) taking all actions required
by the UCC in effect from time to time or by other law, as applicable in any relevant UCC jurisdiction, or by other law as applicable
in any foreign jurisdiction. The Borrower further agrees to indemnify and hold the Lender harmless against claims of any Persons not
a party to this Agreement concerning disputes arising over the Collateral.
Section
7. REPRESENTATIONS
AND WARRANTIES.
To
induce the Lender to make the Loans, the Borrower makes the following representations and warranties to the Lender, each of which shall
survive the execution and delivery of this Agreement:
7.1
Borrower Organization and Name. The Borrower is duly organized, existing and in good standing under the laws of the state of reflected
in its Organizational Documents, with full and adequate power to carry on and conduct its business as presently conducted. The Borrower
is duly licensed or qualified in all foreign jurisdictions wherein the nature of its activities require such qualification or licensing,
except for such jurisdictions where the failure to so qualify would not have a Material Adverse Effect. The exact legal name of the Borrower
is as set forth in the first paragraph of this Agreement, and the Borrower currently does not conduct, nor has it during the last five
(5) years conducted, business under any other name or trade name.
7.2
Authorization. The Borrower has full right, power and authority to enter into this Agreement, to make the borrowings and execute
and deliver the Loan Documents as provided herein and to perform all of its duties and obligations under this Agreement and the other
Loan Documents. The execution and delivery of this Agreement and the other Loan Documents will not, nor will the observance or performance
of any of the matters and things herein or therein set forth, violate or contravene any provision of law or of the Organizational Documents
of the Borrower. All necessary and appropriate action has been taken on the part of the Borrower to authorize the execution and delivery
of this Agreement and the Loan Documents.
7.3
Validity and Binding Nature. This Agreement and the other Loan Documents are the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their terms, subject to bankruptcy, insolvency and similar laws affecting the enforceability
of creditors’ rights generally and to general principles of equity.
7.4
Consent; Absence of Breach. Except as set forth in Schedule 7.4 of the Disclosure Schedules, to the Borrower’s Knowledge,
the execution, delivery and performance of this Agreement, the other Loan Documents and any other documents or instruments to be executed
and delivered by the Borrower in connection with the Loans, and the borrowings by the Borrower hereunder, do not and will not (a) require
any consent, approval, authorization of, or filings with, notice to or other act by or in respect of, any governmental authority or any
other Person (other than any consent or approval which has been obtained and is in full force and effect); (b) conflict with (i) any
provision of law or any applicable regulation, order, writ, injunction or decree of any court or governmental authority, (ii) the Organizational
Documents of the Borrower, or (iii) any material agreement, indenture, instrument or other document, or any judgment, order or decree,
which is binding upon the Borrower or any of their properties or assets; or (c) require, or result in, the creation or imposition of
any Lien on any asset of Borrower, other than Liens in favor of the Lender created pursuant to this Agreement.
7.5
Reserved.
7.6
Financial Statements. All financial statements submitted to the Lender have been prepared in accordance with sound accounting
practices and GAAP on a basis, except as otherwise noted therein, consistent with the previous fiscal year and present fairly the financial
condition of the Borrower and the results of the operations for the Borrower as of such date and for the periods indicated. Since the
date of the most recent financial statement submitted by the Borrower to the Lender, there has been no change in the financial condition
or in the assets or liabilities of the Borrower having a Material Adverse Effect on the Borrower.
7.7
Litigation and Contingent Liabilities. To the Borrower’s knowledge, there is no litigation, arbitration proceeding, demand,
charge, claim, petition or governmental investigation or proceeding pending, or, threatened, against the Borrower, which, if adversely
determined, which might reasonably be expected to have a Material Adverse Effect upon the Borrower, except as set forth in Schedule
7.7 of the Disclosure Schedules. Other than any liability incident to such litigation or proceedings, the Borrower has no material
guarantee obligations, contingent liabilities, liabilities for taxes, or any long-term leases or unusual forward or long-term commitments,
including any interest rate or foreign currency swap or exchange transaction or other obligation in respect of derivatives, that are
not fully-reflected or fully reserved for in the most recent audited financial statements delivered pursuant to Section 8.8.
7.8
Event of Default. No Event of Default or Unmatured Event of Default exists or would result from the incurrence by the Borrower
of any of the Obligations hereunder or under any of the other Loan Document, and the Borrower is not in default (without regard to grace
or cure periods) under any other contract or agreement to which it is a party.
7.9
Adverse Circumstances. No condition, circumstance, event, agreement, document, instrument, restriction, litigation or proceeding
(or threatened litigation or proceeding or basis therefor) exists which (a) would have a Material Adverse Effect upon the Borrower, or
(b) would constitute an Event of Default or an Unmatured Event of Default.
7.10
Environmental Laws and Hazardous Substances. To the Borrower’s Knowledge, the Borrower has not generated, used, stored,
treated, transported, manufactured, handled, produced or disposed of any Hazardous Substances, on or off any of the premises of the Borrower
(whether or not owned by it) in any manner which at any time violates any Environmental Law or any license, permit, certificate, approval
or similar authorization thereunder. The Borrower comply in all material respects with all Environmental Laws and all licenses, permits
certificates, approvals and similar authorizations thereunder. There has been no investigation, proceeding, complaint, order, directive,
claim, citation or notice by any governmental authority or any other Person, nor is any pending or, to the best of the Borrower’s
Knowledge, threatened, and the Borrower shall immediately notify the Lender upon becoming aware of any such investigation, proceeding,
complaint, order, directive, claim, citation or notice, and shall take prompt and appropriate actions to respond thereto, with respect
to any non-compliance with, or violation of, the requirements of any Environmental Law by the Borrower or the release, spill or discharge,
threatened or actual, of any Hazardous Substances or the generation, use, storage, treatment, transportation, manufacture, handling,
production or disposal of any Hazardous Substances or any other environmental, health or safety matter, which affects the Borrower or
its business, operations or assets or any properties at which the Borrower has transported, stored or disposed of any Hazardous Substances.
To the Borrower’s Knowledge, the Borrower has no material liability, contingent or otherwise, in connection with a release, spill
or discharge, threatened or actual, of any Hazardous Substances or the generation, use, storage, treatment, transportation, manufacture,
handling, production or disposal of any Hazardous Substances. The Borrower further agrees to allow the Lender or its agent reasonable
access (on notice and subject to the supervision of the Borrower’s personnel) to the properties of the Borrower constituting the
Collateral to confirm compliance with all Environmental Laws, and the Borrower shall, following determination by the Lender that there
is non-compliance, or any condition which requires any action by or on behalf of the Borrower in order to avoid any non-compliance, with
any Environmental Law, at the Borrower’s sole expense, cause an independent environmental engineer acceptable to the Lender to
conduct such tests of the relevant site as are appropriate, and prepare and deliver a report setting forth the result of such tests,
a proposed plan for remediation and an estimate of the costs thereof.
7.11
Solvency, etc. As of the date hereof, and immediately prior to and after giving effect to the issuance of each Loan hereunder
and the use of the proceeds thereof, (a) the fair value of the Borrower’s assets is greater than the amount of its liabilities
(including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated as required under
the Section 548 of the Bankruptcy Code, (b) the present fair saleable value of the Borrower’s assets is not less than the amount
that will be required to pay the probable liability on its debts as they become absolute and matured, (c) the Borrower is able to realize
upon its assets and pay its debts and other liabilities (including disputed, contingent and unliquidated liabilities) as they mature
in the normal course of business, (d) the Borrower does not intend to, and does not believe that it will, incur debts or liabilities
beyond its ability to pay as such debts and liabilities mature, and (e) the Borrower is not engaged in business or a transaction, and
is not about to engage in business or a transaction, for which its property would constitute unreasonably small capital.
7.12
ERISA Obligations. All Employee Plans of the Borrower meet the minimum funding standards of Section 302 of ERISA and 412 of the
Internal Revenue Code where applicable, and each such Employee Plan that is intended to be qualified within the meaning of Section 401
of the Internal Revenue Code of 1986 is qualified. The Borrower has promptly paid and discharged all obligations and liabilities arising
under the Employee Retirement Income Security Act of 1974 (“ERISA”) of a character which if unpaid or unperformed might result
in the imposition of a Lien against any of its properties or assets.
7.13
Labor Relations. Except as could not reasonably be expected to have a Material Adverse Effect, (i) there are no strikes, lockouts
or other labor disputes against the Borrower or threatened, (ii) hours worked by and payment made to employees of the Borrower have not
been in violation of the Fair Labor Standards Act or any other applicable law, and (iii) to the Borrower’s Knowledge, no unfair
labor practice complaint is pending against the Borrower or threatened before any governmental authority.
7.14
Security Interest. Except as set forth in Schedule 7.14 of the Disclosure Schedules, this Agreement creates a valid security
interest in favor of the Lender in the Collateral and, when properly perfected by filing in the appropriate jurisdictions, or by possession
or Control of such Collateral by the Lender or delivery of such Collateral to the Lender, shall constitute a valid, perfected, first-priority
security interest in such Collateral.
7.15
Lending Relationship. The relationship hereby created between the Borrower and the Lender is and has been conducted on an open
and arm’s length basis in which no fiduciary relationship exists, and the Borrower has not relied and is not relying on any such
fiduciary relationship in executing this Agreement and in consummating the Loans. The Lender represents that it will receive any Note
payable to its order as evidence of a bank loan.
7.16
Business Loan. The Loans, including interest rate, fees and charges as contemplated hereby, (i) are business loans, and (ii) do not,
and when disbursed shall not, violate the provisions of the Kansas usury laws, any consumer credit laws or the usury laws of any state
which may have jurisdiction over this transaction, the Borrower or any property securing the Loans.
7.17
Taxes. The Borrower has timely filed all tax returns and reports required by law to have been filed by it and has paid all taxes,
governmental charges and assessments due and payable with respect to such returns, except any such taxes or charges which are being diligently
contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside
on its books, are insured against or bonded over to the satisfaction of the Lender and the contesting of such payment does not create
a Lien on the Collateral which is not a Permitted Lien. To the Borrower’s Knowledge, there is no controversy or objection pending,
or, threatened in respect of any tax returns of the Borrower. The Borrower has made adequate reserves on its books and records in accordance
with GAAP for all taxes that have accrued but which are not yet due and payable.
7.18
Reserved.
7.19
Reserved.
7.20
Place of Business. The principal place of business and books and records of the Borrower is set forth in the preamble to this
Agreement, and the location of all Collateral, if other than at such principal place of business, is as set forth on Schedule 7.20
of the Disclosure Schedules and made a part hereof, and the Borrower shall promptly notify the Lender of any change in such location(s).
The Borrower will not remove or permit the Collateral to be removed from such location(s) without the prior written consent of the Lender,
except for Inventory sold in the usual and ordinary course of the Borrower’s business.
7.21
Complete Information. This Agreement and all Loan Documents in connection with this Agreement and the transactions contemplated
hereby is, and all written information hereafter furnished by or on behalf of the Borrower to the Lender pursuant hereto or in connection
herewith will be, true and accurate in every material respect on the date as of which such information is dated or certified, and none
of such information is or will be incomplete by omitting to state any material fact necessary to make such information not misleading
in light of the circumstances under which made (it being recognized by the Lender that any projections and forecasts provided by the
Borrower are based on good faith estimates and assumptions believed by the Borrower to be reasonable as of the date of the applicable
projections or assumptions and that actual results during the period or periods covered by any such projections and forecasts may differ
from projected or forecasted results).
7.22
Internal Controls. From and after the closing of an initial public offering of the capital stock of Digital Ally:
(a)
Digital Ally has established and maintains disclosure controls and procedures (as such term is defined in Rule 13a-14 under the U.S.
Securities Exchange Act or 1934, as amended (the “Exchange Act”)), which (i) are designed to ensure that material
information relating to the Digital Ally is made known to the Digital Ally’s principal executive officer and its principal financial
offer or persons performing similar functions by others within those entities, particularly during the periods in which the periodic
reports required under the Exchange Act are being prepared; (ii) have been evaluated for effectiveness as a date within ninety (90) days
prior to the filing of the Borrower’s most recent annual or quarterly report filed with the U.S. Securities Exchange Commission;
and (iii) are effective in all material respects to perform he functions for which they were established;
(b)
Based on the evaluation of its disclosure controls and procedures, Digital Ally is not aware of (i) any significant deficiency in the
design or operation of internal controls which could adversely affect Digital Ally’s ability to record, process, summarize and
report financial data or any material weaknesses in internal controls or (ii) any fraud, whether or not material, that involves management
or other employees who have a significant role in the Digital Ally’s internal controls; and
(c)
Since the date of the most recent evaluation of such disclosure controls and procedures, there have been no significant changes in internal
controls or in other factors that could significantly affect internal controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Section
8. AFFIRMATIVE
COVENANTS.
8.1
Reserved.
8.2
Borrower Existence. The Borrower shall at all times preserve and maintain its (a) its existence and good standing in the jurisdiction
of its organization, and (b) its qualification to do business and good standing in each jurisdiction where the nature of its business
makes such qualification necessary (other than such jurisdictions in which the failure to be qualified or in good standing could not
reasonably be expected to have a Material Adverse Effect), and shall at all times continue as a going concern in the business which the
Borrower is presently conducting. If the Borrower does not have an Organizational Identification Number and later obtains one, the Borrower
shall promptly notify the Lender of such Organizational Identification Number.
8.3
Compliance With Laws. The Borrower shall use the proceeds of the Loans for working capital and other general corporate or business
purposes not in contravention of any requirements of law and not in violation of this Agreement, and shall comply in all respects, including
the conduct of its business and operations and the use of its properties and assets, with all applicable laws, rules, regulations, decrees,
orders, judgments, licenses and permits, except where failure to comply could not reasonably be expected to have a Material Adverse Effect.
8.4
Payment of Taxes and Liabilities. The Borrower shall pay and discharge, prior to delinquency and before penalties accrue thereon,
all property and other taxes, and all governmental charges or levies against it or any of the Collateral, as well as claims of any kind
which, if unpaid, could become a Lien on any of its property; provided that the foregoing shall not require the Borrower to pay any such
tax or charge so long as it shall contest the validity thereof in good faith by appropriate proceedings and shall set aside on its books
adequate reserves with respect thereto in accordance with GAAP and, in the case of a claim which could become a Lien on any of the Collateral,
such contest proceedings stay the foreclosure of such Lien or the sale of any portion of the Collateral to satisfy such claim.
8.5
Maintain Property. The Borrower shall at all times maintain, preserve and keep the Collateral in good condition, and shall from
time to time make all needful and proper repairs, renewals, replacements, and additions thereto so that at all times the efficiency thereof
shall be fully preserved and maintained. The Borrower shall permit the Lender to examine and inspect the Collateral, at all reasonable
times.
8.6
Maintain Insurance. The Borrower shall at all times maintain with insurance companies reasonably acceptable to the Lender, such
insurance coverage as may be required by any law or governmental regulation or court decree or order applicable to it and such other
insurance, to such extent and against such hazards and liabilities, including employers’, public and professional liability risks,
as is customarily maintained by companies similarly situated, and shall have insured amounts no less than, and deductibles no higher
than, are reasonably acceptable to the Lender. To the extent any buildings, structures and other improvements (“Improvements”)
are now or hereafter located on the Mortgaged Property, Borrower shall obtain, keep in force and maintain, or cause to be obtained, kept
in force and maintained, a standard property insurance policy on the “Special” form, covering the Mortgaged Property, and
providing coverage against such other risks as Lender may from time to time reasonably require, in the amount of the full replacement
cost (insurable value) thereof, without reduction for depreciation, but in no event less than the maximum principal amount of the Loans.
Property insurance policies shall include either an agreed amount endorsement or a waiver of any co-insurance provisions, sufficient
to insure that no co-insurance requirements apply. The Borrower shall furnish to the Lender a certificate setting forth in reasonable
detail the nature and extent of all insurance maintained by the Borrower, which shall be reasonably acceptable in all respects to the
Lender. The Borrower shall cause each issuer of an insurance policy to provide the Lender with an endorsement (i) showing the Lender
as lender loss payee with respect to each policy of property or casualty insurance and naming the Lender as an additional insured with
respect to each policy of liability insurance; and (ii) providing that thirty (30) days’ notice will be given to the Lender prior
to any cancellation of, material reduction or change in coverage provided by or other material modification to such policy. The Borrower
shall execute and deliver to the Lender a collateral assignment, in form and substance satisfactory to the Lender, of each business interruption
insurance policy maintained by the Borrower.
In
the event the Borrower either fails to provide the Lender with evidence of the insurance coverage required by this Section or at any
time hereafter shall fail to obtain or maintain any of the policies of insurance required above, or to pay any premium in whole or in
part relating thereto, then the Lender, without waiving or releasing any obligation or default by the Borrower hereunder, may at any
time upon reasonable notice (but shall be under no obligation to so act), obtain and maintain such policies of insurance and pay such
premiums and take any other action with respect thereto, which the Lender deems advisable. This insurance coverage (a) may, but need
not, protect the Borrower’s interests in the Collateral, and (b) may not pay any claim made by, or against, the Borrower in connection
with the Collateral. The Borrower may later cancel any such insurance purchased by the Lender, but only after providing the Lender with
evidence that the Borrower has obtained the insurance coverage required by this Section. If the Lender purchases insurance for the Collateral,
the Borrower will be responsible for the costs of that insurance, including interest and any other charges that may be imposed with the
placement of the insurance, until the effective date of the cancellation or expiration of the insurance. The costs of the insurance may
be added to the principal amount of the Loans owing hereunder. The costs of the insurance may be more than the cost of the insurance
the Borrower may be able to obtain on its own.
8.7
ERISA Liabilities; Employee Plans. The Borrower shall (i) keep in full force and effect any and all Employee Plans which are presently
in existence or may, from time to time, come into existence under ERISA, and not withdraw from any such Employee Plans, unless such withdrawal
can be effected or such Employee Plans can be terminated without liability to the Borrower; (ii) make contributions to all of such Employee
Plans in a timely manner and in a sufficient amount to comply with the standards of ERISA; including the minimum funding standards of
ERISA; (iii) comply with all material requirements of ERISA which relate to such Employee Plans; (iv) notify the Lender immediately upon
receipt by the Borrower of any notice concerning the imposition of any withdrawal liability or of the institution of any proceeding or
other action which may result in the termination of any such Employee Plans or the appointment of a trustee to administer such Employee
Plans; (v) promptly advise the Lender of the occurrence of any “Reportable Event” or “Prohibited Transaction”
(as such terms are defined in ERISA), with respect to any such Employee Plans; and (vi) amend any Employee Plan that is intended to be
qualified within the meaning of Section 401 of the Internal Revenue Code of 1986 to the extent necessary to keep the Employee Plan qualified,
and to cause the Employee Plan to be administered and operated in a manner that does not cause the Employee Plan to lose its qualified
status.
8.8
Financial Statements. The Borrower shall at all times maintain a system of accounting, on the accrual basis of accounting and
in all respects in accordance with GAAP, and shall furnish to the Lender or its authorized representatives such information regarding
the business affairs, operations and financial condition of the Borrower, including, but not limited to:
(a)
promptly when available, and in any event, within two (2) Business Days of the date when due under applicable law, a copy of Digital
Ally’s Form 10-K filed with the U.S. Securities and Exchange Commission for such year then-ended.
(b)
promptly when available, and in any event, within two (2) Business Days of the date when due under applicable law, a copy of Digital
Ally’s Form 10-Q filed with the U.S. Securities and Exchange Commission for such year then-ended.
No
material change, which is not required by the SEC, with respect to such accounting principles shall be made by the Borrower without giving
prior notification to the Lender. The Borrower represents and warrants to the Lender that the financial statements delivered to the Lender
at or prior to the execution and delivery of this Agreement and to be delivered at all times thereafter accurately reflect and will accurately
reflect the financial condition of the Borrower. The Lender shall have the right at all times during business hours upon reasonable notice
and subject to the supervision of the Borrower’s personnel to inspect the books and records of the Borrower and make extracts therefrom.
8.9
Supplemental Financial Statements. The Borrower shall promptly upon receipt thereof, provide to the Lender copies of interim and
supplemental reports if any, submitted to the Borrower by independent accountants in connection with any interim audit or review of the
books of the Borrower.
8.10
Field Audits. Not more than once per every quarter and upon reasonable notice and subject to the supervision of the Borrower’s
personnel, the Borrower shall permit the Lender to inspect the Collateral and/or other business operations of the Borrower, during business
hours, to perform appraisals of the Collateral, and to inspect, audit, check and make copies of, and extracts from, the books, records,
computer data, computer programs, journals, orders, receipts, correspondence and other data relating to the Collateral, the results of
which must be satisfactory to the Lender in the Lender’s sole and absolute discretion; provided, however, to the extent an Event
of Default has occurred and is continuing Lender may require the foregoing more frequently. All such inspections or audits by the Lender
shall be at the Borrower’s sole expense, provided, however, that so long as no Event of Default or Unmatured Event of Default exists,
the Borrower shall not be required to reimburse the Lender for inspections or audits more frequently than once each fiscal year
8.11
Other Reports. The Borrower shall, within such period of time as the Lender may specify, deliver to the Lender such other schedules,
financial statements, and reports as the Lender may reasonably require.
8.12
Collateral Records. The Borrower shall keep full and accurate books and records relating to the Collateral and shall mark such
books and records to indicate the Lender’s Lien in the Collateral.
8.13
Notice of Proceedings. The Borrower, promptly upon becoming aware, shall give written notice to the Lender of any litigation,
arbitration or governmental investigation or proceeding not previously disclosed by the Borrower to the Lender which has been instituted
or, to the knowledge of the Borrower, is threatened against the Borrower or to which any of their respective properties is subject which
might reasonably be expected to have a Material Adverse Effect.
8.14
Notice of Event of Default or Material Adverse Effect. The Borrower shall, promptly after the commencement thereof and promptly
after the running of any applicable cure period, give notice to the Lender in writing of the occurrence of any Event of Default or any
Unmatured Event of Default, or the occurrence of any condition or event having a Material Adverse Effect.
8.15
Environmental Matters. If any release or threatened release or other disposal of Hazardous Substances shall occur or shall have
occurred on any real property or any other assets of the Borrower, the Borrower shall cause the prompt containment and removal of such
Hazardous Substances and the remediation of such real property or other assets as necessary to comply with all Environmental Laws and
to preserve the value of such real property or other assets. Without limiting the generality of the foregoing, the Borrower shall comply
with any Federal or state judicial or administrative order requiring the performance at any real property of the Borrower of activities
in response to the release or threatened release of a Hazardous Substance. To the extent that the transportation of Hazardous Substances
is permitted by this Agreement, the Borrower shall dispose of such Hazardous Substances, or of any other wastes, only at licensed disposal
facilities operating in compliance with Environmental Laws.
8.16
Further Assurances. The Borrower shall take such actions as are necessary or as the Lender may reasonably request from time to
time to ensure that the Obligations under the Loan Documents are secured by the Collateral, including (a) the execution and delivery
of security agreements, pledge agreements, mortgages, deeds of trust, financing statements and other documents, and the filing or recording
of any of the foregoing, and (b) the delivery of certificated securities and other collateral with respect to which perfection is obtained
by possession.
8.17
Non-Utilization Fee. The Borrower agrees to pay to the Lender a non-utilization fee equal to one and one-half percent (1.50%)
of the total of (a) the Revolving Loan Commitment, minus (b) the sum of (i) the daily average of the aggregate principal amount
of all Revolving Loans outstanding, which non- utilization fee shall be (A) calculated on the basis of a year consisting of 360 days,
(B) paid for the actual number of days elapsed, and (C) payable monthly in arrears, commencing on the last day of each month after the
first Revolving Loan is made.
8.18
Capital Reserve. At all times Obligations remain outstanding under this Agreement, Digital Ally shall maintain a minimum balance
in the Capital Reserve Account of Ninety Seven Thousand and 00/100 Dollars ($97,600.00).
Section
9. NEGATIVE
COVENANTS.
9.1
Debt. The Borrower shall not, without providing prior written notice to Lender, either directly or indirectly, create, assume,
incur or have outstanding any Debt (including purchase money indebtedness), or become liable, whether as endorser, guarantor, surety
or otherwise, for any debt or obligation of any other Person, except:
(a)
the Obligations under this Agreement and the other Loan Documents;
(b)
obligations of the Borrower for Taxes, assessments, municipal or other governmental charges;
(c)
obligations of the Borrower for accounts payable, other than for money borrowed, incurred in the ordinary course of business;
(d)
subordinated debt; and
(e)
Debt existing as of the date hereof and any extension, renewal or refinancing thereof so long as the principal amount thereof is not
increased.
9.2 Encumbrances.
The Borrower shall not, either directly or indirectly, create, assume, incur or suffer or permit to exist any Lien or charge of any kind
or character upon the Collateral, except for Permitted Liens.
9.3
Reserved.
9.4
Distributions. To the extent an Event of Default exists or would be caused thereby,
the Borrower shall not, (a) make any distribution or dividend (other than stock dividends), whether in cash or otherwise, to any of its
equityholders, (b) purchase or redeem any of its equity interests or any warrants, options or other rights in respect thereof, (c) pay
any management fees or similar fees to any of its equityholders or any Affiliate thereof, (d) pay or prepay interest on, principal of,
premium, if any, redemption, conversion, exchange, purchase, retirement, defeasance, sinking fund or any other payment in respect of
any Subordinated Debt, or (e) set aside funds for any of the foregoing.
9.5
Transactions with Affiliates. Other than transactions with Kustom Entertainment, Inc.
on arm’s length basis, the Borrower shall not, directly or indirectly, enter into or permit to exist any transaction with any of
its Affiliates or with any director, officer or employee of the Borrower other than transactions in the ordinary course of, and pursuant
to the reasonable requirements of, the business of the Borrower and upon fair and reasonable terms which are fully disclosed to the Lender
and are no less favorable to the Borrower than would be obtained in a comparable arm’s length transaction with a Person that is
not an Affiliate of the Borrower.
9.6
Unconditional Purchase Obligations. The Borrower shall not enter into or be a party
to any contract for the purchase of materials, supplies or other property or services if such contract requires that payment be made
by it regardless of whether delivery is ever made of such materials, supplies or other property or services.
9.7
Cancellation of Debt. The Borrower shall not cancel any claim or debt owing to it, except
for reasonable consideration or in the ordinary course of business.
9.8
Inconsistent Agreements. The Borrower shall not enter into any agreement containing
any provision which would (a) be violated or breached by any borrowing by the Borrower hereunder or by the performance by the Borrower
or any Subsidiary of any of its Obligations hereunder or under any other Loan Document, (b) prohibit the Borrower or any Subsidiary from
granting to the Lender a Lien on any of its assets or (c) create or permit to exist or become effective any encumbrance or restriction
on the ability of any Subsidiary to (i) pay dividends or make other distributions to the Borrower or any other Subsidiary, or pay any
Debt owed to the Borrower or any other Subsidiary, (ii) make loans or advances to the Borrower or any other Subsidiary, or (iii) transfer
any of its assets or properties to the Borrower or any other Subsidiary, other than (A) customary restrictions and conditions contained
in agreements relating to the sale of all or a substantial part of the assets of any Subsidiary pending such sale, provided that such
restrictions and conditions apply only to the Subsidiary to be sold and such sale is permitted hereunder, (B) restrictions or conditions
imposed by any agreement relating to purchase money Debt, Capital Leases and other secured Debt permitted by this Agreement if such restrictions
or conditions apply only to the property or assets securing such Debt, and (C) customary provisions in leases and other contracts
restricting the assignment thereof.
9.9
Use of Proceeds. The Company shall use the net proceeds from the Loan to repay the convertible notes set out in the Schedule
9.9 of the Disclosure Schedules, and for working capital purposes and general corporate procedures. Neither the Borrower nor
any of its Subsidiaries or Affiliates shall use any portion of the proceeds of the Loans, either directly or indirectly, for the purpose
of purchasing any securities.
9.10
Business Activities; Change of Legal Status and Organizational Documents. The Borrower
shall not (a) engage in any line of business other than the businesses engaged in on the date hereof and businesses reasonably related
thereto, (b) change its name, its Organizational Identification Number, if it has one, its type of organization, its jurisdiction of
organization or other legal structure, or (c) permit its charter, bylaws or other organizational documents to be amended or modified
in any way which could reasonably be expected to materially adversely affect the interests of the Lender.
Section
10. RESERVED.
Section
11. EVENTS OF DEFAULT.
The
Borrower, without notice or demand of any kind, shall be in default under this Agreement upon the occurrence of any of the following
events (each an “Event of Default”).
11.1
Nonpayment of Obligations. Any amount due and owing on any Note or any of the Obligations, whether by its terms or as otherwise
provided herein, is not paid within five (5) days of the date when due.
11.2
Misrepresentation. Any oral or written warranty, representation, certificate or statement of any Obligor in this Agreement, the
other Loan Documents or any other agreement with the Lender shall be false when made or at any time thereafter, or if any financial data
or any other information now or hereafter furnished to the Lender by or on behalf of any Obligor shall prove to be false, inaccurate
or misleading in any material respect.
11.3
Nonperformance. Any failure to perform or default in the performance of any covenant, condition or agreement contained in this
Agreement and, if capable of being cured, such failure to perform or default in performance continues for a period of thirty (30) days
after the Borrower receives notice or knowledge from any source of such failure to perform or default in performance, or in the other
Loan Documents or any other agreement with the Lender and such failure to perform or default in performance continues beyond any applicable
grace or cure period.
11.4
Default under Loan Documents. A default under any of the other Loan Documents, subject to any applicable cure period therein,
all of which covenants, conditions and agreements contained therein are hereby incorporated in this Agreement by express reference, shall
be and constitute an Event of Default under this Agreement and any other of the Obligations.
11.5
Default under Other Debt. Any default by any Obligor in the payment of any Debt for any other obligation beyond any period of
grace provided with respect thereto or in the performance of any other term, condition or covenant contained in any agreement (including,
but not limited to any capital or operating lease or any agreement in connection with the deferred purchase price of property) under
which any such obligation is created, the effect of which default is to cause or permit the holder of such obligation (or the other party
to such other agreement) to cause such obligation to become due prior to its stated maturity or terminate such other agreement.
11.6
Other Material Obligations. Any default in the payment when due, or in the performance or observance of, any material obligation
of, or condition agreed to by, any Obligor with respect to any material purchase or lease of goods or services where such default, singly
or in the aggregate with all other such defaults, might reasonably be expected to have a Material Adverse Effect.
11.7
Bankruptcy, Insolvency, etc. Any Obligor becomes insolvent or generally fails to pay, or admits in writing its inability or refusal
to pay, debts as they become due; or any Obligor applies for, consents to, or acquiesces in the appointment of a trustee, receiver or
other custodian for such Obligor or any property thereof, or makes a general assignment for the benefit of creditors; or, in the absence
of such application, consent or acquiescence, a trustee, receiver, or other custodian is appointed for any Obligor or for a substantial
part of the property of any thereof or any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy
or insolvency law, or any dissolution or liquidation proceeding, is commenced in respect of any Obligor; or any Obligor takes any action
to authorize, or in furtherance of, any of the foregoing.
11.8
Judgments. The entry of any final judgment, decree, levy, attachment, garnishment or other process, or the filing of any Lien
against any Obligor in excess of $250,000 which is not fully covered by insurance or not bonded.
11.9
Collateral Impairment. The entry of any judgment, decree, levy, attachment, garnishment or other process, or the filing of any
Lien against, any of the Collateral or any collateral under a separate security agreement securing any of the Obligations, or the loss,
theft, destruction, seizure or forfeiture, or the occurrence of any deterioration or impairment of any of the Collateral or any of the
collateral under any security agreement securing any of the Obligations, or any decline or depreciation in the value or market price
thereof (whether actual or reasonably anticipated), which causes the Collateral, in the sole opinion of the Lender acting in good faith,
to become unsatisfactory as to value or character, or which causes the Lender to reasonably believe that it is insecure and that the
likelihood for repayment of the Obligations is or will soon be impaired, time being of the essence. The cause of such deterioration,
impairment, decline or depreciation shall include, but is not limited to, the failure by the Borrower to do any act deemed necessary
by the Lender to preserve and maintain the value and collectability of the Collateral.
11.10
Material Adverse Effect. The occurrence of any development, condition or event which has a Material Adverse Effect on the Borrower.
Section
12. REMEDIES.
Upon
the occurrence of an Event of Default, the Lender shall have all rights, powers and remedies set forth in the Loan Documents, in any
written agreement or instrument (other than this Agreement or the Loan Documents) relating to any of the Obligations or any security
therefor, as a secured party under the UCC or as otherwise provided at law or in equity. Without limiting the generality of the foregoing,
the Lender may, at its option upon the occurrence of an Event of Default, declare its commitments to the Borrower to be terminated and
all Obligations to be immediately due and payable, provided, however, that upon the occurrence of an Event of Default under Section
11.7, all commitments of the Lender to the Borrower shall immediately terminate and all Obligations shall be automatically due and
payable, all without demand, notice or further action of any kind required on the part of the Lender. The Borrower hereby waives any
and all presentment, demand, notice of dishonor, protest, and all other notices and demands in connection with the enforcement of Lender’s
rights under the Loan Documents, and hereby consents to, and waives notice of release, with or without consideration, of the Borrower
or of any Collateral, notwithstanding anything contained herein or in the Loan Documents to the contrary. In addition to the foregoing:
12.1
Possession and Assembly of Collateral. The Lender may, without notice, demand or legal process of any kind, take possession of
any or all of the Collateral (in addition to Collateral of which the Lender already has possession), wherever it may be found, and for
that purpose may pursue the same wherever it may be found, and may at any time enter into any of the Borrower’s premises where
any of the Collateral may be or is supposed to be, and search for, take possession of, remove, keep and store any of the Collateral until
the same shall be sold or otherwise disposed of and the Lender shall have the right to store and conduct a sale of the same in any of
the Borrower’s premises without cost to the Lender. At the Lender’s request, the Borrower will, at the Borrower’s sole
expense, assemble the Collateral and make it available to the Lender at a place or places to be designated by the Lender which is reasonably
convenient to the Lender and the Borrower.
12.2
Sale of Collateral. The Lender may sell any or all of the Collateral at public or private sale, upon such terms and conditions
as the Lender may deem proper, and the Lender may purchase any or all of the Collateral at any such sale. The Borrower acknowledges that
the Lender may be unable to effect a public sale of all or any portion of the Collateral because of certain legal and/or practical restrictions
and provisions which may be applicable to the Collateral and, therefore, may be compelled to resort to one or more private sales to a
restricted group of offerees and purchasers. The Borrower consents to any such private sale so made even though at places and upon terms
less favorable than if the Collateral were sold at public sale. The Lender shall have no obligation to clean-up or otherwise prepare
the Collateral for sale. The Lender may apply the net proceeds, after deducting all costs, expenses, attorneys’ and paralegals’
fees incurred or paid at any time in the collection, protection and sale of the Collateral and the Obligations, to the payment of any
Note and/or any of the other Obligations, returning the excess proceeds, if any, to the Borrower. The Borrower shall remain liable for
any amount remaining unpaid after such application, with interest at the Default Rate. Any notification of intended disposition of the
Collateral required by law shall be conclusively deemed reasonably and properly given if given by the Lender at least ten (10) calendar
days before the date of such disposition. The Borrower hereby confirms, approves and ratifies all acts and deeds of the Lender relating
to the foregoing, and each part thereof, and expressly waives any and all claims of any nature, kind or description which it has or may
hereafter have against the Lender or its representatives, by reason of taking, selling or collecting any portion of the Collateral. The
Borrower consents to releases of the Collateral at any time (including prior to default) and to sales of the Collateral in groups, parcels
or portions, or as an entirety, as the Lender shall deem appropriate. The Borrower expressly absolves the Lender from any loss or decline
in market value of any Collateral by reason of delay in the enforcement or assertion or nonenforcement of any rights or remedies under
this Agreement.
12.3
Standards for Exercising Remedies. To the extent that applicable law imposes duties on the Lender to exercise remedies in a commercially
reasonable manner, the Borrower acknowledges and agrees that it is not commercially unreasonable for the Lender (a) to fail to incur
expenses reasonably deemed significant by the Lender to prepare Collateral for disposition or otherwise to complete raw material or work-in-process
into finished goods or other finished products for disposition, (b) to fail to obtain third party consents for access to Collateral to
be disposed of, or to obtain or, if not required by other law, to fail to obtain governmental or third party consents for the collection
or disposition of Collateral to be collected or disposed of, (c) to fail to exercise collection remedies against Account Debtors or other
Persons obligated on Collateral or to remove liens or encumbrances on or any adverse claims against Collateral, (d) to exercise collection
remedies against Account Debtors and other Persons obligated on Collateral directly or through the use of collection agencies and other
collection specialists, (e) to advertise dispositions of Collateral through publications or media of general circulation, whether or
not the Collateral is of a specialized nature, (f) to contact other Persons, whether or not in the same business as the Borrower, for
expressions of interest in acquiring all or any portion of the Collateral, (g) to hire one or more professional auctioneers to assist
in the disposition of Collateral, whether or not the collateral is of a specialized nature, (h) to dispose of Collateral by utilizing
internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capability
of doing so, or that match buyers and sellers of assets, (i) to dispose of assets in wholesale rather than retail markets, (j) to disclaim
disposition warranties, including, without limitation, any warranties of title, (k) to purchase insurance or credit enhancements to insure
the Lender against risks of loss, collection or disposition of Collateral or to provide to the Lender a guaranteed return from the collection
or disposition of Collateral, or (l) to the extent deemed appropriate by the Lender, to obtain the services of other brokers, investment
bankers, consultants and other professionals to assist the Lender in the collection or disposition of any of the Collateral. The Borrower
acknowledges that the purpose of this section is to provide non-exhaustive indications of what actions or omissions by the Lender would
not be commercially unreasonable in the Lender’s exercise of remedies against the Collateral and that other actions or omissions
by the Lender shall not be deemed commercially unreasonable solely on account of not being indicated in this section. Without limitation
upon the foregoing, nothing contained in this section shall be construed to grant any rights to the Borrower or to impose any duties
on the Lender that would not have been granted or imposed by this Agreement or by applicable law in the absence of this section.
12.4
UCC and Offset Rights. The Lender may exercise, from time to time, any and all rights and remedies available to it under the UCC
or under any other applicable law in addition to, and not in lieu of, any rights and remedies expressly granted in this Agreement or
in any other agreements between any Obligor and the Lender, and may, without demand or notice of any kind, appropriate and apply toward
the payment of such of the Obligations, whether matured or unmatured, including costs of collection and attorneys’ and paralegals’
fees, and in such order of application as the Lender may, from time to time, elect, any indebtedness of the Lender to any Obligor, however
created or arising, including, but not limited to, balances, credits, deposits, accounts or moneys of such Obligor in the possession,
control or custody of, or in transit to the Lender. The Borrower, on behalf of itself and each Obligor, hereby waives the benefit of
any law that would otherwise restrict or limit the Lender in the exercise of its right, which is hereby acknowledged, to appropriate
at any time hereafter any such indebtedness owing from the Lender to any Obligor.
12.5
Additional Remedies. The Lender shall have the right and power to:
(a)
instruct the Borrower, at its own expense, to notify any parties obligated on any of the Collateral, including, but not limited to, any
Account Debtors, to make payment directly to the Lender of any amounts due or to become due thereunder, or the Lender may directly notify
such obligors of the security interest of the Lender, and/or of the assignment to the Lender of the Collateral and direct such obligors
to make payment to the Lender of any amounts due or to become due with respect thereto, and thereafter, collect any such amounts due
on the Collateral directly from such Persons obligated thereon;
(b)
enforce collection of any of the Collateral, including, but not limited to, any Accounts, by suit or otherwise, or make any compromise
or settlement with respect to any of the Collateral, or surrender, release or exchange all or any part thereof, or compromise, extend
or renew for any period (whether or not longer than the original period) any indebtedness thereunder;
(c)
take possession or control of any proceeds and products of any of the Collateral, including the proceeds of insurance thereon;
(d)
extend, renew or modify for one or more periods (whether or not longer than the original period) any Note, any other of the Obligations,
any obligation of any nature of any other obligor with respect to any Note or any of the Obligations;
(e)
grant releases, compromises or indulgences with respect to any Note, any of the Obligations, any extension or renewal of any of the Obligations,
any security therefor, or to any other obligor with respect to any Note or any of the Obligations;
(f)
transfer the whole or any part of securities which may constitute Collateral into the name of the Lender or the Lender’s nominee
without disclosing, if the Lender so desires, that such securities so transferred are subject to the security interest of the Lender,
and any corporation, association, or any of the managers or trustees of any trust issuing any of such securities, or any transfer agent,
shall not be bound to inquire, in the event that the Lender or such nominee makes any further transfer of such securities, or any portion
thereof, as to whether the Lender or such nominee has the right to make such further transfer, and shall not be liable for transferring
the same;
(g)
make an election with respect to the Collateral under Section 1111 of the Bankruptcy Code or take action under Section 364 or any other
section of the Bankruptcy Code; provided, however, that any such action of the Lender as set forth herein shall not, in any manner whatsoever,
impair or affect the liability of the Borrower hereunder, nor prejudice, waive, nor be construed to impair, affect, prejudice or waive
the Lender’s rights and remedies at law, in equity or by statute, nor release, discharge, nor be construed to release or discharge,
the Borrower, any guarantor or other Person liable to the Lender for the Obligations; and
(h)
at any time, and from time to time, accept additions to, releases, reductions, exchanges or substitution of the Collateral, without in
any way altering, impairing, diminishing or affecting the provisions of this Agreement, the Loan Documents, or any of the other Obligations,
or the Lender’s rights hereunder, under any Note or under any of the other Obligations.
The
Borrower hereby ratifies and confirms whatever the Lender may do with respect to the Collateral and agrees that the Lender shall not
be liable for any error of judgment or mistakes of fact or law with respect to actions taken in connection with the Collateral.
12.6
Appointment of Receiver. After the occurrence of an Event of Default, Borrower hereby agrees and acknowledges that in addition
to any other remedy under the Loan Documents, this Agreement, or at law or equity, that the Lender shall be and is entitled to the appointment
of a receiver under either state or federal receivership law and the Borrower hereby consents to the appointment of a receiver of the
Lender’s choice for purposes of effectuating the provisions of this paragraph. Borrower further agrees and consents that, at the
Lender’s choosing, such receiver will be entitled to take exclusive possession and control, to the exclusion of Borrower and its
agents, of all or substantially all of Borrower’s property or such limited or specific property of Borrower as the Lender at its
discretion may identify or select. Borrower further agrees that such receiver shall be vested with such powers as the appointing court
determines are necessary and appropriate to possess, maintain, operate, control, and/or liquidate property placed into the control of
the receiver and specifically agrees that at the specific request of the Lender, the receiver may be vested with the power to operate
the Borrower as a going concern in all respects, and to collect accounts, enforce and settle claims, and to liquidate Borrower’s
property or the Collateral. Borrower shall and hereby agrees to cooperate in all reasonable receiver requests for assistance and information
necessary to effectuate the duties ascribed to the receiver by the court. Borrower hereby grants to the Lender it limited power of attorney
authorizing the Lender to represent the Borrower’s consent to the appointment of a receiver in any order that the Lender may present
to a court. Borrower further agrees and acknowledges that three (3) days’ notice of a hearing appointing such receiver shall be
considered reasonable notice of such hearing. The provisions of this Section 12.6 shall survive the termination of this Agreement.
12.7
Attorney-in-Fact. From and after to occurrence and continuance of a material Event of Default and subject to the Lender’s
compliance with applicable law, the Borrower hereby irrevocably makes, constitutes and appoints the Lender (and any officer of the Lender
or any Person designated by the Lender for that purpose) as the Borrower’s true and lawful proxy and attorney-in-fact (and agent-in-fact)
in the Borrower’s name, place and stead, with full power of substitution, to (i) take such actions as are permitted in this Agreement,
(ii) execute such financing statements and other documents and to do such other acts as the Lender may require to perfect and preserve
the Lender’s security interest in, and to enforce such interests in the Collateral, and (iii) carry out any remedy provided for
in this Agreement, including, without limitation, endorsing the Borrower’s name to checks, drafts, instruments and other items
of payment, and proceeds of the Collateral, executing change of address forms with the postmaster of the United States Post Office serving
the address of the Borrower, changing the address of the Borrower to that of the Lender, opening all envelopes addressed to the Borrower
and applying any payments contained therein to the Obligations. The Borrower hereby acknowledges that the constitution and appointment
of such attorney-in-fact are coupled with an interest and are irrevocable. The Borrower hereby ratifies and confirms all that such attorney-in-fact
may do or cause to be done by virtue of any provision of this Agreement so long as the Lender is acting in a commercially reasonable
manner and in accordance with the terms of this Agreement, the other Loan Documents and in accordance with applicable law.
12.8
No Marshaling. The Lender shall not be required to marshal any present or future collateral security (including but not limited
to this Agreement and the Collateral) for, or other assurances of payment of, the Obligations or any of them or to resort to such collateral
security or other assurances of payment in any particular order. To the extent that it lawfully may, the Borrower hereby agrees that
it will not invoke any law relating to the marshaling of collateral which might cause delay in or impede the enforcement of the Lender’s
rights under this Agreement or under any other instrument creating or evidencing any of the Obligations or under which any of the Obligations
is outstanding or by which any of the Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully
may, the Borrower hereby irrevocably waives the benefits of all such laws.
12.9
Application of Proceeds. The Lender will within three (3) Business Days after receipt of cash or solvent credits from collection
of items of payment, proceeds of Collateral or any other source, apply the whole or any part thereof against the Obligations secured
hereby. The Lender shall further have the exclusive right to determine how, when and what application of such payments and such credits
shall be made on the Obligations, and such determination shall be conclusive upon the Borrower. Any proceeds of any disposition by the
Lender of all or any part of the Collateral may be first applied by the Lender to the payment of expenses incurred by the Lender in connection
with the Collateral, including attorneys’ fees and legal expenses as provided for in Section 13 hereof. Notwithstanding
anything to the contrary set forth above, appropriate adjustments shall be made with respect to payments from other Obligors to preserve
the allocation to Obligations otherwise set forth above in this Section; provided, further, that Lender may elect to apply the proceeds
of any such Collateral to repay or cash collateralize any Obligations in accordance with the priority set forth above before applying
the proceeds of any other Collateral provided under any Loan Document, if in the reasonable determination of Lender, such order of application
will maximize the repayment of all of the Obligations. Lender shall have absolute discretion as to the time of application of any such
proceeds, moneys, or balances in accordance with this Agreement.
12.10 No
Waiver. No Event of Default shall be waived by the Lender except in writing. No failure or delay on the part of the Lender in
exercising any right, power or remedy hereunder shall operate as a waiver of the exercise of the same or any other right at any
other time; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise
thereof or the exercise of any other right, power or remedy hereunder. There shall be no obligation on the part of the Lender to
exercise any remedy available to the Lender in any order. The remedies provided for herein are cumulative and not exclusive of any
remedies provided at law or in equity. The Borrower agrees that in the event that the Borrower fails to perform, observe or
discharge any of its Obligations or liabilities under this Agreement or any other agreements with the Lender, no remedy of law will
provide adequate relief to the Lender, and further agrees that the Lender shall be entitled to temporary and permanent injunctive
relief in any such case without the necessity of proving actual damages.
Section
13. MISCELLANEOUS.
13.1
Obligations Absolute. None of the following shall affect the Obligations of the Borrower to the Lender under this Agreement or
the Lender’s rights with respect to the Collateral:
(a)
acceptance or retention by the Lender of other property or any interest in property as security for the Obligations;
(b)
release by the Lender of the Borrower or of all or any part of the Collateral or of any party liable with respect to the Obligations;
(c)
release, extension, renewal, modification or substitution by the Lender of any Note, or any note evidencing any of the Obligations, or
the compromise of the liability of any guarantor of the Obligations; or
(d)
failure of the Lender to resort to any other security or to pursue the Borrower or any other obligor liable for any of the Obligations
before resorting to remedies against the Collateral.
13.2
Entire Agreement. This Agreement and the other Loan Documents (i) are valid, binding and enforceable against the Borrower and
the Lender in accordance with their respective provisions and no conditions exist as to their legal effectiveness; (ii) constitute the
entire agreement between the parties with respect to the subject matter hereof and thereof; and (iii) are the final expression of the
intentions of the Borrower and the Lender. No promises, either expressed or implied, exist between the Borrower and the Lender, unless
contained herein or therein. This Agreement, together with the other Loan Documents, supersedes all negotiations, representations, warranties,
commitments, term sheets, discussions, negotiations, offers or contracts (of any kind or nature, whether oral or written) prior to or
contemporaneous with the execution hereof with respect to any matter, directly or indirectly related to the terms of this Agreement and
the other Loan Documents. This Agreement and the other Loan Documents are the result of negotiations among the Lender, the Borrower and
the other parties thereto, and have been reviewed (or have had the opportunity to be reviewed) by counsel to all such parties, and are
the products of all parties. Accordingly, this Agreement and the other Loan Documents shall not be construed more strictly against the
Lender merely because of the Lender’s involvement in their preparation.
13.3
Amendments; Waivers. No delay on the part of the Lender in the exercise of any right, power or remedy shall operate as a waiver
thereof, nor shall any single or partial exercise by the Lender of any right, power or remedy preclude other or further exercise thereof,
or the exercise of any other right, power or remedy. No amendment, modification or waiver of, or consent with respect to, any provision
of this Agreement or the other Loan Documents shall in any event be effective unless the same shall be in writing and acknowledged by
the Lender, and then any such amendment, modification, waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
13.4
WAIVER OF DEFENSES. THE BORROWER, ON BEHALF OF ITSELF AND ANY GUARANTOR OF ANY OF THE OBLIGATIONS, WAIVES EVERY PRESENT AND FUTURE
DEFENSE, CAUSE OF ACTION, COUNTERCLAIM OR SETOFF WHICH THE BORROWER MAY NOW HAVE OR HEREAFTER MAY HAVE TO ANY ACTION BY THE LENDER IN
ENFORCING THIS AGREEMENT. PROVIDED THE LENDER ACTS IN GOOD FAITH, THE BORROWER RATIFIES AND CONFIRMS WHATEVER THE LENDER MAY DO PURSUANT
TO THE TERMS OF THIS AGREEMENT. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER GRANTING ANY FINANCIAL ACCOMMODATION TO THE BORROWER.
13.5
FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN DISTRICT COURT OF JOHNSON COUNTY, KANSAS OR THE
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS; PROVIDED THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE
THE LENDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS
TO THE JURISDICTION OF THE DISTRICT COURT OF JOHNSON COUNTY, KANSAS OR THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS FOR
THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED
MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF KANSAS. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVE,
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION
BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
13.6
WAIVER OF JURY TRIAL. THE LENDER AND THE BORROWER, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, EACH
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE IRREVOCABLY, ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND
ANY RIGHTS UNDER THIS AGREEMENT, ANY NOTE, ANY OTHER LOAN DOCUMENT, ANY OF THE OTHER OBLIGATIONS, THE COLLATERAL, OR ANY AMENDMENT, INSTRUMENT,
DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY LENDING
RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE FOREGOING, OR ANY COURSE OF CONDUCT OR COURSE OF DEALING IN WHICH THE LENDER AND
THE BORROWER ARE ADVERSE PARTIES, AND EACH AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER GRANTING ANY FINANCIAL ACCOMMODATION TO THE BORROWER.
13.7
Assignability. The Lender may at any time assign the Lender’s rights in this Agreement, the other Loan Documents, the Obligations,
or any part thereof and transfer the Lender’s rights in any or all of the Collateral, and the Lender thereafter shall be relieved
from all liability with respect to such Collateral. In addition, the Lender may at any time sell one or more participations in the Loans.
The Borrower may not sell or assign this Agreement, or any other agreement with the Lender or any portion thereof, either voluntarily
or by operation of law, without the prior written consent of the Lender. This Agreement shall be binding upon the Lender and the Borrower
and their respective legal representatives and successors. All references herein to the Borrower shall be deemed to include any successors,
whether immediate or remote. In the case of a joint venture or partnership, the term “Borrower” shall be deemed to include
all joint venturers or partners thereof, who shall be jointly and severally liable hereunder.
13.8
Confirmations. The Borrower and the Lender agree from time to time, upon written request received by it from the other, to confirm
to the other in writing the aggregate unpaid principal amount of the Loans then outstanding under such Note.
13.9
Confidentiality. The Lender agrees to use commercially reasonable efforts (equivalent to the efforts the Lender applies to maintain
the confidentiality of its own confidential information) to maintain as confidential all information provided to them by the Borrower
and designated as confidential, except that the Lender may disclose such information (a) to Persons employed or engaged by the Lender
in evaluating, approving, structuring or administering the Loans; (b) to any assignee or participant or potential assignee or participant
that has agreed to comply with the covenant contained in this Section 13.9 (and any such assignee or participant or potential
assignee or participant may disclose such information to Persons employed or engaged by them as described in clause (a) above); (c) as
required or requested by any federal or state regulatory authority or examiner, or any insurance industry association, or as reasonably
believed by the Lender to be compelled by any court decree, subpoena or legal or administrative order or process; (d) as, on the advice
of the Lender’s counsel, is required by law; (e) in connection with the exercise of any right or remedy under the Loan Documents
or in connection with any litigation to which the Lender is a party; (f) to any nationally recognized rating agency that requires access
to information about the Lender’s investment portfolio in connection with ratings issued with respect to the Lender; (g) to any
Affiliate of the Lender who may provide other services to the Borrower or any Subsidiary, or (h) that ceases to be confidential through
no fault of the Lender.
13.10
Binding Effect. This Agreement shall become effective upon execution by the Borrower and the Lender. If this Agreement is not
dated or contains any blanks when executed by the Borrower, the Lender is hereby authorized, without notice to the Borrower, to date
this Agreement as of the date when it was executed by the Borrower, and to complete any such blanks according to the terms upon which
this Agreement is executed.
13.11
Governing Law. This Agreement, the Loan Documents and any Note shall be delivered and accepted in and shall be deemed to be contracts
made under and governed by the internal laws of the State of Kansas (but giving effect to federal laws applicable to national banks)
applicable to contracts made and to be performed entirely within such state, without regard to conflict of laws principles.
13.12
Enforceability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement shall be prohibited by, unenforceable or invalid under any jurisdiction,
such provision shall as to such jurisdiction, be severable and be ineffective to the extent of such prohibition or invalidity, without
invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.
13.13
Survival of Borrower Representations. All covenants, agreements, representations and warranties made by the Borrower herein shall,
notwithstanding any investigation by the Lender, be deemed material and relied upon by the Lender and shall survive the making and execution
of this Agreement and the Loan Documents and the issuance of any Note, and shall be deemed to be continuing representations and warranties
until such time as the Borrower has fulfilled all of its Obligations to the Lender, and the Lender has been indefeasibly paid in full
in cash. The Lender, in extending financial accommodations to the Borrower, is expressly acting and relying on the aforesaid representations
and warranties.
13.14
Extensions of Lender’s Commitment. This Agreement shall secure and govern the terms of (i) any extensions or renewals of
the Lender’s commitment hereunder, and (ii) any replacement note executed by the Borrower and accepted by the Lender in its sole
and absolute discretion in substitution for any Note.
13.15
Time of Essence. Time is of the essence in making payments of all amounts due the Lender under this Agreement and in the performance
and observance by the Borrower of each covenant, agreement, provision and term of this Agreement.
13.16
Counterparts; Facsimile Signatures. This Agreement may be executed in any number of counterparts and by the different parties
hereto on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together
constitute but one and the same Agreement. Receipt of an executed signature page to this Agreement by facsimile or other electronic transmission
shall constitute effective delivery thereof. Electronic records of executed Loan Documents maintained by the Lender shall deemed to be
originals thereof.
13.17
Notices. Except as otherwise provided herein, the Borrower waives all notices and demands in connection with the enforcement of
the Lender’s rights hereunder. All notices, requests, demands and other communications provided for hereunder shall be in writing
and addressed as follows:
If
to the Borrower:
c/o
Digital Ally, Inc.
14001
Marshall Drive
Lenexa,
Kansas 66215
Attention:
Stanton E. Ross
If
to the Lender:
Kompass
Kapital Funding, LLC
9800
Metcalf Avenue, Suite 120
Overland
Park, Kansas 66212
Attention:
Courtney Conrad
or,
as to each party, at such other address as shall be designated by such party in a written notice to each other party complying as to
delivery with the terms of this subsection. All notices addressed as above shall be deemed to have been properly given (i) if served
in person, upon acceptance or refusal of delivery; (ii) if mailed by certified or registered mail, return receipt requested, postage
prepaid, on the third (3rd) day following the day such notice is deposited in any post office station or letter box; or (iii) if sent
by recognized overnight courier, on the first (1st) day following the day such notice is delivered to such carrier. No notice to or demand
on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances.
13.18
Release of Claims Against Lender. In consideration of the Lender making the Loans, the Borrower and all other Obligors do each
hereby release and discharge the Lender of and from any and all claims, harm, injury, and damage of any and every kind, known or unknown,
legal or equitable, which any Obligor may have against the Lender from the date of their respective first contact with the Lender until
the date of this Loan Agreement including, but not limited to, any claim arising from any reports (environmental reports, surveys, appraisals,
etc.) prepared by any parties hired or recommended by the Lender. The Borrower and all other Obligors confirm to Lender that they have
reviewed the effect of this release with competent legal counsel of their choice, or have been afforded the opportunity to do so, prior
to execution of this Loan Agreement and the Loan Documents and do each acknowledge and agree that the Lender is relying upon this release
in extending the Loans to the Borrower.
13.19
Costs, Fees and Expenses. The Borrower shall pay or reimburse the Lender for costs, fees and expenses incurred by the Lender or
for which the Lender becomes obligated in connection with the negotiation, preparation, consummation, collection of the Obligations or
enforcement of this Agreement, the other Loan Documents and all other documents provided for herein or delivered or to be delivered hereunder
or in connection herewith (including any amendment, supplement or waiver to any Loan Document), or during any workout, restructuring
or negotiations in respect thereof, including, without limitation, reasonable consultants’ fees and attorneys’ fees and time
charges of counsel to the Lender, which shall also include attorneys’ fees and time charges of attorneys who may be employees of
the Lender or any Affiliate of the Lender, plus costs and expenses of such attorneys or of the Lender; search fees, costs and expenses;
and all taxes payable in connection with this Agreement or the other Loan Documents, whether or not the transaction contemplated hereby
shall be consummated. In furtherance of the foregoing, the Borrower shall pay any and all stamp and other taxes, UCC search fees, filing
fees and other costs and expenses in connection with the execution and delivery of this Agreement, any Note and the other Loan Documents
to be delivered hereunder, and agrees to save and hold the Lender harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such costs and expenses. That portion of the Obligations consisting of costs, expenses
or advances to be reimbursed by the Borrower to the Lender pursuant to this Agreement or the other Loan Documents which are not paid
on or prior to the date hereof shall be payable by the Borrower to the Lender on demand. If at any time or times hereafter the Lender:
(a) employs counsel for advice or other representation (i) with respect to this Agreement or the other Loan Documents, (ii) to
represent the Lender in any litigation, contest, dispute, suit or proceeding or to commence, defend, or intervene or to take any other
action in or with respect to any litigation, contest, dispute, suit, or proceeding (whether instituted by the Lender, the Borrower, or
any other Person) in any way or respect relating to this Agreement, the other Loan Documents or the Borrower’s business or affairs,
or (iii) to enforce any rights of the Lender against the Borrower or any other Person that may be obligated to the Lender by virtue
of this Agreement or the other Loan Documents; (b) takes any action to protect, collect, sell, liquidate, or otherwise dispose of
any of the Collateral; and/or (c) attempts to or enforces any of the Lender’s rights or remedies under the Agreement or the
other Loan Documents, the costs and expenses incurred by the Lender in any manner or way with respect to the foregoing, shall be part
of the Obligations, payable by the Borrower to the Lender on demand.
13.20
Indemnification. The Borrower agrees to defend (with counsel satisfactory to the Lender), protect, indemnify, exonerate and hold
harmless each Indemnified Party from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, expenses and distributions of any kind or nature (including, without limitation, the disbursements and the reasonable
fees of counsel for each Indemnified Party thereto, which shall also include, without limitation, reasonable attorneys’ fees and
time charges of attorneys who may be employees of any Indemnified Party), which may be imposed on, incurred by, or asserted against,
any Indemnified Party (whether direct, indirect or consequential and whether based on any federal, state or local laws or regulations,
including, without limitation, securities laws, Environmental Laws, commercial laws and regulations, under common law or in equity, or
based on contract or otherwise) in any manner relating to or arising out of this Agreement or any of the Loan Documents, or any act,
event or transaction related or attendant thereto, the preparation, execution and delivery of this Agreement and the Loan Documents,
including, but not limited to, the making or issuance and management of the Loans, the use or intended use of the proceeds of the Loans,
the enforcement of the Lender’s rights and remedies under this Agreement, the Loan Documents, any Note, any other instruments and
documents delivered hereunder, or under any other agreement between the Borrower and the Lender; provided, however, that the Borrower
shall not have any obligations hereunder to any Indemnified Party with respect to matters determined by a court of competent jurisdiction
by final and nonappealable judgment to have been caused by or resulting from the bad faith, fraud, willful misconduct or gross negligence
of such Indemnified Party. To the extent that the undertaking to indemnify set forth in the preceding sentence may be unenforceable because
it violates any law or public policy, the Borrower shall satisfy such undertaking to the maximum extent permitted by applicable law.
Any liability, obligation, loss, damage, penalty, cost or expense covered by this indemnity shall be paid to each Indemnified Party on
demand, and failing prompt payment, together with interest thereon at the Default Rate from the date incurred by each Indemnified Party
until paid by the Borrower, shall be added to the Obligations of the Borrower and be secured by the Collateral. The provisions of this
Section shall survive the satisfaction and payment of the other Obligations and the termination of this Agreement.
13.21
Revival and Reinstatement of Obligations. If the incurrence or payment of the Obligations by any Obligor or the transfer to the
Lender of any property should for any reason subsequently be declared to be void or voidable under any state or federal law relating
to creditors’ rights, including provisions of the Bankruptcy Code relating to fraudulent conveyances, preferences, or other voidable
or recoverable payments of money or transfers of property (collectively, a “Voidable Transfer”), and if the Lender is required
to repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable advice of its counsel, then,
as to any such Voidable Transfer, or the amount thereof that the Lender is required or elects to repay or restore, and as to all reasonable
costs, expenses, and attorneys fees of the Lender, the Obligations shall automatically shall be revived, reinstated, and restored and
shall exist as though such Voidable Transfer had never been made.
13.22
Reserved.
13.23
Electronic Records. The Borrower acknowledges and agrees that this Agreement and each other Loan Document and all paper records
related to the transaction with which the Loan Documents are a part and whether or not the paper records were submitted in advance of,
contemporaneously with or subsequent to, the execution of the Loan Documents may, at the option of the Lender, be converted by any digital
or electronic method or process to an electronic record or subsequently further converted or migrated to another electronic record format
or electronic storage medium. The Borrower acknowledges and agrees that upon conversion to an electronic record as authorized herein
such electronic record shall be the record of the transaction and the electronic record shall have the same legal force and effect as
the paper documents from which it was converted. The Borrower waives any legal requirement that any documents digitally or electronically
converted be embodied, stored, or reproduced in a tangible media. The Borrower agrees that a printed or digitally reproduced copy of
the electronic record shall be given the same legal force and effect as a signed writing. In addition, the Borrower authorizes and agrees
to destruction of the paper documents by the Lender upon conversion of the paper documents to a digital or electronic record.
13.24
THIS SECTION IS MADE PART OF THIS AGREEMENT IN COMPLIANCE WITH KANSAS STATUTES ANNOTATED 16-118. THIS CREDIT AGREEMENT IS A FINAL
EXPRESSION OF THE CREDIT AGREEMENT BETWEEN BORROWER AND LENDER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR ORAL AGREEMENT OR
OF A CONTEMPORANEOUS ORAL AGREEMENT BETWEEN BORROWER AND LENDER. IF THERE ARE ANY ADDITIONAL TERMS, THEY ARE REDUCED TO WRITING AS FOLLOWS:
NONE.
IN
WITNESS WHEREOF, the Borrower and the Lender have executed this Loan and Security Agreement as of the date first above written.
|
DIGITAL ALLY, INC., |
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a Nevada corporation |
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|
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By: |
/s/ Stanton E. Ross |
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Name: |
Stanton E. Ross |
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Title: |
Chief Executive Officer |
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|
|
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DIGITAL ALLY HEALTHCARE, LLC, |
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a Nevada limited liability company |
|
|
|
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By: |
/s/ Stanton E. Ross |
|
Name: |
Stanton E. Ross |
|
Title: |
Chief Executive Officer |
|
|
|
|
Agreed and accepted: |
|
|
|
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KOMPASS KAPITAL FUNDING, LLC, |
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a Kansas limited liability company |
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|
|
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By: |
/s/ John P. Minnis |
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Name: |
John P. Minnis |
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Title: |
CEO/Managing Partner |
SCHEDULES
Exhibit
10.2
Space
Above Line Reserved For Recorder’s Use
1. |
Title
of Document: |
Mortgage,
Assignment of Leases and Rents, Security Agreement and Fixture Filing |
|
|
|
2. |
Date
of Document: |
October
26, 2023 |
|
|
|
3. |
Grantor:
|
Digital
Ally, Inc. |
|
|
14001
Marshall Drive |
|
|
Lenexa,
Kansas 66215 |
|
|
|
4. |
Grantee(s):
|
Kompass
Kapital Funding, LLC |
|
|
9800
Avenue, Suite 120 |
|
|
Overland
Park, Kansas, 66212 |
|
|
|
5. |
Legal
Description: |
See
Exhibit A annexed to the document. |
(This
Document Serves as a Fixture Filing under Section 84-9-502 of the Kansas Statutes Annotated.)
NOTWITHSTANDING
ANYTHING TO THE CONTRARY CONTAINED IN THIS MORTGAGE, THE MAXIMUM AMOUNT OF PRINCIPAL INDEBTEDNESS SECURED BY THIS MORTGAGE, INCLUDING
FUTURE ADVANCES AND FUTURE OBLIGATIONS, IS $4,880,000.00.
MORTGAGE,
ASSIGNMENT OF LEAES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING
THIS
MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING (this “Security Instrument”) is made
as of October 26, 2023, by DIGITAL ALLY, INC., a Nevada corporation, as mortgagor (“Grantor”), for the benefit
of KOMPASS KAPITAL FUNDING, LLC, a Kansas limited liability company, having an address at 9800 Avenue, Suite 120, Overland Park,
Kansas, 66212, as mortgagee (“Lender”).
W
I T N E S S E T H:
WHEREAS,
this Security Instrument is given to secure certain loans (collectively, the “Loan”) in the maximum aggregate principal
amount of Four Million Eight Hundred Eighty Thousand and 00/100 dollars ($4,880,000.00)
or so much thereof as may be advanced pursuant to that certain Loan and Security Agreement dated as of the date hereof between Grantor,
Digital Ally Healthcare, Inc., a Delaware corporation (individually and collectively with Grantor, the “Borrower”)
and Lender (as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, the “Loan
Agreement”);
WHEREAS,
the Loan is evidenced by that certain promissory dated the date hereof made by Borrower to Lender (collectively, and as the same may
be amended, restated, replaced, extended, renewed, supplemented or otherwise modified from time to time, the “Note”);
WHEREAS,
Borrower desires to secure the payment of the Obligations (as defined in the Loan Agreement) and other costs, expenses, fees and interest
relating the Loan, and the other Obligations of Borrower under the Note, the Loan Agreement and the other Loan Documents (as defined
below) and the performance of all of its obligations under the Loan Agreement and the other Loan Documents (collectively, the “Debt”);
and
WHEREAS,
this Security Instrument is given pursuant to the Loan Agreement and each and every term and provision of the Loan Agreement and the
Note, including the rights, remedies, obligations, covenants, conditions, agreements, indemnities, representations and warranties of
the parties therein, are hereby incorporated by reference herein as though set forth in full and will be considered a part of this Security
Instrument (the Loan Agreement, the Note, this Security Instrument and all other documents evidencing or securing the Debt or delivered
in connection with the Loan, together with all amendments, restatements, replacements, extensions, renewals, supplements or other modifications
of any of the foregoing, are hereinafter referred to collectively as the “Loan Documents”).
NOW
THEREFORE, in consideration of the making of the Loan by Lender and the covenants, agreements, representations and warranties set forth
in this Security Instrument:
Article
1 - GRANTS OF SECURITY
Section
1.1 Property Mortgaged. Grantor does hereby irrevocably MORTGAGE AND WARRANT to
Lender, and grant a security interest to Lender in, the following property, rights, interests and estates now owned, or hereafter acquired
by Grantor (collectively, the “Property”):
(a)
Land. The real property described in Exhibit A attached hereto and made a part hereof (the “Land”);
(b)
Additional Land. All additional lands, estates and development rights hereafter acquired by Grantor for use in connection with
the Land and the development of the Land and all additional lands and estates therein which may, from time to time, by supplemental mortgage
or otherwise be expressly made subject to the lien of this Security Instrument;
(c)
Improvements. The buildings, structures, fixtures, additions, enlargements, extensions, modifications, repairs, replacements and
improvements now or hereafter erected or located on the Land (collectively, the “Improvements”);
(d)
Easements. All easements, rights-of-way or use, rights, strips and gores of land, streets, ways, alleys, passages, sewer rights,
water, water courses, water rights and powers, air rights and development rights, and all estates, rights, titles, interests, privileges,
liberties, servitudes, tenements, hereditaments and appurtenances of any nature whatsoever, in any way now or hereafter belonging, relating
or pertaining to the Land and the Improvements and the reversion and reversions, remainder and remainders, and all land lying in the
bed of any street, road or avenue, opened or proposed, in front of or adjoining the Land, to the center line thereof and all the estates,
rights, titles, interests, dower and rights of dower, curtesy and rights of curtesy, property, possession, claim and demand whatsoever,
both at law and in equity, of Grantor of, in and to the Land and the Improvements and every part and parcel thereof, with the appurtenances
thereto;
(e)
Equipment. All “equipment,” as such term is defined in Article 9 of the Uniform Commercial Code (as hereinafter defined),
now owned or hereafter acquired by Grantor, which is used at or in connection with the Improvements or the Land or is located thereon
or therein (including all machinery, equipment, furnishings, and electronic data-processing and other office equipment now owned or hereafter
acquired by Grantor and any and all additions, substitutions and replacements of any of the foregoing), together with all attachments,
components, parts, equipment and accessories installed thereon or affixed thereto (collectively, the “Equipment”);
(f)
Fixtures. All Equipment now owned, or the ownership of which is hereafter acquired, by Grantor which is so related to the Land
and Improvements forming part of the Property that it is deemed fixtures or real property under the law of the particular state in which
the Equipment is located, including all building or construction materials intended for construction, reconstruction, alteration or repair
of or installation on the Property, construction equipment, appliances, machinery, plant equipment, fittings, apparatuses, fixtures and
other items now or hereafter attached to, installed in or used in connection with (temporarily or permanently) any of the Improvements
or the Land, including engines, devices for the operation of pumps, pipes, plumbing, cleaning, call and sprinkler systems, fire extinguishing
apparatuses and equipment, heating, ventilating, plumbing, laundry, incinerating, electrical, air conditioning and air cooling equipment
and systems, gas and electric machinery, appurtenances and equipment, pollution control equipment, security systems, disposals, dishwashers,
refrigerators and ranges, recreational equipment and facilities of all kinds, and water, gas, electrical, storm and sanitary sewer facilities,
utility lines and equipment (whether owned individually or jointly with others, and, if owned jointly, to the extent of Grantor’s
interest therein) and all other utilities whether or not situated in easements, all water tanks, water supply, water power sites, fuel
stations, fuel tanks, fuel supply, and all other structures, together with all accessions, appurtenances, additions, replacements, betterments
and substitutions for any of the foregoing and the proceeds thereof (collectively, the “Fixtures”);
(g)
Personal Property. All furniture, furnishings, objects of art, machinery, goods, tools, supplies, appliances, general intangibles,
contract rights, accounts, accounts receivable, franchises, licenses, certificates and permits, and all other personal property of any
kind or character whatsoever (as defined in and subject to the provisions of the Uniform Commercial Code as hereinafter defined), other
than Fixtures, which are now or hereafter owned by Grantor and which are located within or about the Land and the Improvements, together
with all accessories, replacements and substitutions thereto or therefor and the proceeds thereof (collectively, the “Personal
Property”), and the right, title and interest of Grantor in and to any of the Personal Property which may be subject to any
security interests, as defined in the Uniform Commercial Code, as adopted and enacted by the state, states, commonwealth or commonwealths
where any of the Property is located (as amended from time to time, the “Uniform Commercial Code”), superior in lien
to the lien of this Security Instrument and all proceeds and products of the above;
(h)
Leases and Rents. All leases, subleases, lettings, licenses, concessions or other agreements (whether written or oral) pursuant
to which any Person is granted a possessory interest in, or right to use or occupy all or any portion of the Land and the Improvements,
and every modification, amendment or other agreement relating to such leases, subleases or other agreements entered into in connection
with such leases, subleases or other agreements and every guarantee of the performance and observance of the covenants, conditions and
agreements to be performed and observed by the other party thereto, heretofore or hereafter entered into, whether before or after the
filing by or against Grantor of any petition for relief under 11 U.S.C. §101 et seq., as the same may be amended from time to time
(the “Bankruptcy Code”) (collectively, the “Leases”) and all right, title and interest of Grantor,
its successors and assigns therein and thereunder, including all cash, letters of credit or securities deposited thereunder to secure
the performance by the lessees of their obligations thereunder and all rents, additional rents, rent equivalents, moneys payable as damages
or in lieu of rent or rent equivalents, royalties (including all oil and gas or other mineral royalties and bonuses), income, receivables,
receipts, revenues, deposits (including security, utility and other deposits), accounts, cash, issues, profits, charges for services
rendered, and other consideration of whatever form or nature received by or paid to or for the account of or benefit of Grantor or its
agents or employees from any and all sources arising from or attributable to the Property, including all receivables, customer obligations,
installment payment obligations and other obligations now existing or hereafter arising or created out of the sale, lease, sublease,
license, concession or other grant of the right of the use and occupancy of property or rendering of services by Grantor and proceeds,
if any, from business interruption or other loss of income insurance whether paid or accruing before or after the filing by or against
Grantor of any petition for relief under the Bankruptcy Code (collectively, the “Rents”) and all proceeds from the
sale or other disposition of the Leases and the right to receive and apply the Rents to the payment of the Obligations (as hereinafter
defined);
(i)
Condemnation Awards. All awards or payments (including any administrative fees or attorneys’ fees), including interest thereon,
which may heretofore and hereafter be made with respect to the Property, whether from the exercise of the right of eminent domain (including
any transfer made in lieu of or in anticipation of the exercise of the right), or for a change of grade, or for any other injury to or
decrease in the value of the Property;
(j)
Insurance Proceeds. All proceeds (including any administrative fees or attorneys’ fees) in respect of the Property under
any insurance policies covering the Property, including the right to receive and apply the proceeds of any insurance, judgments, or settlements
made in lieu thereof, for damage to the Property;
(k)
Tax Certiorari. All refunds, rebates or credits in connection with reduction in real estate taxes and assessments charged against
the Property as a result of tax certiorari or any applications or proceedings for reduction;
(l)
Rights. Upon and during the continuance of an Event of Default, the right, in the name and on behalf of Grantor, to appear in
and defend any action or proceeding brought with respect to the Property and to commence any action or proceeding to protect the interest
of Lender in the Property;
(m)
Agreements. All agreements, contracts, certificates, instruments, franchises, permits, licenses, plans, specifications and other
documents, now or hereafter entered into, and all rights therein and thereto, respecting or pertaining to the use, occupation, construction,
management or operation of the Land and any part thereof and any Improvements and any part thereof and all right, title and interest
of Grantor therein and thereunder, including the right, upon the happening of any default hereunder, to receive and collect any sums
payable to Grantor thereunder;
(n)
Trademarks. Reserved;
(o)
Accounts. All reserves, escrows and deposit accounts maintained by Grantor with respect to the Property, including all accounts
established or maintained pursuant to the Loan Documents; together with all deposits or wire transfers made to such accounts and all
cash, checks, drafts, certificates, securities, investment property, financial assets, instruments and other property held therein from
time to time and all proceeds, products, distributions or dividends or substitutions thereon and thereof;
(p)
Reserved.
(q)
Proceeds. All proceeds of any of the foregoing, including, without limitation, proceeds of insurance and condemnation awards,
whether cash, liquidation or other claims or otherwise; and
(r)
Other Rights. Any and all other rights of Grantor in and to the items set forth in Subsections (a) through (q) above.
AND
without limiting any of the other provisions of this Security Instrument, to the extent permitted by applicable law, Grantor expressly
grants to Lender, as secured party, a security interest in the portion of the Property which is or may be subject to the provisions of
the Uniform Commercial Code which are applicable to secured transactions; it being understood and agreed that the Improvements and Fixtures
are part and parcel of the Land (the Land, the Improvements and the Fixtures are collectively referred to as the “Real Property”)
appropriated to the use thereof and, whether affixed or annexed to the Real Property or not, will for the purposes of this Security Instrument
be deemed conclusively to be real estate and mortgaged hereby.
Section
1.2 Assignment of Rents. Grantor hereby absolutely and unconditionally assigns to
Lender all of Grantor’s right, title and interest in and to all current and future Leases and Rents; it being intended by Grantor
that this assignment constitutes a present, absolute assignment and not an assignment for additional security only. Nevertheless, subject
to the terms of Section 7.1(h) of this Security Instrument, Lender grants to Grantor a revocable license to collect, receive,
use and enjoy the Rents. Grantor will hold the Rents, or a portion thereof sufficient to discharge all current sums as they come due
on the Obligations (as hereinafter defined), for use in the payment of such sums.
Section
1.3 Security Agreement. This Security Instrument is both a real property mortgage
and a “security agreement” within the meaning of the Uniform Commercial Code. The Property includes both real and personal
property and all other rights and interests, whether tangible or intangible in nature, of Grantor in the Property. By executing and delivering
this Security Instrument, Grantor hereby grants to Lender, as security for the Obligations (as hereinafter defined), a security interest
in the Fixtures, the Equipment, the Personal Property and other property constituting the Property to the full extent that the Fixtures,
the Equipment, the Personal Property and such other property may be subject to the Uniform Commercial Code (said portion of the Property
so subject to the Uniform Commercial Code being called the “Collateral”). If an Event of Default occurs and is continuing,
Lender, in addition to any other rights and remedies which it may have, will have and may exercise immediately and without demand, any
and all rights and remedies granted to a secured party upon default under the Uniform Commercial Code, including, without limiting the
generality of the foregoing, the right to take possession of the Collateral or any part thereof, and to take such other measures as Lender
may deem necessary for the care, protection and preservation of the Collateral. Upon request or demand of Lender after the occurrence
and during the continuance of an Event of Default, Grantor will, at its expense, assemble the Collateral and make it available to Lender
at a convenient place (at the Land if tangible property) acceptable to Lender. Grantor will pay to Lender on demand any and all expenses,
including legal expenses and reasonable attorneys’ fees, incurred or paid by Lender in protecting its interest in the Collateral
and in enforcing its rights hereunder with respect to the Collateral after the occurrence of an Event of Default. Any notice of sale,
disposition or other intended action by Lender with respect to the Collateral sent to Grantor in accordance with the provisions hereof
at least 10 Business Days prior to such action, will, except as otherwise provided by applicable law, constitute reasonable notice to
Grantor. The proceeds of any disposition of the Collateral, or any part thereof, shall, except as otherwise required by applicable law,
be applied by Lender to the payment of the Obligations (as hereinafter defined) in such priority and proportions as Lender in its reasonable
discretion deems proper. The principal place of business of Grantor (Debtor) is as set forth on page one hereof and the address of Lender
(Secured Party) is as set forth on page one hereof.
Section
1.4 Fixture Filing. Certain of the Property is or will become “fixtures”
(as that term is defined in the Uniform Commercial Code) on the Land, described or referred to in this Security Instrument, and this
Security Instrument, upon being filed for record in the real estate records of the city or county wherein such fixtures are situated,
will operate also as a financing statement naming Grantor as Debtor and Lender as Secured Party filed as a fixture filing in accordance
with the applicable provisions of said Uniform Commercial Code upon such of the Property that is or may become fixtures.
Section
1.5 Pledges of Monies Held. Grantor hereby pledges to Lender any and all monies
now or hereafter held by Lender or on behalf of Lender in connection with the Loan, including any sums deposited in any required accounts,
Insurance Proceeds and Condemnation Proceeds, as additional security for the Obligations (as hereinafter defined) until expended or applied
as provided in this Security Instrument or the Loan Agreement.
CONDITIONS
TO GRANT
TO
HAVE AND TO HOLD the above granted and described Property unto and to the use and benefit of Lender and its successors and assigns, forever;
PROVIDED,
HOWEVER, this grant is made upon the express condition that, if the Obligations (as hereinafter defined) are fully and indefeasibly paid
and performed, at the time and in the manner provided in the Loan Documents, and if Grantor complies with each and every covenant and
condition set forth herein and in the other Loan Documents, the estate hereby granted will cease, terminate and be void; provided,
however, Grantor’s obligation to indemnify and hold harmless Lender pursuant to the provisions hereof will survive any such
payment or release. At such time as the Obligations are indefeasibly and fully paid and performed, Lender shall cause a release, termination,
satisfaction or reconveyance (as applicable) of this Security Instrument to be filed in the appropriate filing office.
Article
2 - DEBT AND OBLIGATIONS SECURED
Section
2.1 Debt. This Security Instrument and the grants, assignments and transfers made
in Article 1 are given for the purpose of securing the Debt which includes, but is not limited to, the obligations of Borrower to pay
to Lender the principal and interest owing pursuant to the terms and conditions of the Note and the Loan Agreement.
Section
2.2 Other Obligations. This Security Instrument and the grants, assignments and
transfers made in Article 1 are also given for the purpose of securing the following (the “Other Obligations”):
(a)
the payment and performance of all other obligations of Grantor contained herein, including all fees and charges payable by Grantor;
(b)
the payment and performance of each obligation of Borrower contained in the Loan Agreement and any other Loan Document, including all
fees and charges payable by Borrower; and
(c)
the performance of each obligation of Borrower contained in any renewal, extension, amendment, modification, consolidation, change of,
or substitution or replacement for, all or any part of the Note, the Loan Agreement or any other Loan Document;
Section
2.3 Debt and Other Obligations. “Obligations”, as used herein,
shall mean “Obligations” as defined in the Loan Agreement.
Article
3 - GRANTOR COVENANTS
Grantor
covenants and agrees that:
Section
3.1 Payment of Obligations. Grantor will pay and perform the Obligations at the
time and in the manner provided in the Loan Agreement, the Note and this Security Instrument.
Section
3.2 Incorporation by Reference. All the covenants, conditions and agreements contained
in (a) the Loan Agreement, (b) the Note and (c) all and any of the other Loan Documents, are hereby made a part of this Security Instrument
to the same extent and with the same force as if fully set forth herein.
Section
3.3 Insurance. Grantor will obtain and maintain, or cause to be maintained, in full
force and effect at all times insurance with respect to Grantor and the Property as required pursuant to the Loan Agreement. In the event
Grantor fails to obtain, maintain, keep in force or deliver to Lender the policies of insurance required by the Loan Agreement in accordance
with the terms thereof, Lender may (but has no obligation to) procure such insurance or single-interest insurance for such risks covering
Lender’s interests as provided in the Loan Agreement, and Grantor will pay all premiums thereon promptly upon demand by Lender,
and until such payment is made by Grantor, the amount advanced by Lender with respect to all such premiums will, at Lender’s option,
bear interest at the Default Rate.
Section
3.4 Maintenance of Property. Grantor will cause the Property to be maintained in
a good and safe condition and repair and otherwise in accordance with the Loan Agreement. The Improvements, the Fixtures, the Equipment
and the Personal Property will not be removed, demolished or altered without the consent of Lender other than in accordance with the
terms and conditions of the Loan Agreement. Grantor will promptly repair, replace or rebuild any part of the Property which may be destroyed
by any casualty or become damaged, worn or dilapidated or which may be affected by any condemnation, and will complete and pay for any
structure at any time in the process of construction or repair on the Land.
Section
3.5 Waste. Grantor will not commit or suffer any waste of the Property or make any
change in the use of the Property which will in any way materially increase the risk of fire or other hazard arising out of the operation
of the Property, or take any action that might invalidate or allow the cancellation of any insurance policy which Grantor is obligated
to maintain pursuant to the Loan Agreement, or do or permit to be done thereon anything that may in any way materially impair the value
of the Property or the security of this Security Instrument. Grantor will not, without the prior written consent of Lender, grant consent
to any drilling or exploration for or extraction, removal, or production of any minerals from the surface or the subsurface of the Land,
regardless of the depth thereof or the method of mining or extraction thereof.
Section
3.6 Payment for Labor and Materials.
(a)
Grantor will promptly pay when due all bills and costs for labor and materials (“Labor and Material Costs”) incurred
in connection with the Property and not permit to exist beyond the due date thereof in respect of the Property or any part thereof any
lien or security interest, even though inferior to the liens and the security interests hereof, and in any event not permit to be created
or exist in respect of the Property or any part thereof any other or additional Lien or Security Interest other than the liens or security
interests hereof and except for the Permitted Exceptions.
(b)
After prior written notice to Lender, Grantor, at its own expense, may contest by appropriate legal proceeding, promptly initiated and
conducted in good faith and with due diligence, the amount or validity or application in whole or in part of any of the Labor and Material
Costs, provided that (i) no Default or Event of Default has occurred and is continuing, (ii) either (A) such proceeding will suspend
the collection of the Labor and Material Costs from Grantor and from the Property, or (B) Grantor has paid all of the Labor and Material
Costs under protest, (iii) such proceeding is permitted and conducted in accordance with the provisions of any other instrument to which
Grantor or the Property is subject and will not constitute a default thereunder, (iv) neither the Property nor any part thereof or interest
therein will be in danger of being sold, forfeited, terminated, canceled or lost, (v) Grantor has furnished such security as may be required
in the proceeding, or as may be requested by Lender to insure the payment of any contested Labor and Material Costs, together with all
interest and penalties thereon, and (vi) Grantor has provided (at Grantor’s sole cost and expense) such endorsements to Lender’s
title insurance policy as Lender may require. Lender may pay over any such security or part thereof held by Lender to the claimant entitled
thereto at any time when, in the judgment of Lender, the entitlement of such claimant is established by a court of competent jurisdiction
or the Property (or part thereof or interest therein) is in danger of being sold, forfeited, terminated, cancelled or lost or there is
any danger of any Lien related to the contested Labor and Material Costs becoming senior in priority, in whole or in part, to the Lien
of the Security Instrument.
Section
3.7 Payment of Taxes and Impositions.
(a)
Grantor will pay, or cause to be paid prior to delinquency, all real property taxes and assessments, general and special, and all other
taxes, assessments, duties, levies, imposts, deductions, charges or withholdings, of any kind or nature whatsoever, including nongovernmental
levies or assessments such as maintenance charges, levies or charges resulting from covenants, conditions and restrictions affecting
the Property, which are assessed or imposed upon the Property, or become due and payable, and which create or are reasonably likely to
create a lien upon the Property (all the foregoing, collectively, “Impositions”).
(b)
After prior notice to Lender, Grantor, at its own expense, may contest by appropriate legal proceeding, promptly initiated and conducted
in good faith and with due diligence, the amount or validity or application in whole or in part of any Impositions, provided that (i)
reserved, (ii) either (A) such proceeding will suspend the collection of the Impositions from Grantor and from the Property, or (B) Grantor
has paid all of the Impositions under protest, (iii) such proceeding is permitted and conducted in accordance with the provisions of
any other instrument to which Grantor or the Property is subject and will not constitute a default thereunder, (iv) neither the Property
nor any part thereof or interest therein will be in danger of being sold, forfeited, terminated, canceled or lost, (v) Grantor will promptly
upon final determination thereof pay the amount of any such Impositions, together with all costs, interest and penalties which may be
payable in connection therewith, and (vi) Grantor has furnished such security as may be required in the proceeding, or as may be reasonably
requested by Lender to insure the payment of any contested Impositions, together with all interest and penalties thereon. Lender may
pay over any such security or part thereof held by Lender to the claimant entitled thereto at any time when, in the judgment of Lender,
the entitlement of such claimant is established by a court of competent jurisdiction (or applicable governing body) or the Property (or
part thereof or interest therein) is in danger of being sold, forfeited, terminated, cancelled or lost.
Section
3.8 Change of Name, Jurisdiction. In addition to the restrictions contained in the
Loan Agreement, Grantor will not change Grantor’s name, identity (including its trade name or names) or jurisdiction of formation
or organization unless Grantor has first obtained the prior written consent of Lender to such change, which consent will not be unreasonably
withheld, conditioned or delayed, and has taken all actions necessary or required by Lender to file or amend any financing statements
or continuation statements to assure perfection and continuation of perfection of security interests under the Loan Documents.
Section
3.9 Utilities. Grantor will pay or cause to be paid when due all utility charges
that are incurred by Grantor for the benefit of the Property or that may become a charge or lien against the Property for gas, electricity,
water or sewer services furnished to the Property and all other assessments or charges of a similar nature, whether public or private,
affecting or related to the Property or any portion thereof, whether or not such assessments or charges are or may become liens thereon.
Section
3.10 Casualty After obtaining knowledge of the occurrence of any damage, destruction
or other casualty to the Property or any part thereof, whether or not covered by insurance, Grantor must immediately notify Lender in
writing. In the event of such casualty, all proceeds of insurance (collectively, the “Insurance Proceeds”) must be
payable to Lender and no other party, and Grantor hereby authorizes and directs any affected insurance company to make payment of such
Insurance Proceeds directly to Lender and no other party. If Grantor receives any Insurance Proceeds, Grantor must pay over such Insurance
Proceeds to Lender within 2 Business Days. Lender is hereby authorized and empowered by Grantor to settle, adjust or compromise any and
all claims for loss, damage or destruction under any policy or policies of insurance. In the event of a foreclosure of this Security
Instrument, or other transfer of title to the Property in extinguishment in whole or in part of the Obligations, all right, title and
interest of Grantor in and to the insurance policies required by the Loan Agreement that are then in force, and all Insurance Proceeds
payable thereunder, will vest in the purchaser at such foreclosure sale or in Lender or other transferee in the event of such other transfer
of title. Nothing herein will be deemed to excuse Grantor from repairing or maintaining the Property as provided in this Security Instrument
or restoring all damage or destruction to the Property, regardless of the availability or sufficiency of Insurance Proceeds, and the
application or release by Lender of any Insurance Proceeds will not cure or waive any Default, Event of Default or notice of Default
or invalidate any action taken by or on behalf of Lender pursuant to any such notice.
Section
3.11 CONDEMNATION
If
any proceeding or action is commenced for the taking of the Property, or any part thereof or interest therein, for public or quasi-public
use under the power of eminent domain, condemnation or otherwise, or if the same is taken or damaged by reason of any public improvement
or condemnation proceeding, or in any other manner, or should Grantor receive any notice or other information regarding such proceeding,
action, taking or damage, Grantor must immediately notify Lender in writing. Lender may commence, appear in and prosecute in its own
name any such action or proceeding. Lender may also make any compromise or settlement in connection with such taking or damage. Lender
will not be liable to Grantor for any failure by Lender to collect or to exercise diligence in collecting any such compensation for a
taking. All compensation, awards, damages, rights of action and proceeds awarded to Grantor by reason of any such taking or damage to
the Property or any part thereof or any interest therein for public or quasi-public use under the power of eminent domain, by reason
of any public improvement or condemnation proceeding, or in any other manner (the “Condemnation
Proceeds”) are hereby assigned to Lender and Grantor agrees to execute such further assignments
of the Condemnation Proceeds as Lender may require. Grantor may not, without the prior written consent of Lender, compromise or settle
any claim resulting from the condemnation proceeding which results in the Condemnation Proceeds being less than Lender’s reasonable
estimate of the damages resulting from the taking. Nothing herein will be deemed to excuse Grantor from repairing, maintaining or restoring
the Property as provided in this Security Instrument, regardless of the availability or sufficiency of any Condemnation Proceeds, and
the application or release by Lender of any Condemnation Proceeds will not cure or waive any Default, Event of Default or notice of Default
or invalidate any action taken by or on behalf of Lender pursuant to any such notice. In the event of a foreclosure of this Security
Instrument, or other transfer of title to the Property in extinguishment in whole or in part of the Obligations, all right, title and
interest of Grantor in and to the Condemnation Proceeds will vest in the purchaser at such foreclosure sale or in Lender or other transferee
in the event of such other transfer of title.
Section
3.12 Availability of Net Proceeds.
(a)
In the event of damage, destruction or other casualty to the Property or any part thereof that results in a loss of 75% or more of the
full replacement value of the Property, as reasonably determined by Lender, all Net Proceeds (as defined below) received by Lender may
be used to prepay the Obligations in accordance with the terms of the Loan Agreement and the Note or may be distributed to Grantor pursuant
to the terms of Section 3.12(b) below. Should the Net Proceeds exceed the amount of the Obligations due, any such excess will be repaid
to Grantor. Should the Net Proceeds be less than the Obligations, any deficiency will be paid by Grantor to Lender within 30 days of
demand by Lender. Lender’s right to payment of Net Proceeds will exist whether or not any such loss results in any impairment to
the security of the Lender under this Security Instrument.
(b)
In the event of damage, destruction or other casualty to the Property or any part thereof that results in a loss of less than 75% of
the full replacement value of the Property, as reasonably determined by Lender, Lender will make the Net Proceeds received by Lender
available to Grantor to pay the cost of reconstruction of the Property, subject to the satisfaction of the following conditions as determined
by Lender: (i) no Default or Event of Default has occurred and is continuing; (ii) the cost of reconstruction is equal to or less than
the amount of Net Proceeds received by Lender, or Grantor has deposited with Lender such additional funds such that the sum of the Net
Proceeds and such funds equals the cost of reconstruction; (iii) Lender (and, at Lender’s option, its consultant) has received
and approved in its reasonable discretion the plans and specifications, construction contracts, construction budget and construction
schedule for such reconstruction, and the same have all been approved by all applicable Governmental Authorities; (iv) Lender has determined
in its reasonable discretion that such reconstruction can be completed on or before the earliest to occur of: (A) 6 months prior to the
Maturity Date (and the casualty has occurred prior to such period), (B) the earliest date required for such completion under the terms
of any Leases or material agreements affecting the Property, (C) such time as may be required under applicable Governmental Requirements,
or (D) the expiration of the loss of rents or business interruption insurance coverage required under the Loan Agreement; (v) the Property
and the use thereof after the reconstruction will be in material compliance with and permitted under all Governmental Requirements; (vi)
all Net Proceeds and any deposits required by subsection (ii) above will be held by Lender and will be disbursed in accordance with disbursement
procedures established by Lender in its reasonable discretion; (vii) Lender is satisfied that any operating deficits, including scheduled
payments of principal and interest under the Note and the Loan Agreement, which will be incurred with respect to the Property as a result
of the occurrence of any such casualty will be covered out of the loss of rents or business interruption insurance coverage required
under the Loan Agreement; and (viii) Grantor will commence reconstruction as soon as reasonably practicable but in no event later than
180 days after such casualty. If any of these conditions will not be satisfied as determined by Lender, then Lender will have the right
to use the Net Proceeds to prepay the Obligations in accordance with the Note and the Loan Agreement. If any Net Proceeds remain available
after completion of the reconstruction of the Property, then such Net Proceeds will be used to prepay the Obligations in accordance with
the Loan Agreement and the Note.
(c)
In the event of any taking or condemnation of the Property or any part thereof or interest therein, all Net Proceeds will be paid to
Lender, and Lender may elect to apply the Net Proceeds to prepay the Obligations in accordance with the terms of the Loan Agreement and
the Note, or Lender may hold said Net Proceeds and make said Net Proceeds available for restoration or rebuilding of the Property in
accordance with Section 3.11(b).
(d)
The term “Net Proceeds” means (i) the net amount of the Insurance Proceeds received by Lender after deduction of Lender’s
costs and expenses (including reasonable attorneys’ fees), if any, in collecting the same; or (ii) the net amount of the Condemnation
Proceeds received by Lender after deduction of Lender’s costs and expenses (including reasonable attorneys’ fees), if any,
in collecting the same, whichever the case may be.
Article
4 - OBLIGATIONS AND RELIANCES
Section
4.1 Relationship of Grantor and Lender. The relationship between Grantor and Lender
is solely that of debtor and creditor, and Lender has no fiduciary or other special relationship with Grantor, and no term or condition
of any of the Loan Agreement, the Note, this Security Instrument or any of the other Loan Documents will be construed so as to deem the
relationship between Grantor and Lender to be other than that of debtor and creditor.
Section
4.2 No Reliance on Lender. The general partners, members, principals and (if Grantor
is a trust) beneficial owners of Grantor are experienced in the ownership and operation of properties similar to the Property, and Grantor
and Lender are relying solely upon such expertise and business plan in connection with the ownership and operation of the Property. Grantor
is not relying on Lender’s expertise, business acumen or advice in connection with the Property.
Section
4.3 No Lender Obligations.
(a)
Notwithstanding anything to the contrary contained in this Security Instrument, Lender is not undertaking the performance of (i) any
obligations under the Leases; or (ii) any obligations with respect to any other agreements, contracts, certificates, instruments, franchises,
permits, trademarks, licenses and other documents.
(b)
By accepting or approving anything required to be observed, performed or fulfilled or to be given to Lender pursuant to this Security
Instrument, the Loan Agreement, the Note or the other Loan Documents, including any officer’s certificate, balance sheet, statement
of profit and loss or other financial statement, survey, appraisal, or insurance policy, Lender will not be deemed to have warranted,
consented to, or affirmed the sufficiency, legality or effectiveness of same, and such acceptance or approval thereof will not constitute
any warranty or affirmation with respect thereto by Lender.
Section
4.4 Reliance. Grantor recognizes and acknowledges that in accepting the Loan Agreement,
the Note, this Security Instrument and the other Loan Documents, Lender is expressly and primarily relying on the truth and accuracy
of the warranties and representations set forth in Article V of the Loan Agreement without any obligation to investigate the Property
and notwithstanding any investigation of the Property by Lender; that such reliance existed on the part of Lender prior to the date hereof;
that the warranties and representations are a material inducement to Lender in making the Loan; and that Lender would not be willing
to make the Loan and accept this Security Instrument in the absence of the warranties and representations as set forth in Article V of
the Loan Agreement.
Article
5 - FURTHER ASSURANCES
Section
5.1 Recording of Security Instrument, etc. Grantor forthwith upon the execution
and delivery of this Security Instrument and thereafter, from time to time, will cause this Security Instrument and any of the other
Loan Documents creating a lien or security interest or evidencing the lien hereof upon the Property and each instrument of further assurance
to be filed, registered or recorded in such manner and in such places as may be required by any present or future law in order to publish
notice of and fully to protect and perfect the lien or security interest hereof upon, and the interest of Lender in, the Property. Grantor
will pay all taxes, filing, registration or recording fees, and all expenses incident to the preparation, execution, acknowledgment and/or
recording of the Note, this Security Instrument, the other Loan Documents, any note, deed of trust or mortgage supplemental hereto, any
security instrument with respect to the Property and any instrument of further assurance, and any modification or amendment of the foregoing
documents, and all federal, state, county and municipal taxes, duties, imposts, assessments and charges arising out of or in connection
with the execution and delivery of this Security Instrument, any deed of trust or mortgage supplemental hereto, any security instrument
with respect to the Property or any instrument of further assurance, and any modification or amendment of the foregoing documents, except
where prohibited by law so to do.
Section
5.2 Further Acts, etc. Grantor will, at Grantor’s sole cost and expense, and
without expense to Lender, do, execute, acknowledge and deliver all and every such further acts, deeds, conveyances, deeds of trust,
mortgages, assignments, notices of assignments, transfers and assurances, in form and content reasonably acceptable to Grantor, as Lender
may, from time to time, reasonably require, for the better assuring, conveying, assigning, transferring, and confirming unto Lender the
property and rights hereby mortgaged, deeded, granted, bargained, sold, conveyed, confirmed, pledged, assigned, warranted and transferred
or intended now or hereafter so to be, or which Grantor may be or may hereafter become bound to convey or assign to Lender, or for carrying
out the intention or facilitating the performance of the terms of this Security Instrument or for filing, registering or recording this
Security Instrument, or for complying with all applicable Laws and Governmental Requirements. Grantor hereby authorizes Lender to file
or record one or more financing statements (including initial financing statements and amendments thereto and continuation statements),
to evidence more effectively the security interest of Lender in the Property. Grantor also ratifies its authorization for Lender to have
filed or recorded any like initial financing statements, amendments thereto and continuation statements, if filed or recorded prior to
the date of this Security Instrument.
Section
5.3 Changes in Tax, Debt, Credit and Documentary Stamp Laws.
(a)
If any law is enacted or adopted or amended after the date of this Security Instrument which deducts the Debt from the value of the Property
for the purpose of taxation or which imposes a tax, either directly or indirectly, on the Debt or Lender’s interest in the Property,
Grantor will pay the tax, with interest and penalties thereon, if any, in accordance with the applicable provisions of the Loan Agreement.
If Lender is advised by counsel chosen by it that the payment of any such tax by Grantor would be unlawful or taxable to Lender or unenforceable
or provide the basis for a defense of usury then Lender will have the option by written notice of not less than 120 days to declare the
Debt immediately due and payable.
(b)
Grantor will not claim or demand or be entitled to any credit or credits on account of the Debt for any part of the Taxes assessed against
the Property, or any part thereof, and no deduction will otherwise be made or claimed from the assessed value of the Property, or any
part thereof, for real estate tax purposes by reason of this Security Instrument or the Debt. If such claim, credit or deduction is be
required by law, Lender will have the option, by written notice of not less than 120 days, to declare the Debt immediately due and payable.
(c)
If at any time the United States of America, any State thereof or any subdivision of any such State will require revenue or other stamps
to be affixed to the Note, this Security Instrument, or any of the other Loan Documents or impose any other tax or charge on the same,
Grantor will pay for the same, with interest and penalties thereon, if any.
Article
6 - DUE ON SALE/ENCUMBRANCE
Section
6.1 Lender Reliance. Grantor acknowledges that Lender has examined and relied on
the experience of Grantor and its general partners, members, principals and (if Grantor is a trust) beneficial owners in owning and operating
properties such as the Property in agreeing to make the Loan, and will continue to rely on Grantor’s ownership of the Property
as a means of maintaining the value of the Property as security for repayment and performance of the Obligations. Grantor acknowledges
that Lender has a valid interest in maintaining the value of the Property so as to ensure that, should Grantor default in the repayment
of the Obligations or the performance of the Obligations, Lender can recover the Obligations by a sale of the Property.
Section
6.2 No Transfer. Grantor will comply in all respects with the provisions of the
Loan Agreement regarding (a) selling, transferring, leasing, conveying or encumbering the Land, the Equipment or the Improvements or
the direct or indirect interests in Grantor, and (b) changing control of Grantor. Any sale of all or any portion of the Property, without
the prior written consent of Lender, shall result in the immediate acceleration of the Debt.
Article
7 - RIGHTS AND REMEDIES UPON DEFAULT
Section
7.1 Remedies. Upon the occurrence and during the continuance of any Event of Default,
unless such Event of Default is subsequently waived in writing by Lender (provided that Lender has no obligation whatsoever to grant
any such waiver and any such waiver, if granted, will be considered a one-time waiver), Lender may exercise any or all of the following
rights and remedies, consecutively or simultaneously, and in any order:
(a)
Exercise any and all rights and remedies specified in the Loan Agreement, including declaring that the Commitment is terminated and/or
declaring that the entire unpaid principal balance of the Obligations are immediately due and payable, together with accrued and unpaid
interest thereon;
(b)
Institute proceedings, judicial or otherwise, for the complete foreclosure of this Security Instrument under any applicable provision
of law, in which case the Property or any interest therein may be sold for cash or upon credit in one or more parcels or in several interests
or portions and in any order or manner;
(c)
With or without entry, to the extent permitted and pursuant to the procedures provided by applicable law, institute proceedings for the
partial foreclosure of this Security Instrument for the portion of the Obligations then due and payable, subject to the continuing lien
and security interest of this Security Instrument for the balance of the Obligations not then due, unimpaired and without loss of priority;
(d)
Institute an action, suit or proceeding in equity for the specific performance of any covenant, condition or agreement contained herein,
in the Note, the Loan Agreement or in the other Loan Documents;
(e)
Recover judgment on the Obligations either before, during or after any proceedings for the enforcement of this Security Instrument or
the other Loan Documents;
(f)
Apply for the appointment of a receiver, trustee, liquidator or conservator of the Property, without notice and without regard for the
adequacy of the security for the Obligations and without regard for the solvency of Borrower, any guarantor or any indemnitor with respect
to the Loan or of any Person liable for the payment of the Obligations;
(g)
The license granted to Grantor under Section 1.2 hereof will automatically be revoked and Lender may enter into or upon the Property,
either personally or by its agents, nominees or attorneys and dispossess Grantor and its agents and servants therefrom, without liability
for trespass, damages or otherwise and exclude Grantor and its agents or servants wholly therefrom, and take possession of all books,
records and accounts relating thereto and Grantor agrees to surrender possession of the Property and of such books, records and accounts
to Lender upon demand, and thereupon Lender may (i) use, operate, manage, control, insure, maintain, repair, restore and otherwise deal
with all and every part of the Property and conduct the business thereat; (ii) complete any construction on the Property in such manner
and form as Lender deems advisable; (iii) make alterations, additions, renewals, replacements and improvements to or on the Property
as Lender determines are reasonably necessary to maintain, relet or operate the Property, in its sole discretion; (iv) exercise all rights
and powers of Grantor with respect to the Property, whether in the name of Grantor or otherwise, including the right to make, cancel,
enforce or modify Leases, obtain and evict tenants, and demand, sue for, collect and receive all Rents of the Property and every part
thereof; (v) require Grantor to pay monthly in advance to Lender, or any receiver appointed to collect the Rents, the fair and reasonable
rental value for the use and occupation of such part of the Property as may be occupied by Grantor; (vi) require Grantor to vacate and
surrender possession of the Property to Lender or to such receiver and, in default thereof, Grantor may be evicted by summary proceedings
or otherwise; and (vii) apply the receipts from the Property to the payment of the Obligations, in such order, priority and proportions
as Lender deems appropriate in its sole discretion after deducting therefrom all expenses (including attorneys’ fees) incurred
in connection with the aforesaid operations and all amounts necessary to pay the Taxes, Insurance Premiums and other expenses in connection
with the Property, as well as just and reasonable compensation for the services of Lender, its in-house and outside counsel, agents and
employees. The entering upon and taking possession of the Property, the collection of such Rents and the application thereof as aforesaid,
will not cure or waive any default or notice of default hereunder or invalidate any act done in response to such default or pursuant
to such notice of default and, notwithstanding the continuance in possession of all or any portion of the Property or the collection,
receipt and application of Rents, Lender will be entitled to exercise every right provided for in any of the Loan Documents or by law
upon occurrence of any Event of Default, including, without limitation, the right to exercise the power of sale contained herein.
(h)
Exercise any and all rights and remedies granted to a secured party upon default under the Uniform Commercial Code, including, without
limiting the generality of the foregoing: (i) the right to take possession of the Fixtures, the Equipment and the Personal Property,
or any part thereof, and to take such other measures as Lender may deem necessary for the care, protection and preservation of the Fixtures,
the Equipment and the Personal Property, and (ii) require Grantor at its expense to assemble the Fixtures, the Equipment and the Personal
Property and make it available to Lender at a convenient place acceptable to Lender. Any notice of sale, disposition or other intended
action by Lender with respect to the Fixtures, the Equipment and/or the Personal Property sent to Grantor in accordance with the provisions
hereof at least 10 days prior to such action, will constitute commercially reasonable notice to Grantor;
(i)
Apply any sums then deposited or held in escrow or otherwise by or on behalf of Lender in accordance with the terms of the Loan Agreement,
this Security Instrument or any other Loan Document to the payment of the following items in any order in its sole and absolute discretion:
(i)
Taxes;
(ii)
Insurance Premiums;
(iii)
Liens upon the Property;
(iv)
Interest on the unpaid principal balance of the Note;
(v)
The unpaid principal balance of the Note;
(vi)
All other sums payable pursuant to the Note, the Loan Agreement, this Security Instrument and the other Loan Documents, including advances
made by Lender pursuant to the terms of this Security Instrument;
(j)
Pursue such other remedies as Lender may have under the other Loan Documents and/or applicable law; or
(k)
apply the undisbursed balance of any Insurance Proceeds and/or Condemnation Proceeds, together with interest thereon, to the payment
of the Obligations in such order, priority and proportions as Lender will deem to be appropriate in its discretion.
In
the event of a sale, by foreclosure or otherwise, of less than all of Property, this Security Instrument will continue as a lien and
security interest on the remaining portion of the Property unimpaired and without loss of priority.
Section
7.2 Application of Proceeds. The purchase money, proceeds and avails of any disposition
of the Property, and or any part thereof, or any other sums collected by Lender pursuant to the Note, this Security Instrument or the
other Loan Documents, may be applied by Lender to the payment of the Obligations in such priority and proportions as Lender in its discretion
will deem proper, to the extent consistent with applicable Laws.
Section
7.3 Actions and Proceedings. Grantor will give Lender prompt written notice of the
written assertion of any claim with respect to, or the filing of any action or proceeding purporting to affect the Property, the security
hereof or the rights or powers of Lender. Lender has the right to appear in and defend any action or proceeding brought with respect
to the Property and to bring any action or proceeding, in the name and on behalf of Grantor, which Lender, in its discretion, decides
should be brought to protect its interest in the Property.
Section
7.4 Recovery of Sums Required To be Paid. Lender will have the right from time to
time to take action to recover any sum or sums which constitute a part of the Obligations as the same become due, without regard to whether
or not the balance of the Obligations is due, and without prejudice to the right of Lender thereafter to bring an action of foreclosure,
or any other action, for a default or defaults by Grantor existing at the time such earlier action was commenced. In the event Grantor
is curing a default or is paying off the Loan and Lender has incurred fees which Grantor is obligated to pay to Lender under any of the
Loan Documents, and such amount has not been reduced to a final amount at the time Grantor is curing the default or is paying off the
Loan, Lender may require Grantor to pay a reasonable estimate of such fees with the payment curing the default or with the payoff of
the Loan, and any amount paid in excess of the estimate by the Grantor will be refunded to the Grantor after the final amount of such
fee is determined.
Section
7.5 Other Rights, Etc.
(a)
The failure of Lender to insist upon strict performance of any term hereof will not be deemed to be a waiver of any term of this Security
Instrument. Grantor will not be relieved of Grantor’s obligations hereunder by reason of (i) the failure of Lender to comply with
any request of Grantor or any guarantor or indemnitor with respect to the Loan to take any action to foreclose this Security Instrument
or otherwise enforce any of the provisions hereof or of the Note or the other Loan Documents, (ii) the release, regardless of consideration,
of the whole or any part of the Property, or of any Person liable for the Obligations or any portion thereof, or (iii) any agreement
or stipulation by Lender extending the time of payment or otherwise modifying or supplementing the terms of the Note, this Security Instrument
or the other Loan Documents.
(b)
It is agreed that the risk of loss or damage to the Property is on Grantor, and Lender will have no liability whatsoever for decline
in value of the Property, for failure to maintain any insurance policies, or for failure to determine whether insurance in force is adequate
as to the amount or nature of risks insured. Possession by Lender will not be deemed an election of judicial relief if any such possession
is requested or obtained with respect to all or any portion of the Property or collateral not in Lender’s possession.
(c)
Lender may resort for the payment of the Obligations to any other security held by Lender in such order and manner as Lender, in its
discretion, may elect. Lender may take action to recover the Obligations, or any portion thereof, or to enforce any covenant hereof without
prejudice to the right of Lender thereafter to foreclose this Security Instrument. The rights of Lender under this Security Instrument
will be separate, distinct and cumulative and none will be given effect to the exclusion of the others. No act of Lender will be construed
as an election to proceed under any one provision herein to the exclusion of any other provision. Lender will not be limited exclusively
to the rights and remedies herein stated but will be entitled to every right and remedy now or hereafter afforded at law or in equity.
Section
7.6 Right to Release Any Portion of the Property. Lender may release any portion
of the Property for such consideration as Lender may require without, as to the remainder of the Property, in any way impairing or affecting
the lien or priority of this Security Instrument, or improving the position of any subordinate lienholder with respect thereto, except
to the extent that the obligations hereunder are reduced by the actual monetary consideration, if any, received by Lender for such release,
and may accept by assignment, pledge or otherwise any other property in place thereof as Lender may require without being accountable
for so doing to any other lienholder. This Security Instrument will continue as a lien on, and security interest in, the remaining portion
of the Property.
Section
7.7 Violation of Laws. If the Property is not in compliance in all material respects
with Governmental Requirements, Lender may impose additional requirements upon Grantor in connection herewith including monetary reserves
or financial equivalents.
Section
7.8 Right of Entry. Upon reasonable notice to Grantor, Lender and its agents will
have the right to enter and inspect the Property at all reasonable times.
Section
7.9 Bankruptcy.
(a)
After the occurrence of an Event of Default, Lender will have the right to proceed in its own name or in the name of Grantor in respect
of any claim, suit, action or proceeding relating to the rejection of any Lease, including the right to file and prosecute, to the exclusion
of Grantor, any proofs of claim, complaints, motions, applications, notices and other documents, in any case in respect of the lessee
under such Lease under the Bankruptcy Code.
(b)
If there is filed by or against Grantor a petition under the Bankruptcy Code and Grantor, as lessor under any Lease, determines to reject
such Lease pursuant to Section 365(a) of the Bankruptcy Code, then Grantor will give Lender not less than 10 days’ prior notice
of the date on which Grantor will apply to the bankruptcy court for authority to reject the Lease. Lender will have the right, but not
the obligation, to serve upon Grantor within such 10 day period a notice stating that (i) Lender demands that Grantor assume and assign
the Lease to Lender pursuant to Section 365 of the Bankruptcy Code and (ii) Lender covenants to cure or provide adequate assurance of
future performance under the Lease. If Lender serves upon Grantor the notice described in the preceding sentence, Grantor will not seek
to reject the Lease and will comply with the demand provided for in clause (i) of the preceding sentence within 30 days after the notice
is given, subject to the performance by Lender of the covenant provided for in clause (ii) of the preceding sentence.
Section
7.10 Waiver of Event of Default. Lender may waive the occurrence of an Event of Default from time to time in its discretion but
without any obligation whatsoever to do so. Grantor will only be entitled to rely on a waiver if Lender expressly states, in writing,
that it waives the occurrence of an Event of Default. If Lender issues a written waiver of an Event of Default, and no other uncured
Event of Default is then continuing, then Lender may agree in its discretion, but without any obligation to do so, to treat any provision
in this Security Instrument or in any other Loan Document as if no Event of Default had ever occurred.
Section
7.11 Acceptance of Payments. Grantor agrees that if Grantor makes a tender of a
payment but does not simultaneously tender payment of any late charge, Default Rate interest or other amount then due and owing by Grantor
under this Security Instrument or the other Loan Documents, and such payment is accepted by Lender, with or without protest, such acceptance
will not constitute any waiver of Lender’s rights to receive such amounts. Furthermore, if Lender accepts any payment from Grantor
or any Guarantor after a Default or Event of Default, such acceptance will not constitute a waiver or satisfaction of any such Default
or Event of Default. Any waiver or satisfaction of a Default or Event of Default must be evidenced by an express writing of Lender.
Article
8 - ENVIRONMENTAL HAZARDS
Section
8.1 Environmental Covenants. Grantor has provided representations, warranties and
covenants regarding environmental matters set forth in the Indemnity and Grantor will comply with the aforesaid covenants regarding environmental
matters. Notwithstanding anything to the contrary contained in this Security Instrument, the obligations of Grantor under the Indemnity
are not and shall not be secured by the lien of this Security Instrument.
Article
9 - INDEMNIFICATION
The
provisions of Section 3.6 (Commitment Fee), Section 13.19 (Costs, Fees, and Expenses) and Section 13.20 (Indemnification) of the Loan
Agreement are hereby incorporated by reference into this Security Instrument to the same extent and with the same force as if fully set
forth herein.
Article
10 - CERTAIN WAIVERS
Section
10.1 Waiver of Offsets; Defenses; Counterclaim. Grantor hereby waives the right
to assert a counterclaim, other than a compulsory counterclaim, in any action or proceeding brought against it by Lender to offset any
obligations to make the payments required by the Loan Documents. No failure by Lender to perform any of its obligations hereunder will
be a valid defense to, or result in any offset against, any payments which Grantor is obligated to make under any of the Loan Documents.
Section
10.2 Marshalling and Other Matters. To the extent permitted by applicable law, Grantor
hereby waives the benefit of all appraisement, valuation, stay, extension, reinstatement and redemption Laws now or hereafter in force
and all rights of marshalling in the event of any sale hereunder of the Property or any part thereof or any interest therein. Further,
Grantor hereby expressly waives any and all rights of redemption from sale under any order or decree of foreclosure of this Security
Instrument on behalf of Grantor, and on behalf of each and every Person acquiring any interest in or title to the Property subsequent
to the date of this Security Instrument and on behalf of all other Persons to the extent permitted by applicable law.
Section
10.3 Waiver of Notice. To the extent permitted by applicable law, Grantor will not
be entitled to any notices of any nature whatsoever from Lender except with respect to matters for which this Security Instrument or
any of the other Loan Documents specifically and expressly provides for the giving of notice by Lender to Grantor and except with respect
to matters for which Lender is required by applicable law to give notice, and Grantor hereby expressly waives the right to receive any
notice from Lender with respect to any matter for which this Security Instrument does not specifically and expressly provide for the
giving of notice by Lender to Grantor. All sums payable by Grantor pursuant to this Security Instrument must be paid without notice,
demand, counterclaim, setoff, deduction or defense and without abatement, suspension, deferment, diminution or reduction, and the obligations
and liabilities of Grantor hereunder will in no way be released, discharged or otherwise affected (except as expressly provided herein)
by reason of: (a) any damage to or destruction of or any condemnation or similar taking of the Property or any part thereof; (b) any
restriction or prevention of or interference by any third party with any use of the Property or any part thereof; (c) any title defect
or encumbrance or any eviction from the Property or any part thereof by title paramount or otherwise; (d) any bankruptcy, insolvency,
reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to Lender, or any action taken with
respect to this Security Instrument by any trustee or receiver of Lender, or by any court, in any such proceeding; (e) any claim which
Grantor has or might have against Lender; (f) any default or failure on the part of Lender to perform or comply with any of the terms
hereof or of any other agreement with Grantor; or (g) any other occurrence whatsoever, whether similar or dissimilar to the foregoing;
whether or not Grantor has notice or knowledge of any of the foregoing.
Article
11 - NOTICES
All
notices or other written communications hereunder will be delivered in accordance with the notice provisions of the Loan Agreement.
Article
12 - APPLICABLE LAW
Section
12.1 GOVERNING LAW; WAIVER OF JURY TRIAL; JURISDICTION. THIS SECURITY INSTRUMENT AND THE OBLIGATIONS ARISING HEREUNDER WILL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF KANSAS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE
(WITHOUT REGARD TO PRINCIPLES OF CONFLICT LAWS) AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA. TO THE FULLEST EXTENT PERMITTED
BY LAW. GRANTOR AND LENDER (BY ITS ACCEPTANCE HEREOF) EACH UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF
ANY OTHER JURISDICTION GOVERNS THIS SECURITY INSTRUMENT.
TO
THE FULLEST EXTENT PERMITTED BY LAW, GRANTOR AND LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION
RELATING TO THE LOAN AND/OR THE LOAN DOCUMENTS. GRANTOR, TO THE FULLEST EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY AND
VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL, (A) SUBMITS TO PERSONAL JURISDICTION IN THE STATE OF KANSAS OVER ANY SUIT,
ACTION OR PROCEEDING BY ANY PERSON ARISING FROM OR RELATING TO THIS SECURITY INSTRUMENT, (B) AGREES THAT ANY SUCH ACTION, SUIT OR PROCEEDING
MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF KANSAS, (C) SUBMITS TO THE JURISDICTION AND VENUE
OF SUCH COURTS AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT, AND (D) AGREES THAT IT WILL NOT BRING ANY ACTION,
SUIT OR PROCEEDING IN ANY OTHER FORUM. GRANTOR FURTHER CONSENTS AND AGREES TO SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER LEGAL PROCESS
IN ANY SUCH SUIT, ACTION OR PROCEEDING BY REGISTERED OR CERTIFIED U.S. MAIL, POSTAGE PREPAID, TO GRANTOR AT THE ADDRESSES FOR NOTICES
DESCRIBED IN THIS SECURITY INSTRUMENT, AND CONSENTS AND AGREES THAT SUCH SERVICE WILL CONSTITUTE IN EVERY RESPECT VALID AND EFFECTIVE
SERVICE (BUT NOTHING HEREIN WILL AFFECT THE VALIDITY OR EFFECTIVENESS OF PROCESS SERVED IN ANY OTHER MANNER PERMITTED BY LAW).
Section
12.2 Provisions Subject to Applicable Law. All rights, powers and remedies provided in
this Security Instrument may be exercised only to the extent that the exercise thereof does not violate any applicable provisions of
law and are intended to be limited to the extent necessary so that they will not render this Security Instrument invalid, unenforceable
or not entitled to be recorded, registered or filed under the provisions of any applicable law. If any term of this Security Instrument
or any application thereof will be invalid or unenforceable, the remainder of this Security Instrument and any other application of the
term will not be affected thereby.
Article
13 - DEFINITIONS
All
capitalized terms not defined herein will have the respective meanings set forth in the Loan Agreement. If a capitalized term is defined
herein and the same capitalized term is defined in the Loan Agreement, then the capitalized term that is defined herein shall be utilized
for the purposes of this Security Instrument, provided, however, the foregoing shall not impact provisions that are incorporated herein
by reference. Unless the context clearly indicates a contrary intent or unless otherwise specifically provided herein, words used in
this Security Instrument may be used interchangeably in singular or plural form and the word “Grantor” will mean “each
Grantor and any subsequent owner or owners of the Property or any part thereof or any interest therein,” the word “Lender”
will mean “Lender and any subsequent holder of the Note,” the word “Note” will mean “the Note and
any other evidence of indebtedness secured by this Security Instrument,” the word “Property” will include any
portion of the Property and any interest therein, and the phrases “attorneys’ fees”, “legal
fees” and “counsel fees” will be limited to the reasonable attorneys’ fees of Lender’s outside
counsel and will not include the costs of Lender’s in-house counsel or collection agency fees.
Article
14 - MISCELLANEOUS PROVISIONS
Section
14.1 No Oral Change. This Security Instrument, and any provisions hereof, may not
be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Grantor
or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension,
change, discharge or termination is sought.
Section
14.2 Successors and Assigns. This Security Instrument will be binding upon and inure
to the benefit of Grantor and Lender and their respective successors and assigns forever.
Section
14.3 Inapplicable Provisions. If any term, covenant or condition of the Loan Agreement,
the Note or this Security Instrument is held to be invalid, illegal or unenforceable in any respect, the Loan Agreement, the Note and
this Security Instrument will be construed without such provision.
Section
14.4 Headings, etc. The headings and captions of various Sections of this Security
Instrument are for convenience of reference only and are not to be construed as defining or limiting, in any way, the scope or intent
of the provisions hereof.
Section
14.5 Subrogation. If any or all of the proceeds of the Loan have been used to extinguish,
extend or renew any indebtedness heretofore existing against the Property, then, to the extent of the funds so used, Lender will be subrogated
to all of the rights, claims, liens, titles, and interests existing against the Property heretofore held by, or in favor of, the holder
of such indebtedness and such former rights, claims, liens, titles, and interests, if any, are not waived but rather are continued in
full force and effect in favor of Lender and are merged with the lien and security interest created herein as cumulative security for
the repayment of the Obligations, the performance and discharge of Grantor or Borrower’s obligations hereunder, under the Loan
Agreement, the Note and the other Loan Documents and the performance and discharge of the Other Obligations.
Section
14.6 Entire Agreement. The Note, the Loan Agreement, this Security Instrument and
the other Loan Documents constitute the entire understanding and agreement between Grantor and Lender with respect to the transactions
arising in connection with the Obligations and supersede all prior written or oral understandings and agreements between Grantor and
Lender with respect thereto. Grantor hereby acknowledges that, except as incorporated in writing in the Note, the Loan Agreement, this
Security Instrument and the other Loan Documents, there are not, and were not, and no Persons are or were authorized by Lender to make,
any representations, understandings, stipulations, agreements or promises, oral or written, with respect to the transaction which is
the subject of the Note, the Loan Agreement, this Security Instrument and the other Loan Documents.
Section
14.7 Limitation on Lender’s Responsibility. No provision of this Security
Instrument will operate to place any obligation or liability for the control, care, management or repair of the Property upon Lender,
nor will it operate to make Lender responsible or liable for any waste committed on the Property by the tenants or any other Person,
or for any dangerous or defective condition of the Property, or for any negligence in the management, upkeep, repair or control of the
Property resulting in loss or injury or death to any tenant, licensee, employee or stranger. Nothing herein contained will be construed
as constituting Lender a “mortgagee in possession.”
Section
14.8 Joint and Several. If more than one Person has executed this Security Instrument
as “Grantor,” the representations, covenants, warranties and obligations of all such Persons hereunder will be joint and
several.
Section
14.9 Lender’s Discretion. Whenever, pursuant to this Security Instrument or
any of the other Loan Documents, Lender exercises any right given to it to approve or disapprove, or any arrangement or term is to be
satisfactory or acceptable to Lender, or Lender exercises any right to grant or withhold consent, or Lender exercises its discretion
in making any decision, the decision of Lender will, except as is otherwise specifically herein provided, be in the sole and absolute
discretion of Lender and will be final and conclusive.
Section
14.10 No Merger. So long as the Obligations owed to Lender secured hereby remain
unpaid and undischarged and unless Lender otherwise consents in writing, the fee, leasehold, subleasehold and sub-subleasehold estates
in and to the Property will not merge but will always remain separate and distinct, notwithstanding the union of estates (without implying
Grantor’s consent to such union) either in Grantor, Lender, any tenant or any third party by purchase or otherwise. In the event
this Security Instrument is originally placed on a leasehold estate and Grantor later obtains fee title to the Property, such fee title
will be subject and subordinate to this Security Instrument.
Article
15 - STATE-SPECIFIC PROVISIONS
Section
15.1 Principles Of Construction. In
the event of any inconsistencies between the terms and conditions of this Article 15 and the other terms and conditions of this
Security Instrument, the terms and conditions of this Article 15 will control and be binding.
Future
Advances; Maximum Amount Secured. This Mortgage secures all future advances made by Lender to Grantor and is entitled to the priority
as referenced in K.S.A. Section 58-2336. The total amount of obligations and advances secured hereby may decrease or increase from time
to time, but at no time shall the total principal amount of obligations and advances secured hereby, not including sums expended or incurred
for the reasonable protection of the security interest hereby created in the Mortgaged Property, exceed the sum of $4,880,00000.
Waiver
of Right of Redemption. In addition to and not in limitation of the provisions of Section 10.2 above, Grantor hereby waives any right
of redemption to which it is entitled under K.S.A. Section 60-2414.
Usury.
Grantor hereby covenants and agrees that the loan secured by this Security Instrument constitutes a business loan, pursuant to KSA §
16-207 and that proceeds of the Loan will not be used for personal, family or household purposes, and therefore Grantor and Lender may
agree in writing to any rate of interest in connection with such loan.
[Signature
Page Follows]
IN
WITNESS WHEREOF, this Security Instrument has been executed by Grantor as of the day and year first above written.
|
GRANTOR:
|
|
|
|
|
DIGITAL
ALLY, INC., |
|
a
Nevada corporation |
|
|
|
|
By: |
/s/
Stanton E. Ross |
|
Name: |
Stanton E. Ross |
|
Title: |
Chief
Executive Officer |
STATE OF ____________ |
) |
|
) ss. |
COUNTY
OF __________ |
) |
This
instrument was acknowledged before me on _________________, 2023, by _________________________________ as ______ President of Digital
Ally, Inc., a Nevada corporation.
(SEAL) |
|
|
|
|
Printed
Name: |
|
|
|
Notary Public in and for said State |
|
|
Commissioned in _____________ County |
My
Commission Expires:
EXHIBIT
A
LEGAL
DESCRIPTION
A
TRACT OF LAND IN THE SOUTHEAST QUARTER OF SECTION 4, TOWNSHIP 13 SOUTH, RANGE 24 EAST, IN THE CITY OF LENEXA, JOHNSON COUNTY, KANSAS,
MORE PARTICULARLY DESCRIBED AS FOLLOWS:
COMMENCING
AT THE SOUTHWEST CORNER OF THE SOUTHEAST QUARTER OF SECTION 4, TOWNSHIP 13 SOUTH, RANGE 24 EAST, CITY OF LENEXA, JOHNSON COUNTY, KANSAS;
THENCE NORTH 87 DEGREES 25 MINUTES 00 SECONDS EAST ON THE SOUTH LINE OF THE SOUTHEAST QUARTER OF SECTION 4, TOWNSHIP 13 SOUTH, RANGE
24 EAST, 936.39 FEET TO THE POINT OF BEGINNING; THENCE NORTH 2 DEGREES 35 MINUTES 00 SECONDS WEST 400.00 FEET TO A POINT ON THE EXISTING
DEDICATED SOUTHERLY RIGHT-OF-WAY OF MARSHALL DRIVE; THENCE NORTH 87 DEGREES 25 MINUTES 00 SECONDS EAST ON THE EXISTING DEDICATED SOUTHERLY
RIGHT-OF-WAY LINE OF MARSHALL DRIVE, 603.10 FEET; THENCE SOUTH 15 DEGREES 02 MINUTES 40 SECONDS WEST, 419.71 FEET TO A POINT ON THE SOUTH
LINE OF THE SOUTHEAST QUARTER OF SECTION 4, TOWNSHIP 13 SOUTH, RANGE 24 EAST; THENCE SOUTH 87 DEGREES 25 MINUTES 00 SECONDS WEST ON THE
SOUTH LINE OF THE SOUTHEAST QUARTER OF SECTION 4, TOWNSHIP 13 SOUTH, RANGE 24 EAST, 476.00 FEET TO THE POINT OF BEGINNING.
Exhibit
10.3
REVOLVING
NOTE
$4,880,000.00
|
October
26, 2023 |
Overland
Park, Kansas |
|
FOR
VALUE RECEIVED, DIGITAL ALLY, INC., a Nevada corporation, and DIGITAL ALLY HEALTHCARE, INC., a Nevada corporation (individually
and collectively, the “Borrower”), each with an address of 14001 Marshall Drive, Lenexa, Kansas 66215, jointly and
severally promise to pay to the order of KOMPASS KAPITAL FUNDING, LLC, a Kansas limited liability company (hereinafter, together
with any holder hereof, the “Lender”), whose address is 7240 W. 98th Terrace, Overland Park, Kansas, 66212, on or
before the Revolving Loan Maturity Date, as defined in the Loan Agreement, the lesser of (i) FOUR MILLION EIGHT HUNDRED EIGHTY THOUSAND
AND 00/100 DOLLARS ($4,880,000.00), or (ii) the aggregate principal amount of all Revolving Loans outstanding under and pursuant to that
certain Loan and Security Agreement dated as of October 26, 2023, executed by and between the Borrower and the Lender, as amended, restated,
or otherwise modified (the “Loan Agreement”), and made available by the Lender to the Borrower at the maturity or
maturities and in the amount or amounts stated on the records of the Lender, together with interest (computed on the actual number of
days elapsed on the basis of a 360 day year) on the aggregate principal amount of all Revolving Loans outstanding from time to time as
provided in the Loan Agreement. Capitalized words and phrases not otherwise defined herein shall have the meanings assigned thereto in
the Loan Agreement.
This
Revolving Note evidences the Revolving Loans, to which reference is hereby made for a statement of the terms and conditions under which
the Revolving Loan Maturity Date or any payment hereon may be accelerated. The holder of this Revolving Note is entitled to all of the
benefits and security provided for in the Loan Agreement. All Revolving Loans shall be repaid by the Borrower on the Revolving Loan Maturity
Date, unless payable sooner pursuant to the provisions of the Loan Agreement.
Principal
and interest shall be paid to the Lender at its address set forth above, or at such other place as the holder of this Revolving Note
shall designate in writing to the Borrower. Each Revolving Loan made by the Lender, and all payments on account of the principal and
interest thereof shall be recorded on the books and records of the Lender and the principal balance as shown on such books and records,
or any copy thereof certified by an officer of the Lender, shall be rebuttably presumptive evidence of the principal amount owing hereunder.
Except
for such notices as may be required under the terms of the Loan Agreement, the Borrower waives presentment, demand, notice, protest,
and all other demands, or notices, in connection with the delivery, acceptance, performance, default, or enforcement of this Revolving
Note, and assents to any extension or postponement of the time of payment or any other indulgence.
The
Revolving Loans evidenced hereby have been made and this Revolving Note has been delivered at the Lender’s main office set forth
above. This Revolving Note shall be governed and construed in accordance with the laws of the State of Kansas, in which state it shall
be performed, and shall be binding upon the Borrower, and its legal representatives, successors, and assigns. Wherever possible, each
provision of the Loan Agreement and this Revolving Note shall be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of the Loan Agreement or this Revolving Note shall be prohibited by or be invalid under such law, such provision
shall be severable, and be ineffective to the extent of such prohibition or invalidity, without invalidating the remaining provisions
of the Loan Agreement or this Revolving Note. The term “Borrower” as used herein shall mean all parties signing this Revolving
Note, and each one of them, and all such parties, their respective successors and assigns, shall be jointly and severally obligated hereunder.
[Signature
Page Follows]
Revolving Note Kompass Kapital Funding, LLC/Digital Ally, Inc. |
IN
WITNESS WHEREOF, the Borrower has executed this Revolving Note as of the date set forth above.
|
DIGITAL
ALLY, INC., |
|
a
Nevada corporation |
|
|
|
By: |
/s/ Stanton E. Ross |
|
Name: |
Stanton E. Ross |
|
Title: |
Chief
Executive Officer |
|
|
|
DIGITAL
ALLY HEALTHCARE, INC, |
|
a
Nevada corporation |
|
|
|
By: |
/s/ Stanton E. Ross |
|
Name: |
Stanton
E. Ross |
|
Title: |
Chief
Executive Officer |
Signature page to Revolving Note Kompass Kapital Funding, LLC/Digital Ally, Inc. |
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